India Power Fund begins work in Oct

fund to meet shortfall in power sector's equity needs.

The India Power Fund, set up to meet the shortfall in equity needs for the power sector, will become operational by October-end.

"There is a gap in equity provision in case of very high capacity projects. So we decided to step in to provide early financial closure," said Power Finance Corporation (PFC) CMD, R Krishamoorthy. The fund will invest in equity of various projects in transmission and distribution.

The company is still to get final clearance from the government on its proposed initial public offering (IPO), he said, adding that the impact on the IPO, of the government's decision to ask profit-making companies to issue bonus shares, would have to be studied.

The fund was launched in February 2004, with an initial corpus of Rs 200 crore contributed by the PFC, to meet 10 per cent of the shortfall of Rs 70,000 crore in equity requirement for the power sector till 2012.

The fund is expected to ultimately expand to Rs 7,000 crore by 2012. It was envisaged as a venture fund at the outset and at a later stage, should become a mutual fund that would attract retail investors. "The company has spoken to RECs, NTPC and other plants and they have expressed interest in the fund," Krishnamoorty added.

The ability of the existing utilities to raise resources for meeting the required equity investments is limited by the tariff policies adopted by various regulatory commissions.

A significant contribution will, therefore, have to come by way of fresh investments from private promoters. Keeping in mind all known and expected sources of equity, there is likely to be a shortfall of nearly Rs70,000 crore with respect to the total equity requirement for implementing the ambitious capacity addition targets.

Limited investments to be made by the India Power Fund in power projects shall be based on rigorous project appraisal, giving preference to lower capital cost, low tariff and projects with strong fundamentals. This should give added confidence to the investing community and act as a catalyst to bridge the anticipated equity shortfall.