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Sell-off proceeds to offset fiscal imbalances opposed

C. Shivkumar

BANGALORE, Aug. 13

FINANCIAL institutions led by the Infrastructure Development Finance Company (IDFC) have opposed utilisation of disinvestment proceedings for fiscal correction requirements. This is now pushed as one of the precondition for funding power projects, both i n the public and private sectors.

FI sources said that IDFC has instead conveyed that disinvestment proceedings, especially raised through hiving off generating and distribution companies should be earmarked as a debt service redemption fund. The current proposal, by the State-owned tran smission utility under its internally-generated restructuring plan, is to use some of the funds generating through divestments of distribution circles and the State-owned generating company for settling fiscal correction in the State and some of the actu arial liabilities that is expected to be incurred in the power sector unbundling.

The power sector currently accounts for about 60 per cent of the fiscal deficit. During the current financial year alone the support for the power sector is estimated in the region of Rs. 1,700-2,000 crores as against the budgeted Rs. 878 crores.

This fund is now pushed forward as an alternative to escrow cover which the Deepak Parekh committee had disapproved for Karnataka when it submitted its final recommendation early this year. IDFC officials said that proceedings from this fund could also b e utilised for meeting default escrow requirements of Independent Power Projects (IPP).

But the FIs are now pushing forward utilisation of this disinvestment proceedings as an alternative financing package in order to ensure the bankability of power projects in Karnataka including Unit 7 of the Raichur thermal station of the State-owned Kar nataka Power Corporation Ltd.

Financial closure of a series of private sector projects have been stuck in the State for want of bankable financial security package.

The Parekh committee had opposed the sectional escrow, based on the model provided by the IDBI, on the grounds that it would result in creation of encumbrances on distribution circles to be taken up for privatisation and consequently lead to undervaluati on of the assets.

Based on this sectional escrow, the committee had arrived at an escrow capacity of just 500 MW for the State, which was insufficient to support some of the large power projects of at least 2000 MW. In addition, the KPTCL has built up overdues to the KPCL to the extent of about Rs. 50 crores per month and continues to do so.

An alternative financing package that is being considered includes a centralised escrow package identical to what has been adopted by Andhra Pradesh. This is in order to qualify some of the fast-track projects, including the CLP Power Tata promoted proje ct, Mangalore Power Company for counter-guarantees, for which an escrow cover is a prerequisite. The centralised escrow is estimated to push up the supportable capacity to about 1500 MW without creating any encumbrances on the distribution circles.

But none of the FIs is prepared to fund IPPs without a bankable security package. Besides, none of them is prepared to accept the State Government guarantees, so long as they are treated as an unfunded liability in the State budget. The creation of the r edemption fund, therefore, amounts to conversion of potentially-unfunded liabilities, in the form of KPTCL's payments to IPPs, into funded liabilities.