The state government has issued tax-free bonds worth Rs 1,102.87 crore (Rs 11.03 billion) to the National Thermal Power Corporation to secure the arrears of the utility major up to September 2001.

As per the notification of the state finance department, these bonds are deemed to have been issued from October 1, 2001.

The bonds carry a coupon rate of 8.5 per cent and the repayment will be made in 20 equal installments starting from September 2006 after a moratorium of period of five years.

The securitisation of NTPC's arrear dues is in accordance with the tripartite agreement the state had signed with the Centre and the RBI.

The state owned Grid Corporation of Orissa, sources said, was unable to clear the past dues of NTPC because of poor payment of power purchase bills by the distribution companies (distcos).

The Mumbai based BSES, which owns three of the four distcos in the state was unwilling to provide corporate guarantee to back up the liquidity of the bonds.

As a result the state government has now owned up the entire liability of past dues of NTPC through the issue of bonds.

The total liability on the state government, including interest is estimated at around Rs 2,007 crore (Rs 20.07 billion).

The interest payment from the date of issue of the bonds till March 31, 2003 amounting to Rs 141 crore (Rs 1.41 billion) has already become due.

Besides, another two installments of interest of Rs 46.87 crore (Rs 468.7 million) each will be due for payment on October 1, 2003 and April 1, 2004.

The state government has asked Gridco to reimburse the overdue interest by making a monthly payment of Rs 10 crore (Rs 100 million) to lessen the additional burden on the non-plan and plan expenditure. During the five years, the state government has to pay interest accrued to the bonds.

The bond will have statutory liquidity ratio) status and will be managed by the Reserve Bank of India in the same manner as market borrowing.

In case the state government fails to service debt, RBI will automatically debit the interest and principal due from the former's account.

The arrear dues on Gridco from October 2001 to September 30, 2002 is estimated at Rs 342 crore (Rs 3.42 billion) for clearance of which Gridco has decided to issue bonds with a coupon rate of 10 per cent in favour of NTPC.