Cost of foreign currency loans to hit Ramagundam financial closure

Suresh Nair

Mumbai, Aug 26: THE financial closure for the 520-MW Ramagundam power project, promoted by BPL Power Projects, may be delayed on account of the cost of its foreign currency loans.

According to financial institutions (FIs), the Andhra Pradersh Electricity Regulatory Authority (APERA) has asked promoters to bring down the cost of its foreign currency loans.

The PPA (power purchase agreement) for this project has till date not been approved by APERC for the same reason. Company officials are, however, very optimistic about receiving approval of the PPA and its signing with Aptransco, the transmission utility for Andhra Pradesh.

According to company officials, foreign currency loans have been syndicated at a rate of Libor plus quarter per cent which totals around 3.85 per cent. They said that it is difficult to bring down the cost of the loan any further. The Japanese Exim bank has provided for a major portion of the foreign currency loan. Japanese Exim bank will loan funds of almost Rs 1,166 crore in rupee terms, which is 42 per cent of the project cost and 70 per cent of the debt component.

The debt component of the project is around Rs 1,666 crore, which gives the project a debt equity ratio of 2:3. The Housing and Urban Development Corporation (Hudco) has also lent Rs 100 crore for the project, while the remaining has been funded by other FIs.

A company official, however, said that the project will shortly achieve financial closure — maybe in a month. One of the major reasons for the financial closure hanging fire is the guaranteed payment security mechanism.

This has been settled with the signing of the Memorandum of Agreement (MoA) by the three parties, viz, the lenders, Aptransco and the state government. However, sources say that the MoA has only been initialled and has to for final approval and signing by the three parties.

The agreement is part of a new reform-based approach to power project financing, wherein projects will be financed on the basis of reform milestones achieved by the state electricity board (SEB). The agreement will also involve a provision, wherein the lender enjoys a concurrent charge over the revenue of Aptransco, along with the working capital bank.

As per this new approach, the state government, the SEB and the lenders to the power project in the state will enter into an MoA. The state government and the SEB will undertake an obligation to achieve reform milestones in a time-bound manner.