PFC awaits govt nod for Rs5,000 cr tax-free bonds issue

PFC awaits govt nod for Rs5,000 cr tax-free bonds issue

New Delhi: Power Finance Corporation (PFC) is awaiting government approval to raise Rs5,000 crore through an issue of tax-free bonds to meet funding requirements of the power sector.

A leading lender for the power sector, PFC, expects to raise as much as Rs30,000 crore this financial year (2011-12). PFC has raised around Rs13,000 crore so far this fiscal.

However, the finance ministry is believed to have reservations about allowing PFC and Rural Electrification Corporation (REC) to raise money through tax-free bonds.

“We are waiting for the notification (approving Rs5,000 crore tax-free bonds issue) from the finance ministry. We expect to raise this amount in the current fiscal," a top PFC official told PTI.

The parliamentary standing committee on energy had recommended that the finance ministry should allow REC and PFC to issue tax-free bonds for raising funds

Going by the finance ministry estimates, there is a revenue loss of about Rs24 crore annually for every Rs1,000 crore of tax-free bonds issue.

According to the panel’s recent report, the Department of Revenue continues to maintain that “fiscal investments should not be used as an instrument to increase project viability and is repetitive in giving reasons for discouraging tax-free bonds as a matter of policy".

In correspondence with the panel in November last year, the finance ministry had said the considered opinion “has been that the fiscal instruments should not be used as an instrument to increase project viability..." while listing out reasons for discouraging tax-free bonds.

“The issuance of tax free bonds by different governmental agencies tends to crowd out the private sector’s requirement for long term funds... Tax-free bonds tend to distort the actual market determined rates of interest and lead to competing demands for issue of such bonds by other entities as well," the ministry said in its correspondence.

Meanwhile, PFC is also looking at raising about Rs6,900 crore through issue of long-term infrastructure bonds in the current fiscal.

The company has just completed a domestic issue of long term bonds worth Rs2,000 crore. The issue, which was open from 14-16 September, saw good response from investors, according to another company official.