Infrastructure

INFRASTRUCTURE FINANCE(INFRASTRUCTURE CONTINUES TO BE A FOCUS AREA)

India is on the verge of witnessing a sustained investment phase in infrastructure buildup. With a slew of announcements in housing, road, port and airport development, we are seemingly on a path of sustained higher economic growth on the back of improvement in infrastructure construction in the country. STORY BEHINDThe government, in its mid-term appraisal of the tenth five-year plan (2002-07), has revised upwards its infrastructure investment target from Rs 10,890 bn to around 11,100 bn (US bn) over the next five years. From a policy perspective, there has been a growing consensus that a private-public partnership is required to remove difficulties concerning the development of infrastructure in the country. A substantial chunk of the abovementioned investment target is likely to come from the private sector.BUDGET OVER THE YEARS

BUDGET 2004-2005 Outlay of Rs 53.6 bn towards ?Road Transport and Highways? sector, including investment in NHAI amounting to Rs 18 bn.

Outlay of Rs 127 bn towards ?Roads and Bridges? sector, excluding provision for North-Eastern region.

BUDGET 2005-2006 Grant of Rs 14 bn for the National Highway Development Programme (NHDP) III towards developing four-lane road of 4,000 kms.

Rs. 4.5 bn allocated for the development of roads in the North-Eastern region.

Establishment of SPV to finance infrastructure projects in specified sectors.

Provision of Rs 15 bn for ?viability gap? funding for infrastructure projects.

Outlay of Rs 55 bn for the National Urban Renewal Mission, including a grant component of Rs 16.5 bn.

BUDGET 2006-2007 Increase in allocations for National Highway Development Programme (NHDP) from Rs 93.2 bn in FY06 to Rs 99.5 bn in FY07.

54% hike in the budgetary support to the Bharat Nirman Programme, amounting to Rs 187 bn.

Increase in corpus of the Rural Infrastructure Development Fund to Rs 100 bn.

Grant of Rs 46 bn for the National Urban Renewal Mission.

Exemption under Section 10 (23G) of the Income Tax Act removed. The section exempted income by way of dividend, interest and long-term capital gains arising out of investments made in an enterprise engaged in the business of developing, maintaining and operating an infrastructure facility.

Plan allocation for Department of Shipping increased by 37% to Rs 7.4 bn to facilitate investment in National Maritime Development Programme

BUDGET 2007-2008 12,198km of rural road has been built till December

15,054 villages to be connected by phones till December

Allocated Rs40 billion for rural roads

75 per cent growth rate in electricity generation in April - December

Govt to award two more ultra power projects by July

Imperative to take new steps to up power generation

Rural electrification allocation at 39.83 billion rupee FY 08

Rajiv Gandhi Vidyatikaran Yojana allocation 39.8 billion rupee

National highway plan to get 106.7 billion FY 08

FY 08 APDRP support raised to 8 billion rupees versus 6.5 billion

Energy security high on government agenda

Rs120 billion more earmarked for RIDF for FY 07-08

Separate window for rural roads under RIDF to continue

AVIATION

On the face of it budgetary allocation for the aviation industry for the fiscal 2007-08 has gone up from Rs2,256.36 crore to Rs12,192.09 crore.KEY PROPOSALS Customs duty of 3% imposed on aircrafts; and parts of aircrafts, imported for use in such aircrafts.

Countervailing duty (CVD) of 16%, and special additional duty of customs of 4% also imposed on such aircrafts. However, such duties not applicable to imports by scheduled airline operators and Government

In 2001, 'Aviation Turbine Fuel sold to turbo-prop aircraft' was included in the list of declared goods under section 14 of the CST Act (thereby capping the CST at 4%). The provision amended to cover all small aircraft with maximum takeoff mass of less than 40,000 kgs operated by scheduled airlines.

Peak rate of customs duty proposed to be reduced from 15% to 12.5%.

Customs duty on Aluminium, Zinc, Copper, stainless steel and other ferroalloys reduced from 7.5% to 5% in January 2007

IMPACT Airlines operating smaller air-crafts will be positively impacted with the reduction in ATF prices which is likely as a result of tax cut on ATF fuel.

The increase in duty and CVD will not impact the scheduled airline operators. The massive hike in outlay has been made primarily to help public sector carriers Indian and Air India fund their fleet acquisition of 111 aircraft.

The hike will also aid the Airport Authority of India (AAI) develop 35 non-metro and other airports.

ROADS & PORTS

PROPOSALS Examine recommendations of Deepak Parekh committee of using forex reserves for funding infrastructure projects.

Higher budgetary support to Bharat Nirman (increase by 31%).

Increase in NHAI Outlay from Rs. 9,945 crore to Rs. 10,667 crore.

Thrust on Public Private Participation (PPP). To set up a revolving fund with a corpus of Rs.100 crore to quicken project preparation. Initiatives to reduce Cement Price.

Mutual Funds can open dedicated infrastructure Funds.

IMPACT

The increased thrust on PPP and increased outlay under Bharat Nirman and NHAI could favourably impact the pace of project execution. The efficacy of the measures which have been announced to rein in cement prices remains to be seen. The extent to which long term finances become available for the sector as a result of the policy pronouncements made is also uncertain at this stage Provision for National Highway Development Programme to increase from Rs.9,945 crore to Rs.10,667 crore; road-cum-rail bridge at Bogibeel, Assam, over Brahmaputra, to be taken up as a national project.

OVERVIEW OF RAIL BUDGET 2007-08

CAPACITY OF PASSENGER COACHES INCREASED The railways have decided to start production of new design coaches from 2007-08.

The newly designed coaches will have significantly higher capacity than the previous coaches. The capacity of sleeper coaches has been increased from 72 to 84, AC Chair Car from 67 to 102, AC 3 Tier from 64 to 81, AC 2 Tier from 46 to 48 and AC 1st from 18 to 22. The rail coaches designed at Kapurthala factory are convenient and comfortable for passengers.

2007-08 ANNOUNCED AS YEAR OF CLEANLINESS

300 MORE STATIONS TO GET MODERN FACILITIES AND FACELIFT

Union Minister for Railways, Shri Lalu Prasad announced that the year 2007-08 will be observed as Cleanliness Year by the Indian Railways.

Special campaign will be launched to ensure cleanliness and hygiene at station premises, in passenger trains, railway lines and waiting rooms etc.

In the previous Rail Budget in 2 years people will observe a perceptible improvement in the get-up and facilities available at all major stations. By March 2007, work will be completed at 225 such stations and the Ministry proposes to provide similar facilities in another 300 stations this year.

ANNUAL PLAN OUTLAY UP BY 32 PER CENT

The Union Minister for Railways, Shri Lalu Prasad has proposed an outlay of Rs. 31,000 crore for the Annual Plan 2007-08. The outlay exceeds plan size for the current year by 32 per cent and would be the largest Annual Plan for the Railways so far. The outlays of the Annual Plans over the last three years have increased by about two and a half times and three-fourths of the Plan would be sourced from Internal and Extra Budgetary Resources (IEBR). Rs. 17,323 i.e. 61 per cent from IEBR. Extra budgetary resources would include Rs. 5000 crore for leasing of rolling stock through IRFC.

Loan of Rs. 240 crore to be raised by RVNL.

Investment of Rs. 500 crore under the wagon investment scheme.

The total budgetary support of Rs. 7611 crore includes Rs. 1165 crore for SRSF, Rs. 725 crore from Central Road Fund and Rs. 5721 crore for the remaining projects. The Railway Ministry has sought additional fund of Rs. 2725 crore from Ministry of Finance for the national projects of Jammu and Kashmir and North Eastern Region. These include Udhampur-Srinagar-Baramulla, Jiribam-Imphal Road (Tupul) and Kumarghat-Agartala new line and Lumding-Silchar-Jiribam gauge conversion projects. Rs 1330 cr for Dedicated freight corridor

Rs 1610 cr for new lines

Rs 2404 cr for gauge conversion

Rs 300 cr for electrification

Rs 722 cr for metropolitian transport

Pre feasibility study on high speed passenger corridors. Metre gauge to be converted to broad gauges to optimize revenue.

Suburban services to be improved and modernized.

States willing to share 50% cost to get priority.

RAILWAY RESERVATION AT E-SEVA OF STATE GOVERNMENTS, POST OFFICES, PETROL PUMPS AND ATMS OF BANKS E- ticket charge for sleeper/AC slashed

Train enquiry call centers introduced

Hand held computer terminals for ties

8000 UTS counters & 6000 automatic ticket vending machines for unreserved travel

NEW INITIATIVES AIMED AT MAKING UNRESERVED TRAVEL COMFORTABLE 50% consessions to students appearing in UPSC/SSC exams.The Railway Ministry has also proposed to give 50 per cent concession to students appearing in the main written examination conducted by Union Public Service Commission and Central Staff Selection Commission. Last year, the Ministry had announced concessions for unemployed youths appearing for interviews for jobs in Central and State Government exams. Earmarked coaches for vendors in passenger trains.Vendor coaches will be provided on sections where transportation of milk, fruit and vegetables through passenger trains is common. The initiative is aimed at ensuring safe travel to vendors who at present carry their milk cans and baskets hanging from the windows.

RAILWAYS JOINT VENTURE WITH KERALA GOVERNMENT TO MANUFACTURE PASSENGER COACHES

The Railway Minister Shri Lalu Prasad has announced that a Joint Venture Company would be set up with the Steel Industries Kerala Limited, Aleppey, a public sector undertaking of Government of Kerala to manufacture the passenger coaches.

NO INCREASE IN PASSENGER FARESThe Union Minister for Railways announced that there would be no increase in passenger fares during the year 2007-08 for any class of travel. A Variable Fare Scheme has been proposed to be introduced under Dynamic Pricing Policy. Discounts in fares at the rates indicated below shall be given in various classes of travel.

ClassBusy SeasonLean Season

AC First3%6%

AC 2-Tier2%4%

AC-3 Tier (81 berths)4%8%

AC-3 Tier (64 berths)NilNil

AC CC (102 seats)4%8%

New Sleeper Coaches (84 berths)4%4%

Sleeper Class (72 berths)NilNil

In Popular trains, class-wise discounts indicated above for Busy Season shall be applicable through out the year. The list of popular trains shall be notified separately.

Supplementary charges for Superfast Trains for Second Class shall be reduced from Rs. 10 to Rs. 8.

It has been proposed to introduce Tourist Tickets for any station to any station in Mumbai Suburban area as a pilot project. The fares for Second Calls Tourist Tickets shall be as under: 1 DayRs. 40.00

3 DayRs. 75.00

5 DayRs. 90.00

Daily tickets for Non-suburban Second Class Ordinary trains and Non-superfast Mail/Express trains shall be reduced by Re. 1.00 per passenger.

FREQUENCIES OF 14 TRAINS TO BE INCREASED

The frequency of the following trains will be increased during this year. This was announced by the Union Railway Minister Shri Lalu Prasad during his Budget speech in the Parliament.

9311/9312 Indore-Pune Express (from 2 days in a week to 3 days in a week)

1561/1562 Miraj-Belgaum Passenger (from 6 days in a week to daily)

2149/2150 Pune-Patna Express (from 2 days in a week to 4 days in a week)

2843/2844 Puri-Ahmedabad Express (from 3 days in a week to 4 days in a week)

2345/2346 Howrah-Guwahati Saraighat Express (from 5 days in a week to daily)

1563/1564 Miraj-Belgaum Passenger (from 6 days in a week to daily)

2309/2310 New Delhi-Patna Rajdhani Express (from 2 days in a week to daily)

6603/6604 Thiruvananthapuram-Mangalore Express (from 3 days in a week to daily)

2835/2836 Hatia-Yesvantpur Express (from weekly to 2 days)

209/210 Machilipatnam-Tirupati Passenger (from 3 days to daily)

6595/6596 Patna-Bangalore Express (from 2 days in a week to 6 days in a week)

2419/2420 New Delhi-Lucknow Gomti Express (from 6 days in a week to daily)

6527/6528 Yesvantpur-Kannur Express (from weekly to 3 days in a week)

6315/6316 Bangalore-Kochuvelli Express (from weekly to 3 days in a week)

EXTENSION OF RUN OF 23 EXISTING TRAIN ROUTES

The Union Railway Minister, Shri Lalu Prasad announced in his Budget speech, presented in Lok Sabha today, that the run of the following existing trains will be extended : 4517/4518 Allahabad-Ambala Cantt. Unchahar Express upto Chandigarh

207/208 Tirupati-Guntakal Passenger upto Hubli

2315/2316 Sealdah-Ajmer Ananya Express upto Udaipur

2105/2106 Mumbai-Nagpur Vidarbha Express upto Gondia

1103/1104 Agra Cantt.-Nizamuddin Intercity Express upto New Delhi

9165/9166 Ahmedabad-Faizabad Sabarmati Express upto Varanasi

4649/4650 Amritsar-Darbhanga Saryu Yamuna Express upto Jai Nagar (After Gauge Conversion)

2705/2706 Secunderabad-Vijayawada Express upto Guntur

Shikohabad-Farrukhabad Passenger upto Kasganj (After Gauge Conversion)

3185/3186 Sealdah-Darbhanga Gangasagar Express upto Jai Nagar (After Gauge Conversion)

364 Kottayam-Thiruvananthapuram Passenger upto Nagarcoil

571/572 Manduadih-Mau Passenger upto Azamgarh

209/210 Howrah-Darbhanga Passenger upto Jai Nagar (After Gauge Conversion)

5037/5038 Kanpur-Farrukhabad Express upto Kasganj (After Gauge Conversion)

6509/6510 Ajmer-Bangalore Express upto Mysore

4673/4674 Amritsar-Darbhanga Shaheed Express upto Jai Nagar (After Gauge Conversion)

531A/532A Parli-Latur Passenger upto Osmanabad (After Gauge Conversion)

2413/2414 Jammu Tawi-Jaipur Express upto Ajmer

5107/5108 Lucknow-Kanpur Utsarg Express upto Kanpur Anwarganj

469/470 Lucknow-Farrukhabad Passenger upto Kasganj (After Gauge Conversion)

5309/5310 Aishbagh-Bareilly Rohilkhand Express upto Kasganj

2465/2466 Jodhpur-Sawai Madhopur Express upto Indore

Gaya-Kiul Passenger upto Jhajha (1 pair)

SCHEMESScheme for Financing Viable Infrastructure Projects through a Special Purpose Vehicle called the India Infrastructure Finance Company Limited (IIFCL) (Modified)1. Whereas the Government of India recognizes that there is a significant deficit in the availability of physical infrastructure across different sectors and that this is hindering economic development.2. Whereas the development of infrastructure requires debt of longer maturity to supplement the debt funds presently available; and 3. Whereas the Government of India recognizes that such debt is usually not available because of the following constraints :a. Absence of benchmark rates for raising long term debt from the market;b. Asset-liability mismatch of the tenor of debt in case of most financial institutions; and c. High cost of long term debt

4. Now, therefore, the Government of India has decided to put into effect the following scheme for providing financial support to improve the viability of infrastructure projects.

SHORT TITLE AND EXTENT1. The Scheme will be called the Scheme for financing Viable Infrastructure Projects. It will be administered by the Ministry of Finance through IIFCL.2. The Scheme will come into force with immediate effect.

DEFINITIONSIn this Scheme unless the context otherwise requires:

1. Empowered Committee means a Committee set up for the purposes of this Scheme under the chairmanship of Secretary (Economic Affairs) and including Secretary, Planning commission, Secretary (Expenditure), Secretary (Financial Sector) and in his absence Special Secretary / Additional Secretary (Financial Sector) and Secretary of the line Ministry dealing with the subject. 2. IIFCL means the India Infrastructure Finance Company Ltd (A company incorporated under the Companies Act, 1956).3. Lead Bank means the Financial Institution (FI) that is funding the project and is designated as such by the Inter-Institutional Group or consortium of Financial Institutions provided the risk exposure of IIFCL is less than that of the lead bank in a project.4. Long Term Debt means the Debt provided by the IIFCL to the project company where the average maturity for repayment exceeds 10 years (8.5 years in the case of IIFC(UK) Ltd.).5. Private Sector Company means a company in which 51% or more of the subscribed and paid-up equity is owned and controlled by private entities;6. Project Company means the company which is implementing the infrastructure project for which assistance is to be given by the IIFCL.7. Project Term means the duration of the contract or concession agreement for a PPP project;8. Public Private Partnership (PPP) Project means a project based on a contract or concession agreement, between a Government or a statutory entity on the one side and a Private Sector Company on the other-side, for delivering an infrastructure service on payment of user charges;9. Public Sector Company means a company in which 51% or more of the subscribed and paid-up equity is owned and controlled by the Central or a State Government, jointly or severally, and includes any undertaking designated as such by the Department of Public Enterprises and companies in which majority stake is held by Public Sector Companies other than financial institutions.10. Total Project Cost means the lower of the total capital! Cost of the project:a. as estimated by the government / statutory entity that owns the project;b. as sanctioned by the Lead Bank; andc. as actually expended

But does not include the cost of land incurred by the government / statutory entity.

FUNDING OF IIFCL1. Apart from its equity, the IIFCL shall be funded through long-term debt raised from the open market. This debt can be any or all of the following:a. Rupee debt raised from the market through suitable instruments created for the purpose; the IIFCL would ordinarily raise debt of maturity of 10 years and beyond.b. Debt from bilateral or multilateral institutions such as the World Bank and Asian Development Bank.c. Foreign currency debt, including through external commercial borrowings raised with prior approval of the Government.

2. The IIFCL would raise funds as and when required, for on lending, in consultation with the Department of Economic Affairs. The magnitude of funds raised would be determined by demand from viable infrastructure projects. To the extent of any mismatch between the raising of funds and their disbursement, surplus funds would be invested in marketable government securities.3. The borrowings of IIFCL may be guaranteed by the Government of India. The extent of guarantees to be provided shall be set at the beginning of each fiscal year by the Ministry of Finance, within the limits available under the Fiscal Responsibility & Budget Management Act. However bonds issued by IIFCL, unless otherwise directed by Government of India, will not be included against Statutory Liquidity Ratio requirements. For 2005-06, the extent of guarantee to be provided by Government of India will be Rs.10,000 crore.4. The guarantee fee payable by the IIFCL would be 0.25% per annum on outstanding balances.5. The facility of guarantees including the terms for guarantee will be reviewed after 5 years, and its continuation shall be subject to the outcome of the review.6. As decided in the First Empowered Committee Meeting held on July 7, 2006; IIFC may raise funds from domestic institutions namely, banks, FIs etc, on the basis of the guarantees issued to IIFC. Funds of shorter duration than ten years may be raised only on account of asset-liability management consideration.ELIGIBILITY1. The IIFCL shall finance only commercially viable projects. Viable projects may also include those projects that will become viable after receiving viability gap funding under a government scheme.2. In order to be eligible for funding under this Scheme, a project shall meet the following criteria;a. The project shall be implemented (i.e. developed, financed and operated for the Project Term) by:b. A Public Sector Company;c. A Private Sector Company selected under a PPP initiative; ord. A Private Sector Company

Provided that the SPV shall assign overriding priority to Private Public Partnership projects that are implemented by Private Sector Companies selected through a competitive bidding process.

Provided further that a Private Sector Company, other than that defined in the first proviso above, would not be eligible for direct lending by the SPV and may be funded only through the refinance mode. The total lending for such private projects shall not exceed 20% of the lending programme of the SPV in any accounting year. The eligibility for direct lending and / or raising the limit of 20% will be reviewed at the end of one year having regard to the progress made in funding public sector and PPP infrastructure projects.

As per the modifications in SIFTI brought out vide GoI, Banking Division (now DFS) OM No.1/78/2005-IF-1 dated April 23, 2007, para 5.2 (a) of SIFTI stands clarified so as to enable IIFCL to lend directly to projects set up by private companies subject to the following conditions:[i] The service to be provided by the Infrastructure project is regulated, or the project is being set up under an MOU arrangement with the Central Government, any State Government or a PSU.[ii] The tenor of IIFCL lending should be larger than that of the longest tenor commercial debt by at least two years. [iii] Direct lending plus the refinance business, if any, on account of this category of borrowers (private sector companies not selected through a competitive bidding process) should not exceed 20% of the total lending by IIFCL in any accounting year. (This limit is the same as the limit currently imposed for the refinance window.)

[b]. Provided that in case of Railway projects that are not amendable to operation by a Private Sector Company, the Empowered Committee may relax the eligibility criterion relating to operation by such company.

[c]. The project should be from one of the following sectors:

[i].Road and bridges, railways, seaports, airports, inland waterways and other transportation projects;

[ii].Power;[iii].Urban transport, water supply, sewage, solid waste management and other physical infrastructure in urban areas;

[iv]. Gas pipelines;

[v]. Infrastructure projects in special Economic Zones; and

[vi].International convention centres and other tourism infrastructure projects.

Provided that the Empowered Committee may, with approval of the Finance Minister, add or delete any sector / sub-sectors from this list.

5.3Only such projects which are implemented through a Project Company set up on a non-recourse basis shall be eligible for financing by IIFCL.

As per the modifications in SIFTI brought out vide GoI, Banking Division (now DFS) OM No.1/78/2005-IF-1 dated April 23, 2007, para 5.3 of SIFTI is clarified so that only such projects, which are implemented by the borrower company directly, or though a special purpose vehicle, on a non-recourse basis, shall be eligible for financing by IIFCL.The amendments to Para 5.3 of SIFTI would be subject to maintaining an escrow account which may be entrusted to any bank involved in financing of the project and the discretion with regard to the bank would be that of the Board of Directors of IIFCL (modification advised by the GoI vide letter No. 1(78)/2005-IF.I dated April 30, 2007).

5.4In the event that the IIFCL needs any clarification regarding eligibility of a project, it may refer the case to the Empowered Committee for appropriate directions.

6. Appraisal & Monitoring by Lead Bank

6.1The Lead Bank shall present its appraisal of the project for the consideration of the IIFCL. Based on such appraisal, the IIFCL may consider and approve funding to the extent indicated in Article 7 below.

As decided in the fourth meeting of the Empowered committee on SIFTI held on January 14, 2008, para 6.1 of SIFTI stands modified. The current practice of sanctioning viable infrastructure projects appraised by the reputed appraising institutions / banks / international financial institutions, was approved. The disbursement of loans by IIFCL is, however, subject to the appraisal being done by reputed appraising institutions, the Lead Bank accepting and adopting the same. IIFCL shall disburse the loan only after getting the sanction from the Lead Bank.

6.2The IIFCL will not normally be required to carry out any independent appraisal of the project.

6.3The Lead Bank shall be responsible for regular monitoring and periodic evaluation of compliance of the project with agreed milestones and performance levels, particularly for purpose of disbursement of IIFCL funds. It shall send periodic progress reports in such form and at such times, as may be prescribed by IIFCL.

7. Lending Terms

7.1The IIFCL may fund viable infrastructure projects through the following modes:

[a]. Long Term Debt;

[b]. Refinance to Banks and Financial Institutions for loans, with tenor exceeding 10 years, granted by them.

[c]. Any other mode approved by Government from time to time.

7.2The Project Company will have the right to choose any of the modes of lending given above. The terms at which the Project Company can access Long term Debt shall not be inferior to the terms at which refinanced debt is available to the Project Company.

7.3The total lending by the IIFCL to any Project Company shall not exceed 20% of the Total Project cost. Loans will be disbursed in proportion to debt disbursements from financial institutions.

7.4The rate of interest charged by IIFCL shall be such as to cover all funding costs including administrative costs and guarantee fee, if any.

7.5The IIFCL will release funds to the Lead Bank as and when due. The Lead Bank/ FI consortium will make disbursements on behalf of the IIFCL and seek reimbursement which shall be made within one month of receiving a demand, with necessary particulars, from the Lead Bank.

In the fourth meeting of the Empowered committee held on January 14, 2008, it was decided that IIFCL may continue to disburse the loans on a pro-rata basis in terms of the project in-terse agreement / common loan agreement into the Escrow Account simultaneously along with the other banks in the consortium through the RTGS after receiving the Conformation Notice regarding the draw-down date from the Lead Bank / Lenders Agent appointed during the inter-institutional meeting (para 5.3 of SIFTI) stands modified.

7.6Recovery of loans advanced by IIFCL shall be the responsibility of the Lead Bank. Recovery of IIFCL loans shall be pari passu with project debt (other than subordinate debt) till 80% of the project debt (other than subordinate debt) of the Lead Bank and FI consortium (inclusive of interest due) has been recovered. Thereafter the Lead Bank / FI Consortium would assume the payment risk as guarantors of the HFC loan from that stage onwards.

As per the modifications in SIFTI brought out vide GoI, Banking Division (now DFS) OM No.1/78/2005-IF-1 dated April 23, 2007, there is no need to insist on guarantee by the Lead Bank as provided in Para 7.6 of SIFTI and on tripartite agreement provided in Paragraph 7.8 of SIFTI, but IIFCL must position on its staff, personnel with expertise in risk assessment and the regulatory norms that should govern IIFCL should be defined and brought into operation at the earliest.

7.7The charge on project assets shall be pari passu with project debt (other than subordinate debt) and will continue beyond the tenure of project debt (other than subordinate debt) till such time the amounts lent by IIFCL, together with interest and other charges thereon remain outstanding.

7.8The IIFCL, the Lead Bank and the Project Company shall enter into a Tripartite Agreement for the purposes of this scheme. The format of such Tripartite Agreement shall be prescribed by the Empowered Committee from time to time.

7.9In the first two years of operation of the Scheme, projects meeting the eligibility criteria could be funded on a first-come, first served basis. In later years, if need arises, funding may be provided based on an appropriate formula, to be determined by the Empowered Committee, that balances needs across sectors in a manner that would broad-base sectoral coverage and avoid pre-empting funds by a few large projects.

CONCLUSION

Infrastructure growth is a critical necessity to meet the growth requirements of the country. Government led infrastructure financing and execution cannot meet these needs in an optimal manner and there is a need to engage more investors for meeting these needs. Even though the Indian financial system has adequate liquidity, the risk aversion of Indian retail investors, the relatively small capitalisation (compared to the large quantum and long duration funding needs of infrastructure finance) of various financial intermediaries requires adoption of innovative financial structures and revisiting some of the regulations governing the Indian financial system. The risk capital required in the infrastructure sector can be understood as the Explicit Capital brought in as equity by the project sponsors and the Implicit Risk Capital provided by the project lenders. Implicit Capital providers seek to manage their risk-return reward by ensuring availability of adequate Explicit Capital and diversification across various projects. Given this profile of the Explicit Capital, greater flow of this risk capital can be ensured by removing the effects of controllable uncertainties in the policy environment and making available the benefits of diversification through alternate mechanisms. New sources of this risk capital can be sourced by providing partial risk guarantees (in form of First Loss Deficiency Guarantees), formation of highly capitalized financial intermediaries and encouraging securitization transactions. In addition to above, various regulatory initiatives and market reforms are required to enable the commercial banking system to participate more vigorously in providing infrastructure financing.

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