Letters of credit (L/Cs) appear to have held on to their position as key components in Indian power sector financings with the announcement that they will feature in the financing of a power project near Mangalore.

The announcement follows one made earlier this year that said L/Cs would remain a feature in the new Dabhol power projects in the state of Maharashtra, despite disputes over their use in previous financings of these projects' forerunners. (DC World News, 11 January 2005).

Power financing

The latest announcement follows the clearance given by the board of the Power Finance Corporation (PFC) for the debt-financing package for the 1,015 megawatt power project near Mangalore, promoted by Nagarjuna Power Corporation Ltd (NPCL).

The project is now expected to achieve 'wet' financial closure by May this year. This type of closure means lenders would be ready to disburse the committed funds. At this juncture, NPCL would become the first privately promoted mega thermal project to reach full financial closure.

Three-tier financing

The lending consortium for the project debt includes Rural Electrification Corporation Ltd, Hudco, Life Insurance Corporation, State Bank of Mysore, State Bank of Travancore, and Canara Bank. PFC is the lead arranger.

The project financing is based on a three-tier payment security package comprising a L/C, an escrow cover for up to 1.25 times of the outstanding billing and a state government guarantee.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.