Date:05/01/2007 URL: http://www.thehindubusinessline.com/2007/01/05/stories/2007010504700100.htm

Back Talks on funding ultra mega power projects

Anil Sasi

New Delhi , Jan. 4

The Centre is in talks with banks and FIs to evolve market-based debt instruments having longer tenure of around 20 years, mainly with a view to facilitate funding of ultra mega power plants and other large upcoming projects.

Mechanisms such as `take-out financing', whereby projects are financed using short-term debt and subsequently refinanced by longer-term debt, are being explored. The sectoral and group exposure capping of banking sector for debt financing are likely to be hiked as well.

Infrastructure project financing tenure was constrained due to underdeveloped pension and long-term debt markets, with most available debt having 8-12 years' maturity, against a payback period of about 20 years for power projects. Long-term debt enables lowering of capacity charges in the initial years so that cost recovery happens across the project life.