Oecf Mulls Funding Infrastucture Corp

This would be the third financing route to be adopted by the OECF in India. It already has one funds disbursal system under a government to government programme. Under a second programme, it invests in equity of joint venture power companies that have two or more Japanese partners.

The Japanese funding body is already negotiating with Indian financial institutions to arrange the third route for financing Indian infrastructure, said Yoshitaro Fuwa, the chief representative of OECF, at the Investment Information & Credit Rating Agency-arranged seminar on infrastructure financing yesterday. Fuwa expressed the hope that the Indian government would step in to guarantee these credit lines if they are formalised.

No guarantee is requested by OECF for the equity financing of Indian private sector power projects in joint venture with Japanese companies. We are willing to bear the risks here, he said.

But such guarantees are already insisted upon in case of the government to government programme.

In this case an Indian company would approach the Department of Economic Affairs (DEA), which in turn would approach the Japanese government for arranging cheap loans from OECF. These loans would be guaranteed by the Indian Government.

Under the second credit window, OECF does not provide credit but goes for only equity investment. Theoretically, we can also lend funds, says Fuwa, but our problem is that with 17 international branches and a staff strength of just 330, we are simply not equipped with the staff strength to deal with the demands of adequate credit risk appraisal.

Asked whether immediate full cost recovery from consumers was a conditionality for OECFs infrastructure finance, Fuwa said: We, in our discussions with the borrowers during our appraisal stress the importance of full recovery, but we know this is politically and socially a sensitive issue, and therefore we do not make this a conditionality for our financing. We leave it to the borrower.

Fuwa said there were traditionally three major problems in financing Indian infrastructure:

First, the relationship between central and state governments was extremely difficult, so that contentious procedures for tender evaluation etc always held up key developments.

In many cases, the disbursement method followed by the financing institution is disbursement that is, the state government has to spend its funds first, and the institution reimburses the expenditure. The problem usually is that the state governments do not have enough funds to spend in the first place, so that there is mininum disbursement.

The government agencies in charge of implementation of projects as a practice go for small procurement packages instead of blanket turnkey deals. Fuwa cited a recent case in Uttar Pradesh where a Japanese company in a single turnkey job had executed a whole project very quickly, and said this was a departure from the rule.

The OECF offers financial assistance to developing countries. It provides long-term loans with a very low rate of interest, but always insists on a stake in the equity-base for Japanese companies. In India, OECF has so far lent support to the infrastructure sector, especially in power, irrigation, and telecommunication.

OECF funding patterns

Govt-to-govt arrangement. Indian company approaches Department of Economic Affairs and DEA approaches Japan government, which in turn arranges cheap loans which are guaranteed by the Indian government.

At least two Japanese joint venture partners must approach OECF directly for equity funding. No government guarantee required.

Lending to Indian FIs for further on-lending to Indian companies.

Some form of cooperation with Infrastructure Development Corporation Ltd. once the govt sets it up.