The Hindu Business Line : Bellary thermal plant lenders a worried lot

PROJECT lenders for the 500-MW Bellary Thermal Power Station (BTPS) promoted by the State Government-owned Karnataka Power Corporation (KPCL) are on tenterhooks.

KPCL has so far failed to fulfil one of the major conditions precedent in the lenders' covenants. The State Electricity Regulatory Commission has so far not cleared the power purchase agreement (PPA) for BTPS, though the project has already gone into financial closure.

The project went into financial closure on May 6. The project debt amounting to Rs 1,680 crore was lead arranged by SBI Caps Ltd and Punjab National Bank. The total project cost was Rs 2,100 crore.

KPCL officials when contacted confirmed that the PPA for BTPS was returned by the regulator. They said that this was because the PPA did not comply with the guidelines prescribed by the Central Electricity Regulatory Commission.

These guidelines have been adopted by a majority of the State electricity commissions. Construction for the project was already under way, despite the non-clearance of the PPA.

The KPCL officials said the alterations sought by the regulator included changes in the financial and operational parameters in line with the CERC guidelines. Besides, the return of the PPA was also triggered for want of additional clearances from the bulk buyer, Karnataka Power Transmission Corporation Ltd.

But the uncertainty has triggered alarm bells among the 22 project lenders. Some of the lenders were now beginning to look for exit routes. Bankers said that some draw down of the funds had already started for the project especially to meet the construction costs.

The bankers said that they would prefer to exit from the project in view of the enhanced lending risks. This was especially since the project funding was done on a limited recourse basis, on the strength of the PPA.

The bankers said that the lending covenants were also clear that the funds debt was project specific. Accordingly, the lender reserved the rights to recall the loan in the event of the project not meeting any of the conditions in the lenders covenant, they added.

But other lenders said that the current terms and prices for BTPS were not sustainable. Bankers now want the lending terms to be altered. Top bankers in the loan syndication team when contacted said that they would favour a change in the lending covenants, including the interest rates.

At the time of financial closure, interest rates fixed for project for the 14-year repayment period was 7.5 per cent. These rates were fixed, at a spread of 200 basis points over sovereign

yields, bankers said. Even assuming the spreads remain constant, the rates would need a revision to at least 9 per cent plus, they added.

The revision would imply that the project tariffs would also undergo a substantial change. The levellised tariff estimated at the time of financial closure in May was Rs 2 a unit. If bankers push for higher interest, the first year tariffs alone were expected to move up to Rs 2.30 a unit.

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