Power Finance Corporation (PFC), a Navratna public sector company, has been facilitating the development of the Indian power sector by providing cheaper funding for power projects. PFC is now widening its range of services as part of the new business strategy. It has already started offering services like lease financing, buyers? line of credit, debt refinancing, loan to power equipment manufacturers, financial assistance for purchase of power through Power Exchange India Ltd and loans towards promoters? equity. The company is able to maintain its growth targets despite the global financial crisis. PFC chairman Satnam Singh spoke to Noor Mohammad about the company?s new business development initiatives. Excerpts from the interview:

PFC has been able to make decent profits despite the global economic downturn. What is the secret of your success?

We are the largest lender to the domestic power sector. The profits of a long-term lender like PFC depend on its outstanding loan book that has been growing steadily. Our loan assets stood at Rs 72,441 crore at the end of the third quarter of the current financial year. Our high capital adequacy ratio allows us the flexibility to increase lending. Besides, we have also been trying to bring down our borrowing costs and have achieved success.

Are you going to meet the targets set in the memorandum of understanding (MoU) for the current financial year?

Yes, we will be able to meet the performance targets set under the MoU signed with the power ministry. We have displayed excellent performance so far in the current financial year and this trend would continue in the fourth quarter as well.

What new business initiatives has the company taken as part of its future growth strategy?

We have been providing financial assistance to state power and municipal utilities, besides playing a catalytic role in bringing about overall improvement in the power sector performance. In line with the government of India?s policy initiatives, PFC has expanded its lending portfolio to cover the joint, central and private sector. The company has widened its range of services and facilities by introducing lease financing, buyers? line of credit, debt refinancing, loan to equipment manufacturers, financial assistance for the purchase of power through Power Exchange India Ltd (PXI), financial support for the development of projects, loans towards promoter equity, deferred payment guarantee, consultancy & advisory service, bill discounting & rediscounting, and term and short-term loans.

PFC has acquired equity in PXI, which is a company promoted by NSE and NCDEX. The share of PFC in equity of PXI will be up to 7% of the share capital of PXI. PFC has also become professional clearing member of the power exchange to support the activities of trading members.

PFC has also been helping states implement power sector reforms. What is the nature of the company?s involvement?

We have been providing grant and interest-free, or soft, loans to state governments, state power utilities and state electricity regulatory commissions to conduct reform-related studies. Technical assistance from multilateral agencies is also channelised as grant to support further studies. PFC has been conducting workshops and seminars for the dissemination of vital information concerning improvement in the power sector and its emerging requirements. It is also conducting training for the power sector personnel.

Who are PFC?s main customers?

PFC?s clients include state electricity boards and agencies like irrigation departments engaged in the development of power projects, state power utilities, central power utilities, state power departments, private power sector utilities including independent power producers, joint sector power utilities, power equipment manufacturers and power utilities run by local municipalities. These clients are involved in various aspects of the generation, transmission & distribution, and related activities in the power sector.

PFC provides product financing and fee-based services to power sector projects. It normally disburses funds either directly to a supplier or contractor of a project or by way of reimbursement to borrowers against satisfactory proof of eligible expenditure on the project. In case of independent power projects, the company disburses funds through a trust and retention account. PFC provides its clients key services like rupee term loans, foreign currency loans, bridge loans, short-term loans and reform-linked transitional loans.

What are the highlights of PFC?s financial performance?

PFC has been a profit-making enterprise right from its inception and has registered impressive growth in its net profit every year. It posted a net profit of Rs 1,970 crore during the financial year 2008-09. PFC had sanctioned loans of the order of Rs 38,976 crore in the current financial year until December. The company had disbursed funds to the tune of Rs 15,355 crore.

PFC has consistently maintained a high rate of recovery of more than 95%. In the past fiscal, the recovery rate of the principal amount works out to be 99.92%, and the overall recovery rate was 99.73%. In the current financial year, recovery rate of the principal amount is 95.41%, and the overall recovery rate is 95.64% by the end of the November.

In the previous fiscal, PFC had paid a dividend of Rs 459.11 crore to the central government, constituting 40% of the paid-up capital of the company and 23.31% of the profit after tax.

How much money has PFC raised through external commercial borrowings (ECB) in recent years?

The company did not raise any amount through ECB during the financial year 2008-09. However, $1.22 million was drawn by the company from the Asian Development Bank (ADB) by way of sanctioned line of credit. In the current fiscal, PFC has not mobilised any funds through ECB.

PFC was instrumental in setting up Power Lender?s Club (PLC). What goal is PLC envisaged to achieve?

PLC was set up by PFC along with Life Insurance Corporation and ten banks in August 2005 for financing power projects under a consortium arrangement and single-window scheme. The goal is to have a focused thrust of the financial sector towards the growth and development of the power sector so as to achieve the government mission of ?Power for all by 2012?. The strength of PLC has increased to 21 members (including PFC) when some more banks signed an MoU in February 2008.

PLC has been regularly holding meetings of its members for syndication for the projects where PFC is the lead manager. In meetings, borrowers make presentations to PLC members on their projects, IMs are circulated and interested members volunteer to syndicate. The consortium lending group (CLG) is at the moment working on projects where financial closure is to be attained.

Out of these, projects of East Coast Energy Ltd and KSK Mahanadi Power Ltd. have been taken up in PLC meets for syndication. CLG has successfully tied up Rs 350 crore through PLC for East Coast Energy Ltd?s 1,320-mw thermal power project. Syndication for another Rs 700 crore loan from five other PLC members is expected shortly. REC (Rural Electrification Corporation Limited) and ICICI have also shown interest in joining PLC and the MoU with them is in progress.

PFC has started a consortium lending group as a new business initiative. What is it all about?

CLG is primarily responsible for the operationalisation of loans for projects where PFC is the lead financial institution. The unit is also coordinating with developers of IPPs, corporate bodies and prospective lenders for identifying loan syndication proposals and coordinate with members of PLC for providing single-window facilities to power project developers. CLG also convenes lenders? meets at regular intervals to discuss the various terms & conditions stipulated and resolve various issues related to drafting of loan documents and to review physical and financial progress.