The Hindu Business Line : Karnataka Govt caps guarantee liabilities for Nagarjuna Power project

Sources said here that this limit would be available only for five years after the project begins generating electricity. The capping implied that in the event of the guarantees being invoked for recovery of dues from the five electricity supply companies, the liability would be restricted to a ceiling of Rs 400 crore.

NPCL is setting up a 1,015 MW power project and is awaiting full financial closure after having completed all the technical and statutory clearances. The company has already placed a Letter of Intent with the project EPC (Engineering Procurement and Construction) contractor for supply of equipment - boilers and turbines.

In addition, some civil works for the project has already begun, the sources said. This was because the project was expected to begin generation from the first phase at least by 2008, the sources said.

The company has also tied up its fuel supply agreement with three Australian companies for supply of 3 million tonnes of coal on a fixed price basis for five years at around $50 per tonne.

NPCL's revised power purchase agreements are with the Bangalore Electricity Supply Company Ltd, Mangalore Electricity Supply Company Ltd, Chamundeshwari Electricity Supply Company Ltd, Hubli Electricity Supply Company Ltd and the Gulbarga Electricity Supply Company Ltd.

Under the revised PPA terms, the rate of return has been fixed at 14 per cent on the basis of 80 per cent plant load factor. The capital cost has been frozen at Rs 4,299.12 crore

The State Government's stance comes after it had indicated earlier this month that its guarantee would not be available in the event of divestment of its majority stake in the five distribution companies. NPCL had indicated that this would not impact it in any way since it would still have a charge on the revenues of the discoms through an escrow account and letter of credit.

State Government sources said that the communication to the company conveyed that the dilution in equity stake in the five companies was likely to be completed over the next five years. Currently all the discoms are fully-owned Government utilities.

Under current definition these entities would cease to be government companies only if the State reduces its equity holding to less than 50 per cent. Consequently indications are that this target was likely to be achieved over the next five years.

Some milestones in this direction have already been achieved by the State. This includes bringing down the distribution losses in two of the discoms - BeSCom and MeSCom to 9.5 per cent and 12 per cent respectively.

In fact both these discoms are expected to generate profits this fiscal year.