Low Maturity Ecbs Sought For Power Sector

While projects in other infrastructure sectors like telecommunications, oil exploration, port and highway buildings have been granted permission to tap ECBs with an average maturity of five years, the average maturity for power projects continues to be seven years.

The power ministry has argued that it is becoming difficult to arrange external debts with long maturities since few foreign lenders are interested in taking such a long exposure in power projects. This, according to the ministry, may result in a major slowdown in the funding of power projects in the country.

According to the ministry, small power projects will be in a position to repay loans within seven to eight years and the anticipated cash flow from such projects would allow full repayment well within 10 years.

 

External borrowings with longer maturities extending up to 14 years (at an average maturity of seven years) expose developers to unnecessary foreign exchange risk, which deters both the lender and the promoter from contracting such borrowings.

The power ministry had earlier asked the finance ministry to increase the permissible limit of external commercial borrowings in the power sector.

The ministry had said Rs 23,000 crore ($6.5 billion) debt capital will be needed every year from the beginning of the ninth plan (1997-2002) from external sources for capacity addition alone. If transmission and distribution are also considered, the requirement of ECBs will be around $10 billion a year.

The power ministrys projections are based on the assumption that a capacity addition of 10,000 mw will be necessary every year during the ninth plan period. Assuming a project cost of Rs 4 crore per mw, debt:equity ratio of 70:30 and likely availability of Rs 5,000 crore from the domestic debt market, capacity addition alone will require an additional Rs 23,000 crore ($6.5 billion) debt capital from external sources.