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Bigger loan window for PFC & REC, tax breaks on ECBs sought
Wed, 16 Feb 2011 22:21:41 GMT
NEW DELHI: Power ministry will seek cabinet approval for foreign borrowings of $2 billion by state-run firms, and tax breaks for external commercial bonds , power secretary Uma Shankar told ET on Wednesday.

Power Finance Corporation and Rural Electrification Corporation plan to raise $1 billion each from external commercial borrowings. Currently, the two companies can raise ECBs to the extent of 50% of their net worth subject to a limit of $500 million per year. All interest payments on external commercial borrowings attract withholding tax resulting in higher cost of borrowing.

The move is based on recommendations submitted by a subcommittee of group of ministers on financial issues to the power sector headed by Planning Commission deputy chairman Montek Singh Ahluwalia. The panel has estimated that over 4,21,000 crore additional investments are required in the power sector. India hopes to add over 78,000 mw capacity during 2007-12 entailing an investment of 10,00,000 crore. Similar projections have been made for 12th five-year plan that begins next year.

Shankar said the subcommittee has also recommended higher exposure limits for banks for financing ultra mega power projects and exemption of customs duty on construction equipment used in hydropower projects. Presently, the exposure limit of a bank to a single private company and a group is 20% and 30% of net worth respectively.

"We have seen the recommendations. After consultations with concerned departments, we will move a note for consideration of the cabinet committee on infrastructure," he said.

The power ministry has earlier urged finance ministry to increase exposure limits for banks to 40% and 80% of capital funds for single companies and a consortium of project developers.

Shankar said the subcommittee also recommended cheaper loans to hydropower projects and that only half of loans given by banks to PFC and REC be taken into account for calculating sectoral exposure limits.

The ministry would also seek waiver of custom duty on imported coal used for fueling power projects. Besides, it feels that excise and customs duties on energy-efficient equipment should be reduced.
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