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Infrastructure financing firms in India increasing exposure to renewable energy projects

According to reports, the slowdown in the progress and development of large infrastructure projects in power, road and telecom sectors may be a huge cause of concern for large infrastructure financing firms. But small and mid-sized infrastructure financing firms are trying to be more nimble footed and are trying to grow and expand their operations in other related sectors like renewable energy or urban infrastructure.

L&T Infrastructure Finance for instance, saw the share of renewable energy projects out of the total funding, increase from around 50 per cent last year to about 75 per cent now.

“We are consciously increasing our presence in renewable energy projects in solar, wind and hydel power as fuel issues continue to persist in the thermal energy sector. The ratio of renewable and non-renewable energy projects is in the ratio of 25:75,” Suneet K Maheshwari, chief executive L&T Infrastructure Finance told Financial Chronicle.

If issues like non-availability of coal linkage and obtaining environmental clearances are reasons for infra financing firms to go slow on thermal power projects, the many controversies surrounding telecom licenses is reason enough for the companies to stay away from funding telecom firms.

Kolkata-based Srei Infrastructure Finance is focusing on urban infrastructure development sectors like waste water treatment and sanitation, while going slow on funding projects in power and telecom sectors due to the regulatory uncertainty.

The company, which gets 30-40 per cent of its total business from financing projects in roads, telecom and power sectors will see lesser business activity being undertaken in these sectors since clear policy decisions in these sectors are yet to be announced.

“There have not been any major project announcements by any company in the recent past. Whatever momentum we saw in business was due to the projects announced earlier and the backlog of the pending projects. Unless there are new policy announcements or clarifications issued, we will go slow on financing projects in certain sectors like power or telecom,” said Sunil Kanoria, vice-chairman of the company.

The disadvantage in going slow on large projects is that the business growth will also shrink to that extent. An average thermal power plant with a capacity of 500 mw would require an investment of around Rs 3,000 crore while the average size of a solar power plant is just about 5 mw and would require an investment of only Rs 60-80 crore. Most of these mid-sized infra financing firms are expected only modest growth figures this year due to their shift in focus towards smaller, less riskier projects.

“We hope that some clarity would emerge on clearances, policy issues and raw material availability by December-January. Till then disbursements in sectors like thermal power would be mostly restricted to funding that has already been committed,” Maheshwari pointed out.

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