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Govt wants debt cap hike for Ultra Mega projects

Anil Sasi

Each of the six proposed power projects may need around Rs 15,000 cr capex


Possible concessions
A higher debt-equity ratio against a normative 70:30 debt-equity ratio
Developers may get the freedom to choose technology and unit size

New Delhi , May 17

The Centre will be approaching the Reserve Bank of India to seek a hike in the sectoral and group limits in case of the debt financing for the six proposed `Ultra Mega' power projects, each of which could entail a capital expenditure of around Rs 15,000 crore.

"Debt financing for the 4,000-MW Ultra Mega projects is expected to be carried out by a handful of banks and institutions that are active in the power sector. In light of the massive fund requirement for each project, the sectoral and group capping for the purpose of debt financing, as notified by the RBI, will need to be properly enhanced and the process has been initiated," a senior Government official involved in the exercise said. At present, RBI norms permit lending exposure by financial institutions to a particular sector within an overall sectoral cap of 25 per cent, within which there is a 10 per cent cap on lending to a single project, institutional sources said.

Banks have a limit of Rs 1,000 crore per project. Similar exposure norms apply in case of lending by banks and institutions to an industrial group.

Among the other concessions, a higher debt-equity ratio, as against a normative 70:30 debt-equity ratio, could be considered for these projects and developers are likely to get the freedom to choose technology and unit size for these project, officials said.

"The responses from potential bidders could be subdued if the equity component for these projects is kept up at 30 per cent, in light of the scale of these projects," the official said.

Additionally, a project-specific liberalisation in the existing limits pertaining to external commercial borrowing issues is also being considered, with the Ministry of Power expected to take up the matter with the RBI and the Finance Ministry.

An extension of tax benefits under Section 10 (23G) of the Income-Tax Act has already been accorded to these projects in the Budget for the fiscal.

The Centre has firmed up plans to award five of the proposed six Ultra Mega projects over the next 12 months through a process of tariff-based competitive bidding. Initial bids have already been invited for four projects.

Related Stories:
35 cos vie for `ultra mega' plants
5 ultra mega power projects under way
No guarantees for ultra mega power projects

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