New Delhi: State-owned Rural Electrification Corp. Ltd, or REC, one of the primary lenders for Indian power sector projects, plans to raise Rs25,000 crore in the current fiscal and disburse Rs22,000 crore.
The targeted 28% increase in disbursement over the previous fiscal year is expected to bring some relief to the fund-starved power sector.
“We plan to raise this money through a combination of infrastructure bonds, tax-saving certificates, external commercial borrowings (ECBs), financial institutions and banks,” said chairman and managing director P. Uma Shankar.
Lending more: Rural Electrification Corp. chief P. Uma Shankar says the corporation will go for a mix of resources to raise the money. Hindustan Times
REC, along with Power Finance Corp. Ltd (PFC), accounts for 60% of all the money loaned to the power sector in India.
REC’s finance director H.D. Khunteta told Reuters on 5 June that the firm has received commitments for syndicated loans of $100 million (Rs485 crore) from Bank of Tokyo-Mitsubishi UFJ and $40-50 million from Singapore’s DBS Group.
Some days later, Khunteta told Bloomberg that REC, which made its initial public offering last year, has sought government approval to raise up to Rs3,000 crore by selling 170 million shares, or about 20% of its equity, to institutional investors or by launching a follow-on public issue.
REC’s need to borrow money stems from the shortage of funds allocated for the power sector during the 11th Plan (2007-12). According to the power ministry, the government expects a Rs4.51 trillion funding shortfall in the sector.
The power sector is set to see investments of Rs10.31 trillion in 2009-10, including Rs8.13 trillion for Central and state projects alone, according to the ministry. Of the 78,577MW of capacity to be added during the 11th Plan, the private sector is expected to contribute 10,760MW, which will require an investment of about Rs43,000 crore.
REC’s Shankar said the company has already disbursed Rs3,000 crore to power projects so far this financial year. In 2008-09, REC had disbursed Rs17,158 crore.
“This amount of disbursement (Rs22,000 crore) will help in meeting the debt requirement of around 8,000MW capacity in a single year,” said the head of a New Delhi private project development firm, who did not want to be named.
While public sector utilities have the wherewithal to go ahead with their plans as they have huge cash reserves, the global financial meltdown has hurt India’s private power project development plans.
“A lot of the projects are facing problems in raising debt. If additional source of funding becomes available, it will bring some relief,” said Kuljit Singh, a partner at audit firm Ernst and Young. “A lot of the existing commercial lenders, due to their group exposure and sector exposure norms, are not able to effectively lend to the power projects.”
REC shares rose nearly 4% on Wednesday to end at Rs164.00 on the Bombay Stock Exchange.
REC is also the nodal agency for Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY), a scheme that has been faltering as reported by Mint earlier. RGGVY had a target of providing electricity to 125,000 villages and connecting 23 million below the poverty line (BPL) households across the country by 31 March.
Defending the scheme, REC’s Shankar said, “It is the most ambitious scheme taken up on this scale anywhere in the world. We will achieve the targets.”