REC to fund debt portion of power project

Chennai: Rural Electrification Corporation has agreed to fund the entire debt of the 1,000-MW coal-based power project being put up jointly by NTPC and the Tamil Nadu Electricity Board, near Chennai.

According to official sources here, the public sector funding company is likely to charge an interest rate marginally lower than the 11.25 per cent it charges for generation projects.

REC recently signed an agreement to provide a loan of Rs 3,796 crore to NTPC Tamil Nadu Power Company, an equal joint venture between NTPC and the Tamil Nadu Electricity Board. The project’s total cost is about Rs 5,500 crore.

“As against the normal practice of project financiers, funding such mega projects through consortium route, REC has decided to fund it single-handedly. This is one of the highest sanctions made by REC for financing a power generation project,” said an official press release.

When contacted, Mr Vinod Behari, Executive Director, REC, said the corporation decided to fund the project single-handedly rather than go for a consortium route because it was satisfied with the track record of the promoters. He, however, did not divulge the interest rate and tenure of the loan.

TNEB officials said that repayment for the Ennore project would begin only after the project was commissioned and the entire loan would have to be re-paid in 15 years. The officials said it would have been difficult to obtain such a long tenure loan from commercial banks, which would have gone in for a consortium approach.

The first unit of the project, for which BHEL is the contractor, is expected to be commissioned in 2010-11, according to the release.

Mettur project:

According to TNEB officials, the electricity board will also seek a loan of Rs 2,175 crore from REC for a 600-MW coal-based project it is putting up at North Chennai. The board today signed an agreement with PFC, also a public sector funding agency, for a Rs 2,200-crore loan for a coal-based project in Mettur.

Even though REC is a relatively new entrant in funding of generation projects, the ‘Navratna’ financing major is the lead institution responsible for syndicating loans in as many as seven projects cumulatively adding up to 4,285 MW. REC has a higher leeway to fund generation projects promoted by public sector utilities.

It can sanction loans for generation projects of public sector utilities up to a maximum of 80 per cent of project cost (in a debt-equity ratio of 80:20), but up to the exposure limit fixed for the power utility. For private projects, the financing by REC is limited to 50 per cent of the project cost or 25 per cent of the net worth of REC, whichever is less.

REC’s original mandate to develop rural electrification by funding transmission and distribution (T&D) projects has widened to finance all types of power projects, including generation and renovation and modernisation (R&M) of old plants.

In 2006-07, almost 40 per cent of REC’s disbursements went to generation projects while T&D accounted for about 45 per cent.

Since 2002, REC has financed more than 40 thermal generation projects including a 1,200-MW coal-based project in Hissar, Haryana, and the 1,000-MW expansion of Bhusawal station in Maharashtra. Besides, REC has also extended funding to hydro projects such as the 1,000-MW Tehri Stage I in Uttarakhand and the 1,000-MW Karcham Wangtoo project in Himachal Pradesh.