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DPC Phase II: fresh rumpus over escrow account

Tamal Bandyopadhyay & S Ravindran

Lenders to the $3-billion Dabhol Power Company are leaving no stone unturned to save the 2,184-mw power project in Maharashtra.

Led by the financial institutions, they want the Maharashtra State Electricity Board to operationalise the escrow account of about Rs 5 billion for the 1,444-MW second phase of the project without any delay. The account should have been activated on April 7.

However, MSEB has declined to start the escrow account. A senior MSEB official confirmed: "We have decided not to go ahead with operationalising the escrow account and have already written to DPC stating our stand."

As a result, Canara Bank, where the account was to be activated, has sought legal opinion on the implications of MSEB's refusal.

It is also checking out whether it is obliged to hand over the money to DPC in case of any future default by MSEB, sources said.

As per the terms of the power purchase agreement, MSEB is obliged to operationalise the escrow account two months before the commercial operation date.

Normally, an escrow account is operationalised 80-90 days before the declaration of the financial closure of the project. DPC was planning to commence trial runs of Block B of Phase II from June 7.

Explaining the reason for not starting the account, the MSEB official said that DPC had invoked the political force majeure clause in the PPA last month. "This means that they are practically free of all their obligations. Under these circumstances, we are also not obliged to operationalise the escrow account."

The official also pointed out that the board would respond to the FIs' demand when the Centre writes to it. The FIs have already sought the Centre's intervention to defuse the crisis. DPC officials were unavailable for comment.

The FIs want MSEB to activate the account. "We also want the power tariff to come down to make the project support-worthy. There should be hard negotiations now as time is fast running out. The EPC contractor Bechtel may serve a termination notice if it does not get its dues in June," an institutional source said.

An escrow account is a mechanism evolved by lenders wherein an identified revenue stream of a state electricity board is parked with a bank, which the power producers can use in case of any default. The power producers have first claims on the account.

This mechanism has been primarily evolved keeping in mind the weak financial health of the state electricity boards.

DPC's phase one had no escrow facility for it was backed by state and central government guarantees. After the second phase is fully commissioned, MSEB will be required to pay a minimum bill of Rs 5 billion to DPC per month.

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