Chennai Water Desalination Ltd, which produces water through a desalination plant, is in a spot of trouble with the Chennai Metropolitan Water Supply and Sewerage Board, over what constitutes "forced shut down’'.

Chennai Water Desalination Ltd is a subsidiary of the Hyderabad-based infrastructure company IVRCL.

Last year, CWDL’s plant had to be shut down for a month due to a four-fold increase in the total suspended solids concentration — harmful to drinking water. This increase was caused by a breakwater construction in an adjoining greenfield port.

Payment of fixed charges

The company contends this as "forced shut down'’ and expects to be paid the "fixed charges'’ fully. But the Chennai Metropolitan Water Supply and Sewerage Board disagrees.

While the company continues to recognise revenue, the corresponding payments have been withheld by the board. According to sources, negotiations are going on between the company and the board as to what constitutes the "forced shutdown'’.

As per the agreement, Chennai Water Desalination Ltd will have to supply 95 million litres of water each day. Under the ‘take or pay’ clause, the board will have to pay whether or not it buys the water.

Fitch rating

Fitch, which has termed the company’s outlook ‘negative’, has commented that the desalination plant’s performance “continues to be affected by periodic poor sea water intake quality and erratic electricity supply”.

This, Fitch says, has led to lesser-than-expected revenues.

Financial support from sponsors

“This means that CWDL remains reliant on financial support from its sponsors (promoters) to meet the debt service payments,” it says.

Between April 2011 and June 2012, the ‘sponsors’ infused Rs 36 crore, enabling CWDL to meet the debt service obligations.

Chennai Water Desalination Ltd is 85 per cent owned by IVRCL Assets and Holdings Ltd, a subsidiary of IVRCL Infrastructure & Projects Ltd. The other 15 per cent is held by a subsidiary of Befesa Medio Ambiente S.A, of Spain.

Fitch notes that the weak financial position of the board has “so far not contributed to any pressure points in the project receiving payments’’.

However, it underscores the role of the Indian sponsor in continuing to extend financial support in preserving the credit profile of CWDL “since cash flow available for debt service is less than the principal and interest commitments’’.

>mramesh@thehindu.co.in