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Power sector set to get boost

In what can light up a power sector reeling in the dark, the Congress led UPA Govt is planning to announce a major financial stimulus package, reports Anupama Airy.

business Updated: Feb 25, 2009 22:26 IST
Anupama Airy

In what can light up a power sector reeling in the dark, the Congress led UPA government is planning to announce a major financial stimulus package.

The package, already approved by the Planning Commission, is under the consideration of the finance ministry. It proposes to infuse an additional liquidity support to the extent of Rs 1,50,000 crore for the power sector over the next three to four years.

On the anvil are measures to allow the sector specific developmental financial institutions like Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) to raise upto $1 billion each per annum under the “automatic route” by Reserve Bank of India.

Additional measures include enhancing the present 20 per cent exposure limits of banks for a single borrower, to 25 per cent in the case of the power sector.

These measures have been listed in a note of the Planning Commission to the Ministry of Finance, a copy of which is with the Hindustan Times.

Through these measures, the government plans to infuse much-needed liquidity in the power sector which is faced with the challenge of adding 78,000 mw capacity by 2012.

Projects have been commissioned for generating 14 per cent of this target; for another 84 per cent of capacity generation, projects are under construction.

However, the current global financial turmoil has led to a severe credit squeeze, increasing the cost of funds for both the lenders and borrowers. As a result, the banks have also become risk-averse in extending finance to power projects, which are notoriously capital intensive and have long gestation periods.

The fund requirement for meeting the XI Plan capacity-addition target is

Rs 10,60,000 crore. Available sources of funds are about Rs 640,000 crore.

“The situation therefore calls for some special financial measures such as relaxing RBI guidelines for banks regarding the exposure limits,” said a senior power ministry official. “It is actually now or never. If this time around, the projects under constructions get stuck due to lack of funds, we can only keep fixing targets and forget about achieving timely results.”