Highly-placed government officials said that the Gujarat government has in principle agreed to Powergen's demand for opening up an LC (letter of credit) for the Pagathuan project. Sources said this was in lieu of Powergen conceding to the state government's demand of giving it a price of Rs 33 per share for its 12 per cent equity in the project. Apparently, this was the price for which Powergen had picked up the 46 per cent equity of the Ahmedabad-based Torrent group in July last year in a deal totalling Rs 1,065 crore to increase its stake to a majority holding to 74 per cent.

As per the evaluation clause of the original shareholders' agreement, GPCL is entitled to a much lower price than the one which they are demanding. Even Siemens, which has recently sold off its 13.89 per cent equity in the project, has done so at a price of Rs 26 per share for a total price of Rs 232 crore.

It is, however, believed that Powergen has informally agreed to pay a price of Rs 33 per share to the Gujarat government which would Continued on Page 11PowerGen may face resistance in picking 12%stake in GPCL net a cool Rs 288 crore for the state government on a quid pro quo basis wherein the state government would, in turn, provide the project an LC from the Gujarat Electricity Board (GEB). In this case, all hell is likely to break lose on the state government since two other IPPs in the state, namely Essar Power in Hazira and the Gujarat Industrial Power Corporation Limited (GIPCL), have also been seeking LCs from the GEB for their projects in view of its mounting defaults which have reportedly crossed Rs 260 crore.

Sources close to the deal said that in all likelihood, the Gujarat government would issue an LC to Powergen on the grounds that this ensured ready returns for the government. ``The new GERC award has placed the GEB on a strong footing and will enable it to accede to the demands of power sellers to open LCs. But even then it will have to prioritise the LCs, in which case LCs will first be issued in case of projects which ensure returns to the government," said a senior state government official. Till the time the issue is resolved and the process of buying out the 12 per cent stake in GPCL is completed and a mutually acceptable share acquisition agreement is hammered out, Powergen will obviously not be in a position to sell off the Pagathuan project. Curiously, while several big corporates had originally displayed an initial expression of interest in the project including Reliance and Enron, only TEC and China Light and Power have finally been left in the fray. Sources said Reliance had backed out of theproject since it is more interested in greenfield projects than in acquiring existing ones.

According to indications available, China Light and Power may have a distinct advantage in acquiring the Pagathuan project of Powergen since it is a multinational player. The sources said Powergen has indicated that it would be more interested in selling off its projects in India and this part of the world to a single player, if possible. China Light and Power fits the bill since it is on an aggressive expansion spree and has already evinced interest in moving into the Bhadravati project as well following the pulling out of French power major EdF earlier this year.