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Experts discuss project and policy solutions to financing hiccups

Experts discuss project and policy solutions to financing hiccups

Stemming from India's nascent entry into private development of gigantic proportions in infrast­ructure, the financing of this behemoth has often been called the hiccup in the works. Banks have tra­ditionally blamed asset-liability mismatches (ALMs) for not being able to finance infrastructure projects long term, while the 2008-9 financial downturn around the world has often been held responsible for a shortfall in equity.

However, all that is changing, and rapidly so. Thanks to ways around it, such as take-out financing schemes, refinancing, and better confidence levels among equity owners, domestic funds are no longer considered a thorn in the process. Although international funding and ext­ernal commercial borrowings (ECBs), too, have been difficult in the past, global lenders and investors are eager to invest in India-particularly as the nation is one of the few to have emerged nearly unscathed from the recent economic downturn.

Large landmark projects such as the Terminal 3 in Delhi, Dhamra port and Mundra power plant were exe­mplary in their financial clo­sure, and have become val­uable experiences on which to build infrastructure fin­ance professionally and efficiently.

That said, the growth in our infrastructure sectors have not kept pace with the government's promises over the past two years. Only half the roads promised were actually constructed; power plants (and other sectors such as mining) suffered at the hands of environment; even the smaller projects in urban infrastructure have not achieved the levels they promised to. Much of this, again, is only a part of the learning process that is ine­vitable for nascent activities.

While project developers says they experience diffi­culties obtaining finance, financiers of infrastructure pro­jects identify a) poor project structure b) project via­bility and c) external uncertainties (causing delays and cost overruns) as the major issues in finance.

The one-day conference on infrastructure finance, held in Mumbai on 23 November, focused its attention on what most experts agreed is a critical relationship: Project Structuring for Bankability. The packed confe­rence included individual topic sessions and a vibrant panel discussion on issues and solutions in finance, ran­ging from why the Maritime Agenda seeks 96 per cent support from private participation to risks arising from complete lack of soil data in many ports.

Kicking off the day, Conference Chair Luis Miranda, Chairman, IDFC-PE, mentioned that this conference was important because it would go into the ground-level details. He opened the floor with several points of dis­cussion, including the fact that 50 per cent of projects worldwide get renegotiated, and with close to 7 per cent growth, India's slowdown is not comparable with that of the west. Speakers, top officials from the government, financial institutions and the infrastructure industry, cal­led on the government to enhance External Commercial Borrowings (ECBs), and lamented the fact that there are very few truly bankable projects in the market. A unique HR perspective gave a positive out­look, stating that the attrition in infrastructure industries was far lower (about 8-9 per cent) as against the 18-19 per cent that other industries are experiencing.

Other speakers explained inherent, controllable and uncontrollable risks embedded in infrastructure projects, and called for various solutions to offset them. For exa­mple, if land acquisition and environmental clear­ances can be obtained before a project is awarded, the risk (and therefore the cost pegged thereto) would be much lower. Presumably, foreign investors would parti­cularly benefit from this plan.

Sector-wise presentations and case studies discussions focused mainly on roads and power-perhaps approp­ria­tely so, since the former seems to have picked up pace this year, and the latter has fallen back considerably, thanks in part to SEBs' dismal health and to coal linkage problems-including a huge export duty spike in Indonesia-that have resulted in financing difficulties.

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