Merchant Bankers ask Centre to go for untapped sources of funds

Sanjay Jog

Mumbai, Nov 4: Merchant bankers have called upon the Centre to explore untapped sources of funds such as power warrants, Vidyut Vikas Patrika, multi-tier escrowing and Government of India power bonds, co-bundling generation and distribution assets and introduction of amensty scheme with a possible realisation of around Rs 20,000 crore.

The suggestions were made by these merchant bankers during the recent presentation before the Union power minister Suresh Prabhu and his deputy Jayavantiben Mehta. The Centre has sought views from merchant bankers and financial institutions (FIs) in view of its decision to achieve the capacity addition of one lakh mw with an investment of a whopping Rs eight lakh crore by 2012.

The Mumbai-based merchant banker Darashaw alongwith ABB Structured Finance have appealed to the Centre to explore untapped potential and funding options.

Darashaw and ABB Structured Finance in a recent presentation to the Union minister for power Suresh Prabhu and his deputy Jayavantiben Mehta have also simultaneously emphasised the need for unbundling and privatisation of distribution, removal of cross subsidy, tariff rationalisation, mandatory metering, provision for direct sale by generating companies and transparent regulation and prompt redressal systems. They have also called for encouragement for captive power and cooperative power projects and also an increased involvement of independently functioning entities.

The power warrants could be issued by an electrical utility to power intensive industrial users around a limited geographical location. These warrants could later become a tradable instrument amongst institutions and retail investors and it would have fix price for a unit of power over the period of bond.

According to Darashaw and ABB Structured Finance, the funds primarily locked from individuals can be tapped through the Vidyut Vikas Patra and the funds mobilised can go into the proposed India Power Development Fund. In case of SLR funding, the government can set the target of mobilisation of nearly Rs 20,000 crore through this mechanism and it can specify use of this money raised. The government can issue capital index linked bonds specific for insurance and retirement sector investors.

As far as long term bonds are concerned, the Darashaw and ABB Structured Finance have said that the pension and insurance would fuel appetite for variable rate long term saving options as index linked bonds would be suitable for 20 and 30 year structure. The Central public sector undertakings can be tapped into this segment with 20 year paper.

In a related development, JM Morgan Stanley in its presentation has called for co-bundling generation and distribution assets so that higher cash flows from generation can be utilised for reinvestment in distribution. This would also improve generation efficiency and provide better operating flexibility to the operator.

It has pointed out that investment in new projects may not be easily forthcoming in present scenario in the power sector in view of need for structural reforms and long gestation periods.

According to JM Morgan Stanley, the Centre can consider the sale of existing generating assets linked to new project commitments as cash flows from existing generating assets can reduce project risks and improve cash flows for the project developers, improve generating efficiency.

Similarly, cash flows from existing projects can be securitised to raise funds for new project with reduced gestation period for investors.
The ICICI Securities has called upon the Centre to introduce amensty scheme with a possible realisation of around Rs 20,000 crore. It has also suggested that the Centre can release Hydro Vikas Patra and levy additional tax on luxury goods primarily energy inefficient articles.