Power dept seeks to up loan cap for projects

Also on agenda a proposal to increase the eligibility for ECBs and floating special bonds.

The power ministry has approached the finance ministry to relax the cap on commercial banks' exposure to a single entity to 55 per cent of their loan portfolio from the current 20 per cent, for funding six ultra mega power projects.

These projects are slated to be awarded by December this year. The ministry has already set up special purpose vehicles and begun the process of identifying sites for the projects.

Union Power Secretary R V Shahi told Business Standard that the ministry of power had requested the finance ministry to approach the Reserve Bank of India for relaxation in exposure norms for commercial banks, allowing them to give loans up to 55 per cent of their entire loan portfolio for the ultra mega power projects.

Current RBI norms allow commercial banks an exposure of up to 20 per cent of the loan portfolio to an entire group of companies.

Shahi said, "We would like to offer maximum assistance to the private companies that will eventually set up the projects and run them, including easing financing options. We have approached the union finance ministry with some proposals which are under consideration."

The proposals include increasing the eligibility for external commercial borrowings (ECB) and floating special bonds for the ultra mega power projects.

The suggestion for extending the provisions of section 80 I(a) of the Income Tax Act to the power projects has already been accepted by the finance ministry and was announced by the finance minister in his Budget speech.

With the government considering simultaneous investment in transmission and distribution to evacuate and distribute the power generated, the investment per ultra mega power project could end up being double the current expectation of Rs 16,000 crore.

Globally, for every dollar invested in generation, one is invested in transmission and distribution. Shahi said this norm would henceforth be followed in India too.

The secretary indicated that private players may participate in transmission projects also, though guidelines in this respect are yet to be finalised. He said these would be issued by the end of the month.

The power secretary said the government was also considering easing the norms for participation in these projects. "Any company or group that has a capital investment up to Rs 3,000 crore will be eligible to bid for these projects," he said.

So far, six ultra mega power projects have been announced and the government has formed SPVs for all of them. The latest project to be announced is a pithead project in Orissa's IB valley where already the Orissa Power Generation Company's JV with Allied Energy Sources (AES) is running two plants.

Shahi indicated that states were being encouraged to set up similar projects of up to 2000 Mw and the same terms and facilities would be extended to them. Around 12 states have indicated an interest in setting up these projects, he said.