MUMBAI, May 13: The uncertainty over the Maharashtra State Electricity Board's 30 per cent equity stake in the Dabhol Power Company as per the renegotiated Power Purchase Agreement (PPA) has been removed by State Chief Minister Manohar Joshi.

He announced today his government's decision to raise Rs 600 crore through a bond issue to partly finance the power project.

Due to the high rate of return on investment promised in the PPA, the State Government will partially benefit from the decision to take equity stake.

The Shiv Sena-Bharatiya Janata Party Government today approved the proposal for taking 30 per cent equity subscription. Briefing media persons after the weekly cabinet meeting, Chief Minister said ``the 30 per cent equity subscription will be between Rs 470 and 700 crore depending upon the value of the share,'' and the government would raise the remaining funds through loans from other government and corporate bodies.

It may be recalled that the Enron Development Corporation, the main foreign promoter of the 2,184 MW power project, had extended the deadline for MSEB subscription to its share of equity by two months from April 9, 1997. Enron has been planning to sell the 30 per cent stake to a third party, if the MSEB failed to subscribe to it due to its severe financial crunch. Both MSEB and the state government were waiting for the final report from its consultant, JM Finance to take a final decision on the issue. The MSEB could not raise Rs 700 crore required for taking the stake in the Enron project as it has been passing through severe financial difficulties, especially in view of the recent World Bank decision to cancel a huge loan to it.

Joshi said besides Rs 600 crore coming from the bond issue, state-run enterprises will contribute Rs 73 crore, the government (by way of loan) Rs 50 crore and MSEB will generate Rs seven crore from its internal resources for the purpose.

``In view of the good market conditions, I think it will not be difficult for my government to raise the necessary funds before June 9, 1997 - the deadline set by the Enron Power Corporation for the purpose,'' he said, adding, in the event if the government was not in a position to organise the funds, it would not be difficult to extend the date.

The sudden fall in interest rate is one factor that might have prompted the State Government to raise money through bond issue as the future returns coming from the power project on its completion can be used to service the interest on the bonds and repay it on maturity. However, there has also been some dispute between MSEB and Enron over the rights and obligations of the equity partners in the project.

The state government has also been encouraged by the public response to the multi-crore Krishna Jalanidhi bonds floated by the State to finance the Krisna valley irrigation project.

When the Krishna bond issue was oversubscribed, the state government announced its plan to raise more money from the bond issue to finance various development projects in the pipeline.

When it was pointed out that raising such huge funds will defeat the basic purpose of seeking direct foreign investment for the power project, Joshi submitted that the decision for equity participation was taken after consulting experts in the field and also to ensure that the company should not be totally foreign dominated.

Replying to a question, Joshi said a separate company would be set up to buy the shares on behalf of the government, while the bonds will be issued by J M Finance Company.

Joshi said the recent verdict of the Supreme Court on a Special Leave Petition filed by the Centre of Indian Trade Union will have no adverse impact. ``The apex court has not taken any objection to the multicrore power project,'' he remarked.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.