• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

C. Shivkumar

Bangalore , Oct. 26

CLP Power has conveyed its intention to pull out of the fast track Mangalore Power Company (MPC) and is on the verge of serving a formal termination notice after waiting for more than three years for a bankable payment security mechanism.

State Government officials confirmed receipt of communications from CLP Power of its intention to withdraw. CLP Power is the second foreign investor to withdraw from the 1013.2-MW coal-based MPC. A copy of the communications from CLP Power conveyed to the Central Electricity Authority and the State Government, available with Business Line, said, "The project has not been able to achieve any progress due to non-availability of counter guarantee and escrow as promised. MPC is now considering to stop working on this project."

A viable payment security mechanism as demanded by the financial institutions was one of the conditions precedent for operationalising the counter guarantee. This was the only recourse project lenders had against any defaults. None of the lenders were prepared to commit funds for the project without this mechanism being put in place.

The Hong Kong-based CLP Power had entered the project after the original promoter, Cogentrix of the US, withdrew in December 1999. The holding company, CLP Power had bought out the stake of Cogentrix in Mauritius. CLP Power had also entered into an agreement with Tata Electric Company Ltd for participation in the project equity to the extent of 30 per cent. This project was mired in controversy since the memorandum of understanding was signed on July 30, 1992 with Cogentrix and the power purchase agreement was signed on November 17 1997.

CLP Power has so far invested about $28 million in the project, which is estimated to cost $1.055 billion on completion. This estimate is inclusive of the flue gas desulphurisation plant in compliance with emission guidelines provided by the Ministry of Environment.

Sources said that the withdrawal of the CLP Power was not "unexpected". CLP Power had made several futile attempts to work out alternative payment security arrangements with the State Government. That CLP Power was preparing to withdraw was evident following the company's failure to renew the techno-economic clearance and the environment clearance as mandated by the CEA and the Environment Ministry, which expired in June 2001.

However, the exit from MPC does not mean a complete pullout form the country. CLP Power is a majority stakeholder in the 655-MW gas-based Phaguthan power project in Gujarat after it bought out Powergen's equity some time back. Besides, CLP Power has already indicated its interest in investing in the distribution circles in the country, when the opportunity arises, the sources said.

Sources said that the pullout also did not indicate any loss of confidence of the power investors in Karnataka so far. This was because private developers, including the Tatas, were already operating projects. Tata Electric operates an 81.3-MW liquid fuelled project in Belgaum and the GMR group runs the barge-mounted 220-MW Tanir Bhavi Power station. Further another 1,015MW project near Mangalore, promoted by the Nagarjuna group, is on the verge of financial closure. None of these projects are backed by counter guarantees.

But the pullout puts the State Government in an extremely piquant situation. It would now be expected to pay up the National Thermal Power Corporation at least Rs 21 crore. This was because the land development for the project site, at Nandikur in Mangalore was originally done by NTPC. The State Government had assumed this liability and offered to make settlement at the time of financial closure of the MPC project with an interest of 17 per cent. The cumulative liability on the State Government now works to close to Rs 73 crore.

Article E-Mail :: Comment :: Syndication

Stories in this Section
Govt in talks with banks on pension delivery mechanism

Copyright © 2003, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line