Sources of Finance for Ppp Infrastructure Projects

Sources of Finance for PPP Infrastructure Projects

Any Infrastructure Project can be financed through following sources:

1) Debt

2) Equity

3) Grants from government

4) Sub Debt

Grants: To develop Infrastructure in India and to attract Private Sector's investment GoI provides grants to PPP projects to fund the viability gap. Grant cannot exceed 20% of the total Project Cost.

Negative Grant: It is the opposite of 'grant' given by the government.

Under negative viability gap funding, a constructor pays the government to get a contract because the returns from it are so good. A company would offer to pay the government instead of receiving the grant is because the company estimates huge profits.

Financing Sr. Debt:

If we look at the financing of these projects we find that PPP projects in India have been largely financed by plain vanilla debt. On an average across all projects 68 percent of the project cost is usually financed by debt, 26 percent by promoter's equity while only 2 percent comes from sub-debt. The remaining 4 percent of the project cost comes from Government grants of different kinds. The grants are mainly in the form of monetary support given by both the State and the Central Government to make the projects viable.

The institutions which dominate infrastructure financing in India are commercial banks. Out of a total debt financing done for PPP projects nearly 72 percent can be attributed to term loans from banks while other institutional lenders provide the rest. This is slightly higher than what is prevalent in the financing of infrastructure in developing countries overall, where World Bank estimates suggest that nearly 62 percent of the financing comes from this source.

Out of the debt financing of USD7.72 billion, 72% can be attributed to term loans from commercial banks. USD1.93 billion, which forms 28% of the total debt funding, is from sources other than banks. Players like IIFCL (34.4%), IDFC (22%) and IDBI7 (17.3%) dominate in the funding from other sources.

Banks and other institutional lenders provide debt on a syndicated basis, especially for large projects. There are nearly 30 lenders which are active in the infrastructure financing market and participate in the lending syndications. However, only 6-7 of these play the role of lead banks in the syndicate and have the capacity to appraise projects. Others rely on the appraisal carried out by the lead bank for lending to projects.

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