The Hindu Business Line : Newer avenues for financing infrastructure

Business Daily from THE HINDU group of publications Thursday, Mar 01, 2007 ePaper

News

Features

Stocks

Open-End Mutual Fund

Cross Currency

Rates

Shipping

Ports

Archives

In Depth

Group Sites

The Hindu

The Hindu ePaper

Business Line

Business Line ePaper

Sportstar

Frontline

The Hindu eBooks

The Hindu Images

Industry & Economy - Budget
Newer avenues for financing infrastructure

Electricity generation has recorded a growth rate of 7.5 per cent in April-December this year. However, as we complete the Tenth Plan, we would have added only 23,163 MW of additional capacity in the five-year period including 16,339 MW added in the three years beginning 2004-05. Hence, it is imperative that we take new initiatives.

The Ministry of Power has awarded two ultra mega power projects (UMPP) in Sasan and Mundra. Seven more UMPPs are under process and we are confident that at least two more will be awarded by July 2007.

Other initiatives taken by the Ministry of Power include facilitating setting up of merchant power plants by private developers and private participation in transmission projects.

Besides, the Accelerated Power Development and Reforms Project (APDRP) has reduced significantly Aggregate Technical and Commercial (ATC) losses in 213 towns. APDRP is being restructured to cover all district headquarters and towns with a population of more than 50,000. I propose to increase the budgetary support for APDRP from Rs 650 crore in 2006-07 to Rs 800 crore next year.

Having regard to the pace of implementation under the Rajiv Gandhi Grameen Vidyutikaran Yojana and the annual target, I propose to increase the allocation from Rs 3,000 crore in 2006-07 to Rs 3,983 crore in 2007-08.

Following the announcement last year, 26 coal blocks with reserves of 8,581 million tonnes and four lignite blocks with reserves of 755 million tonnes have been allotted, up to December 2006, to Government companies and approved end useRs The definition of specified end use will be enlarged to include underground coal gasification and coal liquefaction.

Golden quadrilateral

Work on the golden quadrilateral is nearly complete and there is considerable progress in the North-South, East-West corridor project which is expected to be completed by 2009. NHDP-III, NHDP-V and NHDP-VI are in advanced stages of planning or implementation.

So far, National Highways Authority of India (NHAI) has given Rs 2,072 crore as viability gap funding but has also received Rs 1,900 crore as negative grant. The private sector investment leveraged under NHDP is Rs 25,366 crore.

Under the programme for the North Eastern Region (SARDP-NE), 450 km have been awarded in 2006-07 and the balance will be awarded in 2007-08. I propose to increase the provision for the National Highway Development Programme (NHDP) from Rs 9,945 crore in 2006-07 to Rs 10,667 crore next year.

The road-cum-rail bridge at Munger, Bihar, over the Ganga, has been taken up as a national project. Likewise, the road-cum-rail bridge at Bogibeel, Assam, over the Brahmaputra, will be taken up as a national project.

The Public Private Partnership (PPP) model has enabled greater private sector participation in the creation and maintenance of infrastructure.

So far, under the viability gap funding scheme, 37 proposals have been received of which 21 proposals have been granted `in-principle' approval with a total project cost of Rs 9,842 crore and an estimated viability gap funding of Rs 2,521 crore.

The pace is slow, and there is a need to adopt a more aggressive approach for preparing a shelf of bankable projects that can be offered for competitive bidding.

Apart from the steps already taken for capacity building and engaging consultants, I intend to set up a revolving fund with a corpus of Rs 100 crore to quicken project preparation. The fund will contribute up to 75 per cent of the preparatory expenditure in the form of interest free loan that will be eventually recovered from the successful bidder. Guidelines for operating the fund will be announced in due course.

Borrowings from NSSF

The minimum obligation of States to borrow from the National Small Savings Fund (NSSF) has been brought down to 80 per cent of net collections. Repayments of past NSSF loans by the Central and State Governments have also commenced from 2005-06, making available resources for long-term lending. I, therefore, propose that these funds may also be borrowed from NSSF by India Infrastructure Finance Company Ltd (IIFCL).

An initiative that has borne fruit is the launch of the $5 billion infrastructure financing initiative by Citigroup, Blackstone, IDFC and IIFCL.

A committee chaired by Mr Deepak Parekh has made a number of recommendations for financing infrastructure. One of the recommendations is to use a small part of the foreign exchange reserves without the risk of monetary expansion. The Committee has suggested the establishment of two wholly owned overseas subsidiaries of IIFCL with the following objectives:

* To borrow funds from the RBI and lend to Indian companies implementing infrastructure projects in India, or to co-finance their ECBs for such projects, solely for capital expenditure outside India; and

* To borrow funds from the RBI, invest such funds in highly rated collateral securities, and provide `credit wrap' insurance to infrastructure projects in India for raising resources in international markets.

The loans by RBI to these two subsidiary companies will be guaranteed by the Government and the RBI will be assured of a return higher than the average rate of return on its incremental investment.

The Government proposes to examine the legal and regulatory aspects of the recommendation, in consultation with the RBI, in order to find an innovative method of enhancing the financial resources for infrastructure.

Nabard sanctions

The Rural Infrastructure Development Fund (RIDF) continues to sanction and disburse funds to State Governments. In 2006-07, out of a corpus of Rs 10,000 crore, Nabard has so far issued sanctions for Rs 8,440 crore and will achieve its target. Keeping in view the growing demand for these funds, I propose to raise the corpus of RIDF-XIII in 2007-08 to Rs 12,000 crore. I would urge State Governments to use these funds primarily in the distressed districts of the State.

A separate window for rural roads under RIDF was opened with Rs 4,000 crore. Against this, projects for Rs 2,311 crore have been sanctioned in 2006-07. I propose to continue the separate window under RIDF-XIII in 2007-08 with a corpus of Rs 4,000 crore.

The total budget allocation in 2007-08 for the North Eastern Region, culled out from allocations under different ministries/ departments, has increased from Rs 12,041 crore in 2006-07 to Rs 14,365 crore in 2007-08. This includes Rs 1,380 crore provided to the Ministry of Development of North Eastern Region (DONER). The new industrial policy for NER, with suitable fiscal incentives, will be in place before March 31, 2007.

More Stories on : Budget | Power | Roadways

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page