Monday, March 4, 2013

IUKAN Session 4 Proceedings: Raising Finance for Investments in Loss Reduction

Investments in network and service delivery infrastructure will be required by operators to make interventions that would drastically reduce losses and improve end-customer services. Raising equity, debt and managing working capital will be key to the success of the operating Distribution Operators. However, the exposure of banks and private equity in the utility segment is still an emerging space and very few private utilities have had successful financial closures.

The key question here was
  1. What will breathe confidence amongst investors to invest in tariff regulated Utility PPP models?
The session moderator Mr. Kamal Maheshwari, Director Spanco, initiated the proceedings highlighting that the fund allocated for Distribution projects is practically half compared to Generation and Transmission projects. Further, the high AT&C losses in the country is primarily due to lack of funding. Most of the DFs operating in India never went for any funding except Nagpur. Nagpur is the first case which has gone for funding from conventional sources. In view of the future situations of 250 DFs in the country, funding for the project is one of critical factor.

Mr. Alok Dayal, Sr. Director, Credit and Environment Risk, IDFC, says his company is very much interested in supporting funding for distribution projects where private company is operating. The company has been active in already distribution projects in Mumbai, Delhi, Kolkata, Surat, etc.  He further added, IDFC is keen to do funding in future DF projects in India, as ultimately it is the cash box of complete value chain. 

Moving on, Mr. Sudarshan Mohatta, VP, SBI Caps, shared his key challenges from the lenders perspective. First point, he added is to have more clarity on payment mechanism from DF model as it depends on collection efficiency and payment patterns of customers. From policy perspective, he added that tenure of the DF concession should be more (20 -25 years), procurement of power beyond the agreed limits requires approval of power purchase and if that doesn't get approved, then resorting to load shedding. These are key issues identified by him for DF compared to DISCOM and suggests to have more awareness among vendors for funding opportunities.               

Dr. Pawan Singh, Director Finance, PTC Financial Services (PFS), is of the opinion that the DFs are recent business models and there are hardly any success stories regarding funding of DF project. The model is still in evolving stage and has its own ambiguity. Further, he said there is no standard Debt Equity ratio defined for distribution side, whereas for Generation and Transmission, it is defined as 30:70. To conclude, he added the different stakeholders Policy Makers, lenders, Promoters, etc need to work closely with each other to really make it success. 

Mr. Sudip Sural, Director Corporate & Govt. Ratings, CRISIL, shared his aspects on ratings of DISCOMs and bankability of the project and how it can help the DFs. There are two key aspects of grading, one extent of losses in state utilities and second Debt that the DISCOMs have to serve, has prompted stakeholders to devise grading systems which can enable banks to support utilities for funding/finance. For evaluating ratings of DFs, he told three critical parameters as Business risk, Financial risk, and Management risk. Focusing more on business risk, the critical factors as per his views are operational efficiency and regulatory risks which varies on different types of models and how capex can be converted into cash flows.                          

Mr. Rajesh Sinha, Senior Investment Officer, IFC, presents his view with a question that 'Is it that our vendors are getting comfortable with DF?' The answer is No. There is a long way to go. The answer may be Yes if the commercial banks starts funding for DFs. Comparing Water financing with Power, he said the challenges mostly remains same like contracts designing, legal framework, etc, but there is more political challenge is Water compared to Power sector. Sharing the outcomes of Water PPP project in Manila, he said right structuring of new models could see success in any PPP models in any sector including DFs.

Ms. Kshama Fernandes, CEO, IFMR Capital, shared her innovative case study on how micro-finance can be applied to DF business. She said, the underlying utilities looked very much similar from a structured finance to micro-finance. For e.g. a group of poor women's who don't have collateral/documents to provide, so they come in group (let's say 5) and take each other loan repayment responsibility and gets the loan in micro-finance. Loan can be very small amount with weekly or fortnightly repayment facility. Once the period ends, the loan amount gets repaid. The similar can be the situation in structured finance, wherein a large cash flows generated weekly, fortnightly or monthly basis, can be used to pull these cash flows and enable financing. Both are B2C markets, with end-customers given credit of a commodity (money, power, water etc.), and payment to be regularly collected over a period by the service provider. A lot of the structured finance knowledge and practices developed in micro-finance could be extended to the utilities sector as well.

The overall session has indicated great interest for supporting finance in DFs and other PPP models from different investors like IDFC, SBI Caps, CRISIL, IFC, PFS, IFMR.

To download the presentations of individual speakers, visit (  
Posted by: Kunjan Bagdia @ pManifold

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