Authorise PFC to fund rural power projects: ministry

Mumbai, Jan 18 | Updated: Jan 19 2007, 05:30am hrs
State-run Power Finance Corporation (PFC), which proposes to increase its disbursement to over $6 billion annually from 2012, may be authorised to finance power projects in rural areas. At present, only Rural Electricity Corporation (REC) is authorised to finance rural electrification projects. The power ministry has urged the finance ministry that PFC bonds should also be included in the definition of long-term specified asset and notified for the purpose under section 54 EC.

Power ministry sources told FE that the ministry had emphasised the need for this relief at a time when the Centre has launched an ambitious rural electrification programme. So far, only REC was authorised to finance power projects in rural areas. However, in view of funds requirement for such projects, both PFC and REC need to be authorised to finance.

Moreover, the ministry has suggested that PFC and REC may be permitted to issue tax-free bonds to raise capital to fund decentralised distributed generation projects for supply of electricity in rural areas.

PFC chairman and managing director VK Garg said that the corporation has been pursuing a proposal to set up a venture capital fund called Indian Power Fund (IPF) to invest in power sector projects. According to him, the corporation is in the process of incorporating this fund and it will become operational in the near future. PFC has committed Rs 200 crore to this fund while Oriental Bank of Commerce has agreed to invest Rs 10 crore in the IPF.

POWERMEN DEMAND...

Include PFC bonds in the definition of long-term specified assets and notify under
section 54 EC
Permit PFC and REC to issue tax-free bonds to raise capital to fund decentralised distributed generation projects
Allow IPC an annual investment allowancethat is 20% of the contribution for five years under a new section 33C

Moreover, LIC has also expressed its interest to participate in the IPF.

Ministry sources said it had suggested the finance ministry that an investment allowance at 20% annually of the contribution for five years to IPF be allowed under a new section 33 C. IPF would help receive funds for various power projects and thereby achieve the Centre's target of power for all by 2012, the ministry sources noted.