In a paper submitted to the ministry of power, the chamber has said that a mechanism of pre-escrow financing should be configured wherein a financial institution will finance the new generation for the commissioning period without an escrow account but will have recourse to the escrow account established immediately after generation and sale of power begins.

According to Assocham, the elements of escrow accounts that need to be streamlined are dedicated or pooled escrow stream, coverage margin, PLF requirement, identification of escrow circles, billing/collection and accounting procedures, lien of working capital bankers on the escrowed receivables and security and hypothecation agreement.

The projects may plan toenter the retail market after the construction phase, or after cash flow seasoning experience is available, said Assocham.

Assocham said that a two-tranche finance package could be worked upon, so that the financial institutions or banks finance the first tranche for two to five years, while the second tranche is available through the market. FIs or banks may insist on project completion guarantees and an underwriting commitment from another institution for subsequent tranches.

The first tranche, said Assocham, will be at a higher cost due to project completion risks while the second and subsequent tranches can be long-term bonds on recourse basis at better rates as operations would have already begun.

Full or partial guarantees on principal and interest from a triple-A rated insurer can be obtained. Even after factoring in the cost of this credit enhancement, the all-in-cost could be favourable to the issuer as compared to what he would have to pay in absence of this credit support.

Assocham said theprocesses of financial closure can be greatly expedited by selecting sources that are already active in the specific type or project and by providing the prospective financing sources with a concise project financing proposal and information package that addresses their specific requirements as well as normal structural requirements.

Project sponsors should be encouraged to provide their balance sheet support in some form of subordinated debt and quasi-equity portions of the financing plans in order to ease the overall financing costs of projects and enhance the availability of funds, said Assocham.

The key to any debt-based financing is the ability to provide adequate security through a contract or other credible evidence of future revenue streams.

The chamber said a successful offering of SBI's India Resurgent Bonds has demonstrated the availability of alternate financing and simultaneously diminished the perception of investment risk into India. Developing and nurturing the NRI investible fundsmarket on a sustained basis would provide a stable and attractive source of funding for infrastructure projects, added Assocham.