Though the Centre hopes to increase infrastructure spending to help the country tide over the slowing world economy, the global liquidity crunch is forcing companies implementing major projects to significantly rework their plans to achieve financial closure on time. Reliance Power Ltd?s ultra-mega power project (UMPP) in Sasan may be the first case in point. Though it has permission to raise $2 billion via external commercial borrowings (ECBs), it is opting for a rupee loan of Rs 10,000 crore from domestic lenders instead.
With Prime Minister Manmohan Singh expressing concern about global funding sources drying up?be it ECBs or suppliers? credit?the government is working to ensure that projects, either underway or yet to achieve financial closure, are not impacted. The bidding process for the fourth UMPP to come up at Tilaiya in Jharkhand has already been deferred from November to December, as players were uncertain about making financial bids at this time.
Reliance Power has struck an agreement with domestic institutions to repay without penalty the rupee loans when it is able to raise cheaper overseas borrowings. A $600-million loan from IFCL (UK) will help complete the Rs 14,550-crore debt financing. While the project will now achieve financial closure in December instead of October as originally scheduled, completion of the first unit of 660 mw (December 2011) and second unit (March 2012) is still on track.
To ensure that other projects don?t face problems, Union power secretary Anil Razdan is holding a meeting early next week with power project developers, financial institutions and suppliers. The financial status of the sector and the need for government support tops the agenda, and would include pricing issues plaguing the industry such as subsidies on power tariffs.
?We will ensure that land, water, environment and other statutory requirements are cleared. We will give them the necessary support. They will have solid support from the government,? Razdan said, though he refused to elaborate on the nature of this support.
Long-gestation power projects particularly face problems, as no bank wants to give out loans for tenures of more than ten years. Moreover, the ratings of the UMPPs are under review, so special purpose vehicles floated by power companies for such projects are unable to obtain credit at the benchmark prime lending rate.
The government recently hiked the ECB limits for infrastructure companies under the automatic route to $500 million from $20 million. It also raised the overall cap for borrowings from $22 billion to $35 billion. But clearly, these measures aren?t helping at a time when overseas lenders are under liquidity pressure.
?We must ensure that financing of these projects is not a problem…we are looking at what is possible. We may again discuss with the finance ministry how best we can expedite their financial closure,? Planning Commission deputy chairman Montek Singh Ahluwalia had said last week.