This is seen as a big step forward in overcoming the obstacles to financing the power sector. The risks still uncovered are political, credit, fuel pricing and transfer of the projects to state electricity boards at a later date.
Making a presentation on power sector financing at the Euromoney Conference in New Delhi yesterday, Verma said the time had come for the banking sector to assume some risks in order to ensure flow of funds to private sector power companies.
The SBI is working on modalities to assume construction risks of select power projects.
The bank will restrict itself to small projects for the time being, the managing director said.
Former Reserve Bank governor I G Patel said at the conference that the government could not leave independent power producers at the mercy of competition when state electricity boards, the main buyers of power, presented major risks.
Patel was referring to the government's reluctance to extend the counter-guarantee to independent power producers (IPPs), restricting it to the eight fast-track projects.
He pointed out that IPPs were asking for an enhancement of the 2:1 debt equity ratio allowed by the government for accessing foreign loans.
SBI Capital Markets, which advises the government on power financing, has come to the following conclusions:
l A system-based approach should replace the case-by-case approach in government decision- making
The MoU route should be replaced by competitive bidding
There should be greater focus on model projects
Payment risks should initially be taken up by the government and
passed on to the state electricity boards after they are restructured.
