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Rs 50k cr of tax-free bonds to power projects in 11th Plan
October, 10th 2007
The government may introduce Vidyut Vikas Patra, on the lines of Kisan Vikas Patra a popular tax-saving instrument for small investors, to mobilise funds for power projects. The power ministry is considering issuing Vidyut Vikas Patra worth Rs 50,000 crore over 4-5 years.

The government is considering issuing bonds to mobilise resources from the general public for the power sector. The proposal has the broad support of the Centre and the states. We hope it would hit the market by March-April next year, an official in the power ministry said. The bonds will mobilise low-cost funds for the power sector to meet investment needs of Rs 10,30,000 crore in the 11th Plan.

A shortfall of over Rs 4,50,000 crore is estimated even after exhausting all avenues of financing, according to a recent presentation to the Planning Commission by the power ministry.

The proposal for the bond issue is being considered at the insistence of the prime ministers office (PMO). A standing group of state power ministers and the Union power minister has been set up on the directions of Prime Minister Manmohan Singh to suggest sources of funding.

According to the proposal, banks and financial institutions, including the Power Finance Corporation (PFC) and Rural Electrification Corporation (REC), would issue long-term bonds.

The group of ministers is considering structuring the bonds as transferable instruments with a lock-in period of at least five years. Alternatively, the bonds could be tax-free instruments on the lines of infrastructure bonds but with a longer maturity of 15-20 years.

The average amount mobilised through Kisan Vikas Patra over the past three years is around Rs 20,000 crore per annum. Even if the response to the power bonds is just 50% of Kisan Vikas Patra, the aggregate amount raised during the 11th Plan will be Rs 50,000 crore, the official said.

To ensure smooth implementation of the financing initiatives, including the bond programme, a sub-committee of the ministers group has been set up under the chairmanship of deputy chairman of Planning Commission Montek Singh Ahluwalia. The sub-group has representation from state governments and also includes officials of the power and finance ministries and representatives from state-owned financial institutions.

The government is finalising broad policy initiatives and instruments for mobilising long-tenure finances for the power sector as a massive shortfall is expected in the proposed investment.

Apart from power bonds, PFC and India Infrastructure Finance Company (IIFCL) may be allowed to issue capital gains bonds similar to those issued by REC and the National Highways Authority of India. The move could mobilise an additional Rs 25,000 crore. IIFCL could provide 40% of the funds to the power sector.
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