Oecf To Slash Disbursals If Utilisation Does Not Pick Up

The Overseas Economic Coope-ration Fund (OECF) of Japan is considering a reduction in long-term assistance to India, unless utilisation improves substantially. The multilateral lending agency has already reduced the drawal period to five years from eight years.

OECFs chief representative in India, Yoshitaro Fuwa, said utilisation of OECF aid has dropped to 10 per cent in 1997-98 from 13.5 per cent in 1995-96. This is a big drop, and we may not be able to provide the same level of assistance as in the past if this trend continues, Fuwa said. OECF has asked the government to improve utilisation to 1995 levels.

OECF has committed 33 billion yen during fiscal 1997 for 10 projects, including irrigation, power and port projects. This is virtually the same level as in fiscal 1996. OECF loans have a minimum maturity profile of 30 years and carry an interest rate of 2.3 per cent per annum.

Multilateral long term credit has become one of the first targets for the Japanese government in view of the countrys burgeoning fiscal deficit. India can hope for increased OECF assistance only if aid provided to it is fully utilised, Fuwa said. Reducing the drawal time was one way of monitoring the utilisation levels of OECF assistance. All multinational institutions have the option of either cancelling the loan programme if it is not drawn, or imposing commitment fees.

OECF has also altered the cycle of loans to India. From this year, OECF commitments will be made to only those projects which have received all the statutory clearances, said Fuwa.

We know that most of the projects that we have been involved in are long gestation projects, he said. But the kind of delays that take place in India are not necessarily because of the nature of the projects. Most projects OECF has been involved in have been hit by delays on account of the faulty contracting methods and procedural delays, Fuwq said.

OECF has also started reviewing the kind of projects to which it provides assistance, and has begun insisting that wherever project assistance is provided, tenders should be awarded only on a turnkey basis.

This is necessary to ensure that only financially capable contractors bid for projects, explained Fuwa. OECF has also begun imposing tariff-related conditions on projects which have been provided untied loans. For instance, in the Bangalore Water Supply Project, OECF has told the Karnataka state government that tariffs for the water supply should be linked to the cost of recovery.

This implies that the tariffs would have to be worked out on the basis of fixed and variable costs.