11th Plan power target: Experts say raising finance not a problem

After the debacle of the 10th Plan (2002-2007) power capacity addition programme, under which the country could add just about half the targeted 41,000 Mw, the 11Plan's ambitious target of 78,577 Mw has come under scanner.

More so because of the huge amount needed, over Rs 10 lakh crore ($250 billion), if one includes investment in transmission and distribution. However, the power ministry officials and prospective financiers are confident that mobilising funds won't be a problem.

"Funding won't be an issue because there are ample funds available for the power sector from banks, foreign institutions, India Infrastructure Finance Company, external commercial borrowings (ECBs), foreign currency convertible bonds (FCCBs) and multilateral agencies like the Asian Development Bank (ADB) and the World Bank," says a senior power ministry official.

Taking a debt-equity ratio of 70:30, the equity needed would be Rs 309,480 crore, according to the working group on power for the 11th Plan. But the available equity is estimated at Rs 128,333 crore, through promoters, including foreign direct investment for independent power projects (IPPs), non-conventional energy sources (NCES) and captive and internal resources.

The debt required is pegged at Rs 722,120 crore. However, the money available through this route would be around Rs 371,660 crore through direct market borrowing (direct bonds other than banks and FIs), banks, Power Finance Corporation (PFC), Rural Electrification Corporation (REC), India Infrastructure Finance Company Limited (IIFCL), multilateral and bilateral credits, ECBs, ECAs, and syndicated loans.

After taking into account the funding by special schemes such as the accelerated power development and reforms programme (APDRP), there would be a shortfall of Rs 451,607 crore.

The working group has made a number of suggestions to meet this gap, including public offers by power companies and public-private participation (PPP) models on the lines of those for ultra mega power projects.

Also suggested is equity support by state governments through budget allocation and development of primary markets for bonds and corporate debt by enhancing the issuer and investor base. The group has also recommended the development of a hydro power viability fund.

Analysts and industry officials are also optimistic. "Look at the upfront fee that the companies are willing to pay...and look at the number of companies lining up for each project, large and small. There is no shortage of investible funds," says a senior executive of a private sector power company. Companies have been shelling out Rs 50-90 lakh as upfront fee for rights to develop hydro projects in some states.

What could trip the 11th Plan targets on power is not financing, eperts say, but shortfall in equipment supply. Lack of critical equipment is one of the reasons for under-achievement in the 10th Plan.

Fuel availability may also pose a challenge. "Though we are a coal-rich country, we are already building plants which feed on imported coal," says one industry official.

It is a fact that coal production in the country has not kept pace with the demand for coal. Incidentally, in the 10th Plan, against an outlay of Rs 270,276 crore, the total expenditure was Rs 183,166 crore, 68 per cent of the earmarked amount.