Differences over infrastructure debt fund plan

Differences over infrastructure debt fund plan
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First Published: Fri, May 14 2010. 08 41 PM IST

Fresh attempt: HDFC chairman Deepak Parekh will head the panel, which will also have secretaries from ministries such as railways, power. Abhijit Bhatlekar/MinT
Fresh attempt: HDFC chairman Deepak Parekh will head the panel, which will also have secretaries from ministries such as railways, power. Abhijit Bhatlekar/MinT
Updated: Fri, May 14 2010. 08 41 PM IST
New Delhi: Although the Planning Commission is looking into the feasibility of a Rs50,000 crore debt fund to finance infrastructure projects, some officials are sceptical about the immediate need for such a corpus as earlier moves to finance infrastructure do not seem to have worked.
Fresh attempt: HDFC chairman Deepak Parekh will head the panel, which will also have secretaries from ministries such as railways, power. Abhijit Bhatlekar/MinT
A committee, which will look into the feasibility of a proposed India infrastructure debt fund, was constituted on Wednesday after a meeting of bureaucrats, regulators and representatives of public and private financial institutions, said two officials who attended the meeting.
A finance ministry official, who did not want to be named, said the government’s earlier attempts to finance infrastructure development through different platforms hadn’t produced satisfactory results. The problem could lie in the absence of viable projects and not necessarily shortage of funds, he said.
The government’s wholly-owned infrastructure financing arm, India Infrastructure Finance Co. Ltd (IIFCL), which enjoys a sovereign guarantee on its borrowings, is yet to meet with expectations, the official said.
A Planning Commission official, who also requested anonymity, said the need for the debt fund would be felt because IIFCL, set up in 2006 to provide long-term loans to infrastructure projects, had been unable to fulfil its mandate adequately.
The company was recently allowed to raise Rs10,000 crore through tax-free bonds to re-finance bank debt on infrastructure projects. That amount went unused for nearly a year before the government authorized IIFCL to use a part of it for regular lending.
An IIFCL official, who also did not want to be quoted, said the meeting was timely, because as more projects are awarded over the next few years, the need for financing—especially debt financing—would become acute.
“In the next plan (12th Five-year Plan, which starts in April 2012), you are spending $1 trillion (Rs45.1 trillion),” the official said, adding that it was time for the government to address issues of funding seriously.
The number of projects being awarded, particularly in sectors such as national highways, have shown an increase in recent years. The National Highways Authority of India awarded 36 projects totalling 3,166km in 2009-10, compared with 22 projects totalling 1,877km in the two previous years.
“I think the interesting question is, who will invest in it?” said Arvind Mahajan, an executive director with consulting firm KPMG Advisory Services Pvt. Ltd. “If you were going to do things differently, how would you channelize things like pension funds etc., especially given the risks because many of these projects are in the construction stage.”
The committee will be chaired by Housing Development Finance Corp. chairman Deepak Parekh and include the secretaries of most infrastructure ministries such as highways, railways, power, and civil aviation. It will also have representatives from financial institutions such as the State Bank of India, ICICI Bank Ltd as well as Morgan Stanley and JP Morgan.
A concept paper floated earlier this year by the Planning Commission said that an infrastructure debt fund was necessary given a Rs2.01 trillion shortage projected for the 11th Plan period. The government has projected investments of Rs20 trillion in the five years starting April 2007.
The proposed fund would re-finance 85% of outstanding project debt from senior lenders and lend to projects that have started commercial operations after construction. The concept paper suggested that the proposed fund be set up by IIFCL, which could be the general partner.
Sanjiv Shankaran contributed to this story.
rahul.c@livemint.com
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First Published: Fri, May 14 2010. 08 41 PM IST