With the power sector facing a funding shortage of well over Rs 400,000 crore and a huge capacity addition target to be met in the current Plan, the role of a lender to projects in the sector is quite challenging. Which means tremendous scope for performance, says SATNAM SINGH, chairman of the government-owned Power Finance Corporation (PFC), in an interview with Sudheer Pal Singh and Jyoti Mukul. Excerpts:
What is the company’s overall vision for the next five years?
Given the capacity addition plan, there is tremendous scope in the funding area. At the end of the last quarter (June 2009), we had an asset book of Rs 65,000 crore, an order book of Rs 1,33,000 crore. This order book includes our outstanding sanctions and disbursements and has to happen in around three years time.
A lot of power sector PSUs have either diversified into newer areas or have plans to do so. Have you been thinking on this line, too?
We have been trying to diversify our basket in funding. We are not only planning to fund generation, transmission and distribution projects, but we are also funding equipment manufacturing projects. We are in discussion with Mitsubishi and Toshiba, for instance, who are setting up equipment manufacturing facilities in India. We are also opening up a separate unit for wind and biomass projects. The planning and the structure for this are in place. Maybe in two-three months time, it will be done. We are backward integrating into newer areas. We are keeping additional focus in renewables and are in touch with Nuclear Power Corporation of India Ltd (NPCIL).
We have also made a new product – a loan against securitisation of assets. Under this product, we will be securitising the return of existing projects for investments in future projects. In the usual method, after taking a loan on one project, the developers have to wait until the return on the first project starts flowing before making further investment, which takes a lot of time. Instead, this product is in place and we will be sanctioning the first loan shortly for Andhra Pradesh Power Generation Corporation Ltd. This will be costlier than the normal loan. There is a difference of around 2-2.5 per cent (in interest rates). It will increase our yield and our profitability.
What has been the impact of the financial crisis on PFC?
There has been absolutely no bad impact. Before the crisis, our disbursements grew by 15 per cent and after the crisis we doubled the growth rate to 30 per cent. We partially attribute this to the power sector being immune to the slowdown. We saw no risk in the sector.
Recently, there have been Initial Public Offers (IPOs) in the power sector. Is there a proposal for PFC’s follow-on issue, especially since the government could not divest its stake last time?
As of now, there is no such move. We have adequate capital funding for our business. At least for the next two years, we do not need it. Our capital adequacy is 22 per cent, against the required 10 per cent.
What are the borrowing plans for the current year? Have you seen any hardening of interest rates?
Our borrowing target for the current year is Rs 23,000 crore. This was the initial target. Later on, depending upon the disbursements, it can go up. Interest rates are better than last year. We have seen no hardening. Compared to last year at the same time, they are down by about 2.5 per cent. We have raised over Rs 6,000 crore so far.
Do you plan to go in for external commercial borrowings?
No. ECB is at present expensive. We will raise money only from the domestic market.
What are the expected sanctions and disbursements by the end of the current year?
By the end of this year, we expect disbursements to be more than Rs 23,000 crore and sanctions to be Rs 60,000 crore.
PFC, at one point, was planning to enter into private equity space. It had even planned a fund. What has happened to that plan?
We have dropped the plan. It has become unattractive because of lack of tax breaks for the power and telecommunication sectors.
PFC is the nodal agency for implementing Ultra Mega Power Projects (UMPPs). We understand there has been some hold-up on certain fronts?
Currently, three UMPPs are in the pipeline in Chhattisgarh, Orissa and Tamil Nadu. The Request for Qualification (RFQ) for these should be floated in this financial year. The Cheyyur UMPP in Tamil Nadu ran into some difficulty. That has been taken up. The financial closure for the Krishnapatnam UMPP is yet to happen, where we have sanctioned Rs 1,090 crore. For Sasan UMPP, we have sanctioned Rs 1,770 crore.
