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New Delhi, Dec. 7: The government is likely to approve the creation of a Rs 5,000-crore India Power Fund before March. The fund aims to channel investments into and facilitate the development of power sector in the country.
The Union power ministry and Power Finance Corporation (PFC) have received the final report from SBI Capital Markets Ltd, the advisors for setting up the fund.
The PFC, which has been designated as the nodal agency, is likely to discuss the modalities and guidelines for India Power Fund at its board meeting scheduled for next week.
According to SBI Caps, the IPF should act as the catalyst for channelling equity investments in the power sector, especially during the transition period of reforms (the Tenth Plan Period).
The report said, “The government should show its commitment to the fund and infuse a sum of Rs 1,000 crore, while the PFC as the sponsor should contribute Rs 100-200 crore.”
“As regards the issue of garnering the remaining subscription is concerned, the same could be sourced from the retail public through a variant of the infrastructure bonds eligible for tax sops under the section 88 or the deductions available under section 80,” says the report.
The report has also recommended that IPF should be set up with a combination of a venture capital fund (VCF) and mutual fund (MF) structure through a common asset management company (AMC). This will help tap institutional investors for an immediate launch and retail investors in the future to expand the corpus.
Sources in the power ministry said, “This is a very important initiative that the government is keen to implement for the growth of power sector. While the VCF aspect of IPF would not be a problem in the initial phase, the role of the finance ministry will be critical.”
The advisors have also suggested that investments by IPF should be a in a mix of projects having different cash flows and risk and returns profiles and also diversification with respect to central, state or private sector and type and technology.
“Depending upon the flow of contributions and investments into the fund, the IPF could initially consider investments in distribution projects, including takeover of distribution companies, transmission projects and the smaller non-conventional, thermal generation projects,” says the SBI Cap report.
The report has suggested that the IPF in form of a VCF be set up and operationalised by December end or early January 2004. To target investments by retail investors, the necessary exemptions for the mutual fund structure will have to be sought simultaneously so that the investors could then be tapped in February-March 2004 coinciding with the timing for tax savings prior to the end of the fiscal or in the first half of next fiscal.
Currently, the hurdle to incorporate the IPF as a MF is the limit on investments in unlisted securities.