Power firms will be allowed to raise foreign funds soon

Following up on the scheme to allow external commercial borrowing (ECB) by state-owned power companies announced by finance minister Pranab Mukherjee in the annual Budget, India will allow power companies to raise overseas debt to finance up to 40 per cent of rupee debt on existing power projects. An official notification to this effect is likely in the next seven days, a finance ministry official said today.

The Reserve Bank of India will issue the necessary guidelines to allow ECB by power companies to retire their rupee debt with Indian banks, Thomas Mathew, joint secretary of capital markets in the finance ministry, told reporters in New Delhi.

The scheme will allow power sector companies refinance their rupee debt with cheaper funding from ECB, giving them the chance to expand their loan portfolio with banks for funds required for expansion and new projects.

Several banks and financial institutions have reached the exposure limit allowed by RBI for the power sector, making it difficult for power companies to mobilise funds from the domestic market.

In other announcements, Mathew said the Budget proposal to allow ECBs to meet working capital needs of airlines industry for one year for up to $1 billion would also be implemented soon.

The RBI will also issue guidelines to allow ECB for capital expenditure on the maintenance and operations of toll systems for roads and highways. The remaining decisions on ECB financing announced in the Budget would be taken up separately by RBI at a later stage, Mathew said.