PSUs told to seek project funding

The Standing Conference of Public Sector Enterprises (SCOPE), is looking at innovative ways of project financing for the public sector.

To create long-gestation assets, which cannot be financed through internal resources or budgetary aid, it has urged the PSEs to seek project financing.

SM Dewan, director general, SCOPE, urged the PSEs to look into aspects of project financing for pursuing their growth strategy.

Options like American Depository Receipts, Global Depository Receipts or Initial Public Offers were being resorted to by corporations the world over instead of depending on budgetary support.

Since governments were no longer able to finance, develop and manage large industrial and infrastructural projects, project financing was gaining currency, said Dewan.

Resource crunch and the need for basic developmental activities had encouraged governments to opt for public-private partnerships.

Sources at SCOPE suggested that special purpose vehicles should be designed to involve public and private stakeholders. These instruments should address projects which have long gestation periods, and those which can be funded through internal resources.

Instead of creating a whole new subsidiary, the special purpose vehicle could be used to create assets with external funding.

The debt should then be repaid through regular revenue flows, said an official at SCOPE. The PSEs must resort to alternatives which are "off balance sheet" to generate resources, he added.

Development and financing of infrastructure projects is a complex process that involves the convergence of various branches of expertise like management, finance, engineering, accountancy and law, said Dewan.

The drawbacks of project financing by foreign agencies include lack of satisfactory legal framework, high degree of foreign exchange risk, lack of capacity to generate earnings in foreign exchange, risk in relation to foreign exchange debt and the domestic debt market, said Dewan.

Scope suggestions

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• The Standing Conference of Public Sector Enterprises has asked PSUs to look towards project financing for schemes which have long gestation periods
• It said corporations around the world were exploring options like American Depository Receipts, Global Depository Receipts or IPOs
• It said the governments were no longer able to finance and develop large industrial and infrastructural projects