The government is thinking of issuing long-term infrastructure bonds for ultra mega power projects. It has realised that commercial banks cannot extend them credit for 20 years.
And as each project requires investments of Rs 15,000 crore, take out financing is not a practical way out either. Even Life Insurance Corporation (LIC) of India may not be able to provide more than Rs 800 crore per project.
The government has identified eight projects across the country with each expected to generate 4000 MW of electricity in the 11th Plan.
State Bank of India (SBI) chairman OP Bhatt was asked to work out the modalities of financing and ensure their smooth implementation. One of Bhatt's suggestions was infrastructure bonds.
The power ministry may also set up a monitoring cell to coordinate implementation of ultra mega power projects.
The success of these projects requires simultaneous development of coal supply and its transportation, along with the transmission network for power distribution.
Considering the huge investments needed, it has also been proposed that a higher debt-equity mix of 80:20 should be accepted against the normally acceptable 70:30.
The additional debt of 10 per cent may, however, be made available as sub-debt. Higher gearing beyond 70:30 by way of sub-debt would require modifying the current transaction documents.
"In view of the long periods for which UMPPs need credit, and their asset liability balancing compulsions, commercial banks will be able to offer loans up to or beyond 15 years with interest the rate reset every three to five years.
The interest rate fluctuations due to re-set mechanism should get captured in the tariff determination process, through suitable Central Electricity Regulatory Commission indexation, as has been agreed for certain other key variables," Bhatt has stated in a letter to power secretary RV Shahi.
Experts also feel there is a need to relax exposure limits by the respective boards of lenders and the Reserve Bank of India.
There may be a need to augment rupee resources by way of external commercial borrowings. However, it was indicated that foreign currency lenders might require concessions in regard to withholding tax, compliance with international environment norms etc.
These lenders may also seek clarity on project-related aspects as payment security, pass through of escalation in interest cost due to reset, foreign exchange appreciation, increase in mining cost etc.