REC in consortium lending for mega power projects
State run power infrastructure funding company Rural Electrification Corporation (REC) has entered into agreements with IIFCL and Hudco for consortium lending for major power projects of over 1,000 MWunder public-private partnership.
Offcial sources said the consortium will fund up to Rs 4,000 crore for each greenfirled project. This is to ensure that it is well positioned to provide speedy consortium refinancing for large power infrastructure projects.
This development comes close on the heels of the Union Power Ministry mandating REC and Power Finance Corporation to mobilize resources to ensure that viable projects do not suffer for want of funds as the total fund requirement for the sector has been assessed at around Rs. 10,31,600 crores for the Eleventh Plan (2007-12).
The Working Group on Power for the Eleventh Plan (2007-12) based on certain government has estimated that the fund requirement for creation of projected capacity expansion alone will be about Rs. 4,10,900 crores.
REC, set up in 1969, has gained a rich experience and built up a knowledge base to promote an array of power sector related activities – from generation, transmission to distribution. It actively aims at capitalizing on the increasing private sector participation in the country's power sector.
Analysts point out that one of the aims of the Electricity Act is to create an environment that will attract private capital, both domestic and foreign, into the Indian power sector to supplement public sector investment.
Over the years, REC has emerged as a leading public financial institution in Indian power infrastructure. Staring off with the task of improving power supply and energisation of agricultural pump sets in 1969, the company has grown to become a leader in its own right – financing and promoting power generation, transmission and generation projects a cross the country.
A top analyst points out that REC's recent growth has been driven by the substantial investment in the power sector in the country combined with the growth of the Indian economy over the last several years. REC's loan sanctions and disbursements have grown at a CAGR of 28.37% and 13.51% respectively between Fiscal 2003 and 2007. For fiscal 2007, its loan sanctions amounted to Rs 329,254 million and disbursements Rs 107,328 million. Its PAT has grown at a CAGR of 8.92% from Rs 4,854 million in Fiscal 2003 to Rs 6,831 million in Fiscal 2007.
The size of REC's business can be gauged from the fact that its loan asset has grown at a CAGR fo 18.35% from Rs 159,357 in FY '03 to Rs 312,622 in FY '07. As on March 31, 2007 REC had total assets of Rs 362,034 million and net worth of Rs 38,070 million.
As power sector continues to be one of the prime driving forces of the Indian economy, REC finds itself in a position to play a stellar role in infrastructure development, the analyst says.
The government's Eleventh Plan (2008-2012) anticipates a substantial increase in the country's power capacity. The Ministry of Power's data shows that India's power generation system, as on March 31, 2007, had a total installed capacity of 132,330 MW and an additional 78,577MW are required to meet the projected demand during the plan period.
Thus, the overall fund requirement by 2012 for the sector has been estimated at a whopping Rs 10,316,000 million.
As much as half of the capacity addition is expected to be contributed by the Centre, while the States' contribution is bout 35.6%. A 10,760 MW addition (13.7%) is expected to come from the private sector.
Official data shows although power generation capacity in the country has increased substantially in recent years, it has not kept pace with the growth in demand or the growth of the economy generally. According to CEA, India's total energy shortage during fiscal 2007 was 68,341 million units (9.9% of its total requirements) and peak hour shortage was 13,610 million units (13.5% of demand).
According to the Planning Commission, the Indian economy has grown at an average of 8% for the past three years. The Eleventh Plan targets an average growth rate of 9%. Data from the Ministry of Power shows that India would have to increase its primary energy supply by three to four times and electricity generation capacity b y about six times if it were to meet the growing economy's needs over the next 25 years.
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