The Hindu Business Line : To expedite financial closure — Power project developers go for early CERC ratification

POWER project developers have worked out a new model to expedite financial closure by getting costing estimates ratified by Regulatory Commissions several years ahead of commissioning of the plant.

The move comes in the wake of several new power projects being left high and dry with lenders failing to commit funds in light of uncertainty regarding costing details.

In a departure from the present norm of submitting project costs before the regulators just a few months prior to commissioning, the Nagarjuna Group has sought the Central Electricity Regulatory Commission's (CERC) "in principle" approval for the cost of its upcoming mega power project, scheduled to come up only in the year 2009.

So far, promoters of power projects have only been submitting their cost estimates to the regulator at the time of determination of the generation tariffs, which was generally around six months prior to commissioning.

"For this proposal, which is a first of its kind, we will be determining whether the approved cost would be treated as the ceiling. The Commission has asked for certain clarifications from the promoters, following which we would be taking up the case," the CERC Chairman, Mr A.K. Basu, said.

The move is aimed at providing a certain degree of comfort to the financial institutions and banks, who would get a firm idea on the stated project cost and hence tariff can be extrapolated to ascertain whether the project would be viable or not at the time of commissioning. The Nagarjuna Power Corporation Ltd is setting up its 1014-MW project at Mangalore.

According to the petition filed by the promoters with the CERC, an "in principle" approval has been sought for a cost of Rs 4,299 crore for the project, which would be commissioned in 2009. The promoters have stated that the project has bagged all the statutory approvals and has tied up the EPC contractor and that the said cost is almost a "firm estimate", with the only variable components being the interest rate changed by the lenders and local taxes to be paid in Karnataka.

The project would be selling power to Karnataka and Kerala, even though the power purchase agreement has not been signed as yet.

Power Finance Corporation (PFC) is the lead financer in the project and it would be lending at around 7.25 per cent, sources said.

The demand for similar "in principle" clearances could come in from more such projects, as a means of pushing forward the financial closure. "Earlier the institutions took comfort in the Central Electricity Authority's (CEA) techno-economic clearance extended to projects. Since the CEA's clearance has been done away with by the Electricity Act 2003, getting the project costing ratified by the regulator is an alternative to provide comfort for all stakeholders, and most essentially the banks and institutions lending to the project," an private project developer said.

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