The Telegraph
Since 1st March, 1999
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IDBI, rural power corp to fund small projects
- power play: how they plugged it this time

Calcutta, Nov. 16: Industrial Development Bank of India (IDBI) and Rural Electrification Corporation (REC) are together working out a scheme to finance small power projects. The plan envisages funding power plants of about 25 MW each at a cost of Rs 100-120 crore.

The scheme is likely to be ready within a couple of months, senior IDBI officials said.

However, IDBI is not too keen on funding big power projects now unless the project is extremely attractive and the returns are high, the officials added.

IDBI is now quite cautious about funding power projects after it burnt its fingers in the Dabhol fiasco. The financial institution has a huge exposure in the Dabhol Power project.

Power industry sources feel the introduction of the New Electricity Act could spur many new projects.

“We are trying to pool our resources to fund power plants in the medium and small categories. REC is good at assessing the viability of a power plant, while IDBI has the experience of financing large generation projects,” IDBI sources added.

IDBI is eyeing viable projects in the infrastructure sector and the scheme will help the company use its large resources along with its expertise in infrastructure financing.

The performance of the infrastructure sector has left much to be desired in the last couple of years and the power sector has turned in a particularly dismal report card. The main reason is the lack of reforms in the power sector.

Financial institutions have the largest exposures in the power sector. Many of the advances have turned into non-performing assets.

IDBI has cancelled sanctions to 15 large projects for their failure to achieve financial closure.

The Enron debacle has deterred lenders from funding large projects.

There is an increasing feeling among financiers that small projects are easy to implement, cost-effective and risk is less. The power ministry is also promoting small projects.

Sources feel these power plants need not be captive plants. They could sell power to the regional power grid or could be generation projects selling power to a group of companies in a particular area.

Power ministry sources said they have made repeated requests to banks and financial institutions to come forward and finance the power projects. “We need to enhance generation to meet the target of providing power to all by 2012,” they added.

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