After roads and ports, the Finance Ministry is readying a contract which will allow infrastructure debt funds (IDFs) to lend to firms developing airports on public-private-partnership model.

The agreement will basically allow IDFs to reach out to the project promoters in case there is a problem with the developers. While the project promoters are Government organisations that award these projects to infrastructure companies on a PPP basis, developers are public/private contractors.

For instance, in the case of airports, the promoter could be the Airports Authority of India, Port Trusts for ports or the National Highways Authority of India for road projects.

Last week, the Finance Ministry finalised a format that would allow more comfort to IDF non-banking finance companies to extend long-term funds to firms developing PPP projects in the port sector. This is on the same lines as for roads.

“Another similar agreement is being readied for the airport sector as well,” said multiple sources in the know.

IDF mechanism

The Government had set up the IDF mechanism to allow refinancing of bank loans to infrastructure projects at longer tenor and lower cost. Such refinancing helps in reducing the cost of funds for infrastructure projects and also frees up lower-tenor bank funds for newer projects.

At present, companies implementing infrastructure projects on PPP basis depend primarily on bank lending, which is not available for long-term tenors.

When banks lend to developers of PPP projects, they have similar agreements with the project promoters. These contract agreements allow them to reach out to the project promoter to get back funds in case the developer exits from the project.

The first example of such a contract being put to use was in the case of a road project, where NHAI become a co-signatory to the long-term finance extended by India Infradebt Fund (IIF) to banks that funded Himalayan Expressway Ltd.

The road project was developed by Jaypee Group. IIF is an IDF promoted by four promoters — ICICI Bank, Bank of Baroda, Citibank and LIC — to provide long term financing to develop infrastructure in India.

But for ports, the Shipping Ministry may ask project developers to share some of the profits due to lower costs.

“When there are such re-financing agreements in the UK, which benefit the project developer as a result of project promoter being a co-signatory, the benefits of lower financing costs are shared with the project promoter as well,” explained an official.

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