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Monday, December 31, 2001



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PFC plans to float $1-b fund

Balaji C. Mouli

NEW DELHI, Dec. 30.

THE Power Finance Corporation (PFC) has proposed the float of a $1-billion India Power Fund -- on the lines of the India Millennium Deposit scheme -- to finance purely generation and associated transmission projects in the country. A formal proposal in t his regard was forwarded to the Power Ministry recently.

According to company officials, the fund would consist of three components -- an equity fund, a domestic debt fund and a foreign debt fund.

As part of the proposal, PFC has also sought tax concessions to lower the cost of such funds. These include income-tax exemptions for investments up to Rs 1 lakh in the proposed bond and a ten-year tax-holiday on par with that accorded to private power p roducers.

PFC has informally consulted SBI Capital Markets Ltd prior to finalising its scheme. The Union Power Minister, Mr Suresh Prabhu, will now be taking up PFC's proposal with the Finance Minister, Mr Yashwant Sinha, officials said.

Central intervention in State power reforms has been gaining momentum over the last two years, with PFC being designated as the nodal agency for administering the Accelerated Power Development Programme (APDP) scheme.

The scheme, with a corpus of Rs 1,000 crore, was announced in the Budget by the Finance Minister. The objective was to fund sub-transmission and distribution activity in the States. PFC has now mooted the India Power Fund proposal to fund generation and transmission activities.

PFC has also forwarded a proposal to contract loans from multilateral agencies for financing structural adjustment programmes in States which undertake power sector reforms.

The funds are proposed to be used for funding voluntary retirement schemes for employees and so on.

PFC officials are hopeful of garnering the proceeds at an interest rate of around 4 to 5 per cent, well below the existing cost of funds of over 8 per cent.

The power sector-specific financial institution has also been retiring some its expensive foreign currency loans contracted over a few years ago. The Finance Ministry is, however, agreeable to swapping loans in tranches of up to $25 million only.

In 1998, SBI raised $4.23 billion through Resurgent India Bonds (RIBs) at a cost of 7.44 per cent.

The Government had, in October last year, gone ahead with the IMD scheme and netted $5.5 billion at around the same coupon rate.

In both the cases, the foreign exchange risk cover entailed that the issuer -- State Bank of India -- bore one per cent of any foreign exchange loss annually, with the excess being absorbed by the Government.

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