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Tamal Bandyopadhyay
Mumbai, Jan 22: The financial institutions have decided to go on the offensive and conduct on-site supervision for every project to block promoters' attempts to siphon off funds as well as oversee timely implementation. The institutions are appointing "lenders' engineer" at every new project for which they are sanctioning loans.
The Industrial Development Bank of India (IDBI) has taken the lead in this regard. The term-lending institution will appoint "lenders' engineer" for the Essar Oil project for which it has recently sanctioned a fresh loan of Rs 221 crore to fund the cost overrun.
"From now on, the institutions will appoint "lenders' engineer" at each and every big project. This will also be one of the preconditions for infusion of fresh loans in the five last-mile steel projects. This is a global practice," said in institutional source.
In India for the first time, a "lenders' engineer" was appointed at the Dabhol power project. "In case of Dabhol, it was an experiment. From now on, institutionswill appoint `lenders' engineer' at every big project. This will be a regular practice to avoid cost and time overrun. We also should not allow any promoter to siphon off funds," sources said.
Appointment of "lenders' engineer" is one of the many conditions which the institutions are imposing on corporates for all fresh exposures. The move has been triggered off by the state of affairs in the steel industry. However, institutions have decided to take a "tough stand" for all new projects or those existing projects for which promoters are seeking concessions for fresh funds on account of cost or time overrun.
Institutions have made the pledge of promoters' shares mandatory for any new exposure to the existing projects in all sectors. They are also insisting on a tougher debt: equity ratio (1:1) across all industries with prospective effect.
Institutions have also made it clear that promoters will not be allowed to set up new projects unless the existing ones are completed. There are also insisting onfresh promoters' contribution as a precondition to fresh funds infusion.
"It is not only in steel projects alone that we are demanding pledging of shares with voting rights as a necessary precondition for fresh infusion of funds. Wherever there is a cost or time overrun and the promoters are asking for concessions in terms of fresh funds infusion or moratorium on repayments, we are asking for pledging of shares," sources said.
A step in the right direction
The concept of a lenders' engineer is akin to that of a concurrent auditor who will continuously keep a watch over the progress of the borrower's project. It is well known that many promoters consider projects as avenues for siphoning off large sums of money, and the presence of the FIs' representative should help reduce the outflow. While there will always be avenues for diversion of funds, the engineer can at least monitor the progress of the project and ensure that funds are released at appropriate stages.
Copyright © 1999 IndianExpress Newspapers (Bombay) Ltd.
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