The ministry and CEA have observed that amendment to the existing policies are necessary as the growth of credit has slowed down from 68% in 2007 to 8 34% in 2008-09. Besides, share of power sector in FDI to infrastructure sectors increased only marginally from 16% to 18% over 2006-09. On the contrary FDI to telecommunications is more than 47%.
Power ministry sources told FE bank credit to power sector is subject to sectoral and group exposure limits and banks are delaying disbursal of sanctioned loans. Term lending institutions are constrained by prudential norms, foreign direct investors are shy due to insufficient return on equity. Moreover, current RBI guidelines are restrictive for sectoral and group exposure. The state-run Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) are also constrained by prudential exposure norms for groups and companies. PFC and REC have to seek RBI approval to raise ECB. On top of it, government borrowing is crowding out private sector borrowers and duty and tax regime is not conducive to innovative infrastructure lending.
The representation by power ministry and CEA is crucial as they have projected a total investment of Rs 11,35,142 crore for 12th Plan against Rs 10,31,600 crore in 11th Plan. It also comes at a time when equity markets have witnessed surge in demand for new paper -NHPC, while Adani Power is oversubscribed.
The ministry and CEA cited that repetitive stamp duty discourages take-out financing and lenders are cautious about lending to projects coming through the MoU route. Insistence of lenders on power purchase agreements (PPAs) creates difficulties for independent power producers (IPPs) and merchant power plants (MPPs). Banks and NBFCs are comfortable only with PPAs with ultimate offtakers-not traders. Additionally, poor financial health of state sector utilities hamper investments as they are not allowed return on equity. Power project developers are unable to achieve financial closure due to physical and financial issues.
Ironically, delays in land, forest and environmental clearances have lead to cost escalation. Appropriate fiscal incentives are not available to channelise savings and long term funds available with PFs, Pension and insurance funds are not being tapped.