In a communication dated November 5, the IDBI has informed the company - Hinduja National Power Company - that it has `in principle' agreed to finance the project and they can go ahead to take the permission from the Central Electricity Authority (CEA). With the CEA's clearance, the company will be able to financially close the project by February next year. The project has received the State government and Union government's counter guarantees in 1998 but the progress of the project is extremely slow due to procedural delays.

According to top IDBI officials, the 1040 mw `fast track' project is already delayed by more than four years and is facing cost overruns mainly due to exchange rate fluctuations, interest costs and changed customsduty on imports.

Of the total project cost of $ 1.4 billion, debt of $ 300 million as overseas credit and $ 750 million from domestic FIs has been envisaged. While ICICI is arranging for $ 300 million as foreign currency loan, the IDBI is providing $ 450 million as rupee term loan. When contacted, a Hinduja spokesperson confirmed that the IDBI has issued a letter to the company but did not reveal its contents.

The project was originally conceived by the erstwhile AP State Electricity Board (APSEB) as a state project way back in 1988 and it submitted an estimated cost of Rs 1,560 crore to the CEA. After the Narasimha Rao government in 1990 invited private participation in the project, Hinduja group company won the project amidst stiff competition.

The power purchase agreement was signed by HNPCL with the APSEB in 1994. While no capital cost was fixed in PPA, it was stipulated that the revised cost will be approved by the CEA. The company submitted a project report with Rs 4,315 crore as the cost ofproject at an exchange rate of Rs 31.50 for each dollar. Since then, the rupee has depreciated to 43.50 against the dollar, increasing the project cost manifold. Though the civil works at the 4,000-acre site has commenced, it will take two more years from financial closure to start the commercial production by the power station.