PFC to pick up direct equity in power projects

In a bid to bridge the equity capital deficit in the power sector, state-run term loan provider Power Finance Corporation (PFC) will pick up equity stakes in select power projects. With cash reserves of over Rs 10,000 crore, PFC can contribute significantly to the huge market for equity financing in the sector.

The sector needs an investment of Rs 10.6 lakh crore in the 11th Five-Year Plan, and the figure could be 25-30% more for the next Plan. Most power projects have a debt-equity ratio of 7:3.

The PFC management is poised to seek the board?s approval for taking up equity financing, chairman Satnam Singh told FE.

?As a new business initiative, we are considering taking direct equity in power projects based on our evaluation. We expect to get the board?s approval by March,? Singh said.

?While conducting due diligence, we will look at the project promoters? terms for offering equity. We will specifically see how much equity they are offering and when we can exit,? he said.

?There is an estimated funding gap of 40% in the power sector. Private sector participation is likely to increase from 19% in the 11th Plan to 63% in the 12th Plan. So, in addition to debt, private projects will also require equity support in a big way,? Singh pointed out.

While multilateral agencies like World Bank, ADB and JBIC and domestic institutions like REC and SBI Caps provide long-term loans to power projects, there is a dearth of equity funds in the sector.

PFC, the nodal agency for tariff-based bidding for ultra-mega power projects, is planning to issue the request for qualification (RFQ) for three UMPPs?Akaltara in Chhattisgarh, Bedbahal in Orissa and Cheyyur Tamil Nadu? in the next four months. The public sector company hopes to complete bidding in time for award of these three UMPPs in the next financial year to developers, Singh said.

PFC provides a range of financial products and services like project term loan, lease financing, direct discounting of bills, short-term loan and consultancy services for power generation, transmission and distribution projects.