Effect to vary, though power projects dependent on imported equipment and foreign borrowing may see major cost issue.
The rupee’s depreciation is set to hit infrastructure sector projects dependent on international market borrowings and imported equipment in a big way. Experts apprehend that the over 20 per cent slide in the rupee since August would raise the cost of infrastructure projects substantially.
Hemant Kanoria, chief of Srei Infrastructure Finance, said project costs would go up by 10-25 per cent, depending on borrowing liabilities and import of equipment. He made an especial point for the power sector’s import of equipment.
An official from one of the largest power companies said, on condition of anonymity, that companies importing equipment through loans taken from international agencies would not get affected much, as the risks had already been hedged.
Mehul Sukkawala, associate director, Standard & Poor’s, Asia Pacific, said, “We believe the impact on infrastructure companies would be neutral on their operating performance, as projects would largely be in India, resulting in limited benefit from rupee depreciation.” At the same time, the impact on their leverage and debt servicing capability could be negative if they had used foreign currency borrowing to fund their projects with no pass-through mechanism for foreign currency movements.
The rupee fall would also put the economics of the 9,900-Mw Jaitapur nuclear power project in Maharashtra under stress. The project cost is expected to increase by four to eight per cent, as Nuclear Power Corporation (NPC) plans to initially procure two evolutionary pressurised reactors (EPRs) of 1,650 Mw each from French nuclear major Areva. Subsequently, four more EPRs of the same capacity would be procured. The project cost is currently estimated at Rs 1 lakh crore and the per-unit supply rate of power generated at Rs 3.50-4. Both are set to increase in the wake of the fall in the rupee.
An NPC official who preferred anonymity told Business Standard: "Preliminary assessment shows the fall in the rupee will have impact on both project cost and per-unit tariff.” When the early works contract was signed by NPC with Areva in December last year, the rupee was at 45 and touched 54.30 on Thursday.
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P R K Murthy, chief, transport and communication, Mumbai Metropolitan Regional Development Authority, said, "Suppliers for the metrorail and monorail project with whom MMRDA has tied up are facing difficulty due to the depreciation of rupee. However, MMRDA has entered into an arrangement whereby it was paying in fixed Indian rupees to these suppliers. Therefore, MMRDA is not getting affected.”
A senior finance ministry official handling infrastructure agreed power sector projects importing equipment would be affected the most. "The domestic suppliers of equipment which have tie-ups with international companies could also think of revising their prices at some point of time due to the impact of rupee appreciation," he added.
The official stressed, though, that the cost of road, port and airport projects were unlikely to be hit much by the rupee’s depreciation.