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BANGALORE, Jan. 30

POWER Finance Corporation (PFC) has offered to pick up an equity stake equivalent to Rs 1,000 crore in the State-owned Karnataka Power Corporation Ltd (KPCL).

This offer would amount to a dilution of the State Government's stake in the KPCL. The KPCL Managing Director, Mr K. Jothiramalingam, said: "We would have seek the approval of the board and the State Cabinet for the purpose.''

But KPCL would still need the resources, he added, especially if its ambitions of reaching 100,000 MW of capacity were to fructify.

The PFC offer was made at a conference in Thiruvananthapuram last week, but was initially confined to new projects.

However, KPCL's top management suggested that instead of new projects, this equity infusion could be made into the company itself.

Mr Jothiramalingam said that PFC agreed to this, though other details would now have to be worked out. These include issues relating to valuation and pricing of the stake.

Any valuation would have to be done on the basis of a replacement cost value or a net tangible asset value basis.

This is because any valuation on the basis of market value would be misleading in view of the extraordinary situation last year when KPCL had to write off Rs 344 crore of outstanding receivables from another State-owned utility. KPCL ended up posting a net loss of Rs 180 crore.

The pricing, in turn, would determine the quantum of increase in the paid-up equity and reserves.

KPCL's current paid-up equity base is Rs 663 crore and the reserves position is Rs 850 crore. The company currently has a generating capacity of 4,800 MW.

The State Government has been proposing divestment from KPCL for the last two years as part of a fiscal correction programme.

This divestment has also been recommended by financial institutions such as Infrastructure Development Finance Company, which is currently funding Unit 7 of the Raichur Thermal Power Station in its tripartite agreement.

World Bank, which is funding the State Government in a fiscal restructuring programme, has also recommended divestment from the utility.

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