Eventful year for power sector

However the Cogentrix issue8217; bagged the limelight as early this month the 1,000 mw Mangalore power project, promoted by the US company Cogentrix and China Light and Power Company of Hong Kong announced its withdrawal from its 1.3 billion dollar project. The reasons were allegations of bribery and corruption against the promoters. The promoters said efforts to construct the project have been thwarted by delays in obtaining required government approvals and resolving public litigations.

However, there are fresh efforts from the government which recently approved in-principle, grant of aCentral counter-guarantee for the project. The cabinet also cleared a similar counter-guarantee for the 500 mw IB Valley Power Project in Orissa. With this the Centre has now provided all the promised counter-guarantees to the eight initial private sector power projects which had been identified as fast-track projects. Six of these projects had received counter-guarantees.

The counter-guarantee is a facility to provide greater comfort to foreign lenders which have been chary of financing private projects entering into power purchase agreements with state electricity boards SEBs which are in bad financial shape.

Even if the project is revived, potential investors would still be scared of adding India-specific delays to the gestation periods of their ventures. Without power India can miss the tidal wave that will take it into the future. If the seven-year-long experience of Cogentrix is any indication, that future is nowhere near. Cogentrix is a cogent reminder that a small short-circuit today couldcreate a blackout tomorrow.

Dabhol phase 11 of Enron became not only the biggest independent power project IPP financing in the world, it is also the largest non-recourse financing in India. It was done in record time, without a counter-guarantee and despite economic sanctions. The 1.87 billion financing was done without a Central Government guarantee. Moreover, it was the first power project to close on the basis of a SEB escrow, backed by a state government guarantee.

What is also remarkable about this financing is the short time taken to close. The whole process lasted about a year. Enron was able to respond to the sanctions by quickly moving a portion of equipment and services it had planned to source from US to Japan and Europe. Power Finance Corporation PFC also contributed 100 million as external commercial borrowing ECB despite the timing in the midst of economic sanctions following the nuclear tests.