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Mangalore power project hits another hurdle -- EPC contractors seek security package

C. Shivkumar

BANGALORE, May 28

IMPLEMENTATION of the fast track 1000 MW in Mangalore, has hit yet another speed-breaker with the engineering, procurement and construction (EPC) contractors now insisting on a new security package.

Sources said that the Mangalore Power Company (MPC) had sought that security package in view of the resistance from the Karnataka Power Transmission Corporation's resistance to provide any escrow cover to the project. MPC is currently being promoted join tly by CLP International and Tata Electric Companies with equity stakes in the ratio of 70:30 after the pullout of Cogentrix early this year.

The sources said that MPC had shortlisted EPC contractors from Western Europe, though it had refused to name them. ``A number of suitably qualified firms have expressed reservations about bidding for any power plant projects in India until an alternative security structure, acceptable to their respective export credit agencies, international lenders and the Indian financial institutions, can be put in place if an escrow arrangement is no longer to be made available,'' the sources said.

The $ 1.3-billion power project is expected to have a foreign currency denominated debt component of 67 per cent. This includes vendor and export credit guarantees.

The original EPC contractor was TBV Power Ltd of the UK, a joint venture company owned by Tarmac Plc of the UK and Black & Veatch and D B Riley of the US. This consortium was referred to as the Mangalore Consortium.

The Mangalore Consortium, the sources said, had sought price increases for the equipment supply, and discussions were terminated last year by the three members. The consortium also was formally dissolved. It was in this circumstance that MPC decided to i nvite fresh EPC bids for the project.

However, the sources added, since the project was then to be funded entirely on a project recourse or on a limited recourse basis, ``it is essential that MPC receive a certain level of support from export credit agencies in respect of those goods and ser vices to be imported into India plus some limited support in relation to local goods and services sourced from within India.''

Currently, neither the North American nor the East Asian, in particular, (Korea and Japan) Export Credit Agencies have the capacity to support Mangalore power project for making it economically viable. The sources said that MPC had already communicated t his to the State Government.

Accordingly, the only alternative therefore was to source EPC contractors from Western Europe, the MPC communication had conveyed. The sources said only a limited number of firms within Western Europe had the capability to undertake successfully the Man galore power project based upon the selection criteria set down. The selection criteria include an extensive reference list of both manufacturing and constructing coal-fired power generating facilities of a size of at least 1000 MW (4x250), a proven trac k record of being able to complete power projects both on time and within budget, and experience of undertaking major infrastructure projects (which utilise turbine generators and/or boilers) in India which are contracted through an EPC arrangements.