Kfw In Talks To Fund Rajasthan Economic Recast

German development finance institution KfW is negotiating with the Rajasthan government for funding its economic restructuring programme. The organisation is also in the process of negotiating loan agreements for different infrastructure projects in India amounting to DM 1 billion.

Loan proposals being appraised include a DM 240 million loan for a Delhi-Kanpur railway signalling project, DM 270 million for a mine and power station expansion project for Neyvelli Lignite Corporation and DM 250 million for a solar-and-naphtha power station in Rajasthan.

The economic restructuring programme will either be along the lines of the funding programme taken up by the Asian Development Bank for Gujarat or the World Banks programme on the Orissa Electricity Board, Erich Strijek, head of KfWs New Delhi-based India project coordinating office told Business Standard.

 

Based on preliminary data, KfW has indicated its willingness to allocate DM 65 million by way of grants and soft loans and another DM 130 million in the form of commercial loans.

However, a final decision on which state government to fund and the modalities of the financing arrangement still remain to be worked out.

India is the largest recipient of KfW funds. The German company has been extending around DM 300 million per year to India through a combination of grants, soft loans and commercial credit to a variety of sectors including power, railways, basic health and rural water supply.

This is besides export finance support to Indian buyers of German goods which is handled directly by its main office in Germany. One such project is the buyers credit facility extended to the Torrent group which is currently setting up a power project in Gujarat in collaboration with Siemens.

Besides grants, KfW also offers soft loans at 75 per cent and commercial loans linked to German banking rates which are currently prevailing at around 6 per cent.

KfW has, however, made it clear to state governments that it will restrict exposure to irrigation projects unless they review their water rates.

Even the revised fees that we suggest do not cover the investments on irrigation projects. They can at best cover the operation and maintenance costs of the projects. But the fees should go up in stages in such a manner that they ultimately cover the investments as well, Strijek said.

The Orissa government had revised water rates two years ago. The governments of Rajasthan and Madhya Pradesh are also reportedly considering a revision in irrigation charges.

Strijek said KfW often blends commercial loans with soft loans and grants in sectors like power and railways which can stand up to harsher market conditions. The organisation also supports small-scale industries through financial institutions like the Industrial Development Bank of India and extends small loans to the National Bank for Agriculture and Rural Development.

KfW is concentrating on seven states for funding projects, namely Rajasthan, Maharashtra, Karnataka, Orissa, West Bengal, Himachal Pradesh and Madhya Pradesh. It has recently taken up the financing of small and medium irrigation projects in Rajasthan and a lift irrigation project in Orissa.

KfWs association with India began with the Tawa irrigation project in Madhya Pradesh about 20 years ago. The project was given a loan of DM 48.6 million.