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India debates creation of power sector fund to bail out projects

According to reports, India’s top bankers and financial institutions have discussed creation of a power sector fund to bailout stressed projects that have been left in the lurch for various reasons. The view was discussed in a meeting of heads of financial institutions and banks to discuss issues pertaining to power sector called by energy minister Piyush Goyal on Monday.

“The idea is to set up a development fund to bail out projects. It needs to have a risk-mitigation template and the funding to address the concerns. The issues was discussed in detail,” said a top government official who attended the meeting in New Delhi. He requested anonymity. Around 28,000 megawatts (MW) of thermal capacity in the country is stranded due to reasons such as the inability of the state electricity boards to purchase power. “There is a substantive view that a fund be created for helping out the stressed assets.

There has been some traction on the same,” said a head of a financial institution who attended the meeting and didn’t want to be identified. “However, these are early discussions.” The 24 banks and financial institutions that attended the meeting included top bankers, including ICICI Bank Ltd’s managing director and chief executive officer Chanda Kochhar and State Bank of India chairperson Arundhati Bhattacharya. The meeting was also attended by the representatives of the Reserve Bank of India, Canara Bank Ltd, Yes Bank Ltd and Punjab National Bank. “The fund is being talked about,” said Rajiv Lall, executive chairman, Infrastructure Development Finance Co., who attended the meeting.

The new government is trying to bring investors back to the power sector. A slowing economy, costly loans, delayed land acquisition and environmental clearances and fuel shortages have plagued the sector. The slowing power sector has dragged down the capital goods sector with it as orders for power equipment dry up. “Investments to the tune of Rs.5.7 lakh crore are required in the sector by FY2018, translating into a debt requirement of Rs.4 lakh crore and equity requirement of Rs.1.7 lakh crore.

In view of this, I recommend that the government considers a dedicated power sector equity fund POWER-ing India Fund (PIF) to bridge the equity gap,” Rana Kapoor, managing director and chief executive officer, Yes Bank, said in an emailed statement. The power sector is critical to Asia’s third largest economy, where the investment cycle is linked to the power cycle.

About 30% of the country’s capital expenditure is determined by the electricity sector. In the year ended March, the Indian economy is estimated to have grown a mere 4.7%. A corpus of Rs.50,000 crore should be targeted for the fund, with an investment horizon of minimum 10 years and up to 20 years, Kapoor said.

He said domestic investors such as ministries of power, coal and renewable energy; financing organizations such as India Infrastructure Finance Co. Ltd (IIFCL), Power Finance Corp. Ltd (PFC), Indian Renewable Energy Development Agency (Ireda), Rural Electrification Corp. Ltd (REC) and Life Insurance Corp. of India (LIC) contributing Rs.20,000 crore for the fund, with the balance to be contributed by international funding organizations.

“The bankers’ concerns were fuel issues, power purchase and we also discussed the long-term road map for this sector which is viable and profitable,” Goyal told reporters after meeting. There are several problems including those where the promoters are at fault for having taking the government for granted, the minister said. The government is looking at issues such as last-mile funding to help the sector, he said.

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