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Scheme for Financing Viable
Infrastructure Projects through a Special Purpose Vehicle called the India
Infrastructure Finance Company Limited (IIFCL) (Modified)
A.
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.
B.
Whereas the development of infrastructure requires
debt of longer maturity to supplement the debt funds presently available;
and
C.
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
D. 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.
2 Short Title and Extent
2.1
The Scheme will be called the Scheme for financing
Viable Infrastructure Projects. It
will be administered by the Ministry of Finance through IIFCL.
2.2
The Scheme will come into force with immediate effect.
3. Definitions
3.1
In this Scheme unless the context otherwise
requires:
[a]. 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.
[b]. IIFCL means the India
Infrastructure Finance Company Ltd (A company incorporated under the
Companies Act, 1956).
[c]. 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.
[d]. Long Term Debt means the debt
provided by the IIFCL to the Project Company where the
average maturity for repayment exceeds 10 years;
[e]. 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;
[f]. Project Company means
the company which is implementing the infrastructure project for which
assistance is to be given by the IIFCL.
[g]. Project Term means the duration of the contract or concession
agreement for a PPP project;
[h]. 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;
[i]. 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.
[j]. Total Project Cost means the
lower of the total capital! Cost of
the project:
[i] as estimated by the government / statutory entity that
owns the project;
[ii] as sanctioned by the Lead Bank; and
[iii] as actually expended
But does not include the cost of land
incurred by the government / statutory entity.
4. Funding of IIFCL
4.1
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
4.2
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.
4.3
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.
4.4
The guarantee fee
payable by the IIFCL would be 0.25% per annum on outstanding balances.
4.5
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.
4.6
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.
5. Eligibility
5.1
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.
5.2
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:
[i]. A Public Sector Company;
[ii]. A Private Sector Company selected under a PPP initiative;
or
[iii]. 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.
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.
5.3
Only such projects
which are implemented through a Project Company set up on a non-recourse
basis shall be eligible for financing by IIFCL.
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.
5.4
In 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
6.1
Viable
infrastructure projects appraised by the reputed appraising institutions /
banks / international financial institutions be
considered by IIFCL. 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.
6.2
The IIFCL will not
normally be required to carry out any independent appraisal of the project.
6.3
The 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
7.1
The 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.
7.2
The 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.
7.3
The 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.
7.4
The rate of
interest charged by IIFCL shall be such as to cover all funding costs
including administrative costs and guarantee fee, if any.
7.5
IIFCL to
disburse the loans on a pro-rata basis in terms of the project interse 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.
7.6/7.8
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.
7.7 The 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.
7.9 In 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.
8. Lending to PPP Projects
8.1
A project awarded
to a Private Sector Company for development, financing, construction,
maintenance and operation through Public Private Partnership (as defined in
the Scheme for Viability Gap Funding) shall be accorded priority for
lending under this Scheme.
8.2
In case of PPP
projects, the private Sector Company shall be selected through a
transparent and open competitive bidding process.
8.3
PPP projects based
on standardized/model documents duly approved by the respective government
would be preferred. Stand –
alone documents may be subjected to detailed scrutiny by the IIFCL.
8.4
Prior to inviting
offers through a open competitive bid, the
concerned government or statutory entity may seek ‘in
principle’ approval of the IIFCL for financial assistance under the
Scheme. Any indication given by
IIFCL at the pre-bid stage shall not be treated as a final commitment. Actual lending by IIFCL shall be governed
by the appraisal by the Lead Bank carried out before financial closure of
the project.
9. Review of the Scheme
9.1
The Scheme may be
reviewed by the Government at the end of 5 years or earlier if
required. The continuation of the
Scheme, with or without modifications, will be dependent on the outcome of
such a review.
Other
modifications / additions made in SIFTI are as under:-
[i] IIFCL
would be regulated directly by the Government and a sui-generis
regulatory regime for IIFCL may be brought into operation at the earliest.
[ii] In order to avoid
frequent references to the Cabinet on procedural matters, modifications to
the SIFTI may be made at the level of Empowered Committee already set-up
under the Scheme subject to the approval of the Finance Minister and the Prime
Minister.
[iii] An Oversight
Committee of Secretaries would be constituted for reviewing the working of
IIFCL on a bi-annual basis.
[iv] The debt equity
ratio in respect of the road sector projects considered for financing may
not exceed 4:1.
Note:
The text shown in italics denotes the modifications / clarifications in SIFTI
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