According to sources, the decision, which is yet to be approved by the IRFC board, has been taken at the behest of railway ministry.
This will be the second project to be financed by IRFC, which was formed by the Railways to raise money from the market to fund its requirement for locomotives, coaches and wagons. In the first instance too, IRFC was made to pick equity in RailTel Corporation through a presidential directive.
Sources said though this time around investment would be in the form of debt for the project and, therefore, is more secure, in RailTel it is in the form of equity which is very risky. “Besides, the port project is a viable project while business for RailTel is yet to take off,” added the source.
IRFC entry into project financing has become an issue of debate. Mr AB Poulose, former financial commissioner of the Railways, says IRFC providing loan for special purpose companies “goes against the very concept of creating additional resources”. It is the paucity of funds that has made the Railways opt for the SPV route to fund projects which are viable. Besides, IRFC borrows from the market for a particular purpose and, therefore, it should be used only for it, he added.
Former member traffic of Railway Board Shanti Narain differs. According to him, IRFC’s aims and objectives as laid down in its charter do not prevent the corporation from financing projects. “Earlier, the Railways followed a closed approach as far as project financing is concerned but if a project is viable there should not be any reluctance in foraying into project financing,” he said.
The Railways had floated a special purpose company called Pipavav Rail Corporation along with Gujarat Pipavav Port Ltd (GPPL) last year. GPPL is a joint venture of Seaking Infrastructure, Maersk and Port of Singapore Authority.
The port rail project comprises gauge conversion of 250-km long section from Surendranagar to Rajula city and 14-km long new line from Rajula to the port.
The SPV has a total equity of Rs 196 crore out of which the Railways have so far put in Rs 80 crore with GPPL putting in another Rs 80 crore.
Sources said that the project cost, which was earlier estimated to be Rs 294 crore, has gone up to over Rs 300 crore. Though initially the Railways had announced that the debt equity ratio would be 1:2 and, therefore, it would require a debt of Rs 98 crore, the SPV is looking at Rs 165-crore loan from IRFC which would increase the debt component.