The Hindu Business Line : Chennai desalination project suffers further delay

Chennai, June 26 Following protracted delays in the commissioning of the Rs 550-crore desalination project by Chennai Water Desalination Ltd, Fitch Ratings has placed the company’s long-term project bank loans on Rating Watch Negative (RWN).

The RWN covers the following loans: Rupee term loans aggregating Rs 300 crore rated at ‘BBB+(ind)’, foreign currency loans of €14.06 million rated ‘BBB+(ind)’ and non-fund-based exposure aggregating Rs 15.3 crore serving as performance security executed in the form of a bank guarantee rated ‘BBB+(ind)’.

Extensions

A press release from the rating agency said CWDL had been granted two extensions by the lead bank allowing for the postponement of the commencement of principal amortisation, and one extension from Chennai Metropolitan Water Supply & Sewerage Board (CMWSSB) on start of commercial operations.

CMWSSB is the public sector water utility for which CWDL, a special purpose vehicle, is setting up the 100 million litre a day desalination plant on design-build-own-operate-transfer basis.

Company officials had told Business Line earlier that the project coming up north of Chennai was slated to start in June 2008 but delay in marine works due to adverse weather conditions had resulted in the commissioning date being put off to August 2008, and then to January 2009. The delay also resulted in the project cost going up from the estimated Rs 470 crore. IVRCL brought in equity to meet the escalation in cost.

However, further delay in setting up the seawater intake facility, which should have the capacity to bring in 240 million litres of sea water a day to be processed into freshwater, has resulted in the commissioning being put off to October 2009.

Mr R. Balarami Reddy, Executive Director (Finance) of IVRCL, the Hyderabad-based infrastructure company which along with Befesa, Spain, has promoted CWDL, said the specialised equipment for the seawater intake facility has come from the Netherlands.

Request for loans rescheduling

The earlier structures had been damaged in the storm in 2008. The company was confident of starting the project in October 2009 and meeting its loan repayment requirements from December 2009 without any defaults. The delay in project commissioning has put pressure on the schedule, but the company has approached the banks for rescheduling the loans. The company has approached the banks and CMWSSB to reschedule the dates.

Of the entire project cost, the rupee loan is about Rs 300 crore from Canara Bank, United Bank of India and Indian Overseas Bank. DEG Bank of Germany has provided additional lending of €14 million last year. The balance is equity, with IVRCL holding a 75 per cent stake and Befesa, the EPC contractor, 25 per cent.

Fitch has said it will aim to resolve the RWN once CWDL receives confirmation from CMWSSB that it will be allowed until October 2 to achieve commercial operations and the bankers reschedule the loans. This could then result in a rating affirmation, but a negative outcome could trigger multiple notch rating downgrades.

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