German bank ready to fund Krishnapatnam power project

The German bank, K f W, has expressed its willingness to lend Rs 3,600 crore to APGenco for setting up a 1,600-mega watt mega thermal power project at the port town of Krishnapatnam in Nellore district. The loan amount is exactly half the estimated cost of the project. The first 800-mega watt unit of the project would to be completed by 2010.

Wolfgang Kroh, member of the K f W board, along with first vice-president Ohis, held preliminary discussions with S V Prasad, chairman of APGenco and principal secretary (energy), and managing director Ajay Jain here on Monday on the proposed loan.

The bank officials are said to have completed the survey of the project including the site visit before coming to the discussion table.

This is the second time that K f W has come forward to fund a thermal power project in Andhra Pradesh. The bank had earlier offered Rs 1,500-crore to APGenco for establishing a 660-mega watt super critical thermal unit at the Vijayawada Thermal Power Station (VTPS).

However, the state power utility decided to go in for a normal 500mw unit in place of the super critical technology terming its cost as unviable and tied up with Power Finance Corporation and other Indian financial institutions for the required funding.

A month back, the APGenco officials again sought a loan from K f W, this time for the Krishnapatnam project and the bank responded positively.

Interestingly, the visit of the bank's delegation coincided with the visit of Frank Elbe, former ambassador and envoy of German car major Volkswagen, who met chief minister Y S Rajasekhara Reddy on Monday to hand over a formal letter of invitation to the officials for further discussions.

"We have sought a loan from K f W as it is cheaper," S V Prasad told Business Standard, adding that the response from the bank officials was very favourable.

According to him, the rate of interest on this loan works out to just around 6.5 per cent even after taking into account the foreign exchange risk management. It may be recalled that the Government of India had discontinued taking care of foreign exchange fluctuation risk on new external loans from this year.

While the soft loan portion, which forms 40 per cent of the total loan, carries less than one per cent rate of interest, the interest on the remaining portion has been offered at around five per cent, Prasad said.

In addition, the state government has to spend around one per cent towards foreign exchange risk, which would be managed by banks and financial institutions, he said.