World Bank arm keen to fund big power projects

It seems there will be no dearth of financiers for the ultra mega power projects. International Finance Corporation, the World Bank's private investment arm, is among those keen on putting their money in the 4,000-Mw projects.

According to sources close to the development, IFC has approached the government for funding the projects, each of which may need Rs 12,000-13,000 crore.

The Asian Development Bank has also thrown its hat into the ring for the purpose. Each project is estimated to cost Rs 20,000 crore.

According to the terms and conditions of the bids, the developers will have to bring in equity of 51 per cent in the first two years, and will be allowed to dilute it up to 26 per cent over the first ten years.

However, the Planning Commission has objected to the financial structuring of the projects. In a recent letter to the power ministry, it questioned the capacity of the special purpose vehicles, or shell companies floated by the government to pilot the projects and get the required clearances and approvals, to "deliver all that has been promised."

The commission, not a part of planning for the projects, said: "The process is being driven by a concept that requires an unconditional bid with tariff as the sole criterion. This is simply not likely to be realised. Neither the structure nor the state of play in the power sector is conducive to realising this."

The panel's observations were based on feedback from potential bidders, equipment suppliers and financial institutions, whose response, it said, "had not been very encouraging."

It added, "The lending community is looking at some form of payment security in light of all the uncertainty."

However, the lenders pointed out that with the deadline for the submission of bids approaching, issues such as payment security were getting clearer.

Said a banker who attended a meeting at the power ministry last week: "The issues raised by the Planning Commission are being discussed by the ministry of power with the bidders and lenders ...and clarity is emerging."

He added, "It is a tariff-based bid, and what matters is the developer's track record. As long as that is convincing, and his fuel and power evacuation linkages are firmed up, there should be no dearth of finance."

Another round of discussions is scheduled next week. The last date for submission of bids for the Sasan and Mundra projects is November 22.