IRFC to refinance World Bank's ₹10K crore loan for freight corridor

DFCCIL and IRFC have signed a refinancing pact for ₹10,000 crore of World Bank dollar loans for the Eastern freight corridor, a move expected to save the government ₹2,700 crore

The Dedicated Freight Corridor Corporation of India Ltd (DFCCIL), the special-purpose vehicle for rail freight corridors, and state-owned infrastructure lender Indian Railway Finance Corporation (IRFC) have signed a pact to refinance ₹10,000 crore of World Bank foreign -currency loans. 

DFCCIL had availed of the loans from the World Bank for the ₹51,000 crore, 1,337-kilometre-long Eastern Dedicated Freight Corridor (DFC), from Punjab to Bihar, and covering India’s key cargo hotspots for coal and major industrial raw materials. 

“This first-of-its-kind refinancing arrangement, structured in close coordination with the Ministry of Finance, Ministry of Railways, DFCCIL, IRFC, and the World Bank, is expected to result in savings of ₹2,700 crore for the Government of India,” the DFCCIL said in a social media post, terming the move “a historic first and a decisive step towards Atmanirbhar Bharat (self-reliant India)”. 

The corridor has been a key factor in easing the burden of coal transportation on the Indian Railways during the summer months, when power demand peaks and coal stocks are moved and replenished on priority at thermal power plants.

 

Business Standard had reported in March that IRFC was in talks to refinance dollar-denominated multilateral institution loans owing to the currency exchange rate volatility witnessed sporadically. The first loan agreement with the World Bank for the eastern corridor worth $975 million was signed in 2011 and closed in 2019. Two further agreements were signed with the World Bank for loans of $1100 million and $650 million in 2014 and 2015 respectively, according to DFCCI’s website. 

Both the Eastern Freight Corridor, and the Western Freight Corridor, which entailed a Rs 72,000 crore investment to connect Uttar Pradesh and Maharashtra, were financed through multilateral debt. This included debt funding from the World Bank (Rs 14,900 crore) and the Japan International Cooperation Agency (Rs 38,722 crore) for the Eastern and the Western corridors, respectively, with the balance being met through gross budgetary support, according to the railways. 

“For Eastern DFC, the loan period is 22 years including a moratorium period of 7 years for the World Bank. For Western DFC, interest will be paid to the Ministry of Finance at a rate of 7 per cent over the period of the loan, after the moratorium of ten years,” the ministry told the parliamentary standing committee on railways in a report tabled last week. It added this arrangement between the two ministries will be reviewed at the end of the loan period. 

Experts believe that the move augurs well for the government in several ways. 

“There are multiple reasons why governments may opt for refinancing of multilateral loans,” said Kuljit Singh, partner at EY India. “Primarily, governments may want to free up the limits of multilateral debt so that it can be allocated to other projects with limited viability, as multilateral institutions are generally lenders of last resort. Moreover, there is the possibility of insulating the project from currency fluctuations and potentially saving on costs,” he noted. 

A project which was initially financed with limited viability may have become economically viable after a gestation period. “In such scenarios, it could attract competitive terms through borrowings from the commercial market as well,” Singh explained.