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Thursday, August 10, 2000



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IDFC moots privatisation of Karnataka Power Corporation

C. Shivkumar



INFRASTRUCTURE Development Finance Company (IDFC) has suggested privatisation of the State owned generating company, Karnataka Power Corporation Ltd (KPCL), as a pre-requisite for funding the 210-MW Unit VII of the Raichur Thermal Power Station (RTPS).

The IDFC Chairman, Mr. Deepak Parekh, said, " we need to see a concrete reforms package in the State before we can commit funds for projects. We have not taken any decision, but it is my personal opinion that reforms should be in place to ensure bankabil ity," he said.

But sources said that IDFC had set December, 2000, as deadline for achieving the privatisation or disinvestment of KPCL. This would mean that Government would have to reduce the equity stake to below 51 per cent before the deadline. That is, the State Go vernment would have to bring down its equity stake in KPCL to about Rs. 325 crores. Currently, it holds the entire equity of Rs. 668.98 crores.

However, such disinvestment, the sources said, would not be difficult, as KPCL was already a fully corporatised body, unlike integrated units in other States. IDFC has indicated that this was the only way that RTPS-7 could be made a bankable project. Bu t the key issue is that IDFC's mandate does not include funding public sector undertakings.

IDFC is the first financial institution insisting on privatisation as a prerequisite for project financing. Alternative credit security packages, such as Letter of credit or State Government guarantees for debt financing could be considered only after th e privatisation is completed. An alternative security structure of converting RTPS-7 into a separate special purpose vehicle with corporate guarantee support from KPCL is also possible, though this structure is not acceptable to IDFC.

KPCL needs Rs. 639.68 crore for RTPS-7, to be funded through a debt equity ratio of 80:20. The term loan requirement alone for the project is estimated to be Rs.. 232 crores. The remaining components of the debt financing include Rs. 100 crores, through bonds and debentures and Rs. 180 crores through lease financing schemes, mainly on the sale and lease back mode.

This project was expected to have gone into financial closure at the end of last month. With new conditions now being contemplated by the lenders, the closure is now expected to be delayed till the State Government is in a position to fulfill, at least p artially, some of the lenders' conditions.

But some proposals for restructuring KPCL are already before the State Government. These include splitting the company into separate hydel and thermal generating companies or converting KPCL into a single State-owned holding company with equity stakes in both these ventures separately. The State Government, however, has been vacillating over deciding on these restructuring proposals.

For lenders, the question of bankability of RTPS-7 has come up, in view of the huge outstanding from the transmission company. Such outstanding are accumulating at the rate of Rs. 50 crores each month, and the gross overdues from the Karnataka state-owne d transmission company is currently about Rs. 1,500 crores.

The deadline by IDFC leaves the State Government about four months to finalise the valuation of its stake in the project for fixing a reserve price for disinvestment. The methods of valuation have not yet been decided, though the State Government is aver se to the asset revaluation method of arriving at a disinvestment price, in view of its tariff impact.

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