scheme

Scheme for Financing Viable Infrastructure Projects through a Special Purpose Vehicle called the India Infrastructure Finance Company Limited

[The text shown in bold denotes the modifications/clarifications in SIFTI from time to time]

• Whereas the Government of India recognizes that there is a significant deficit in the availability of physical infrastructure across different sectors and that this is hindering economic development.
• Whereas the development of infrastructure requires debt of longer maturity to supplement the debt funds presently available; and
• Whereas the Government of India recognizes that such debt is usually not available because of the following constraints :

• Absence of benchmark rates for raising long term debt from the market;
• Asset-liability mismatch of the tenor of debt in case of most financial institutions; and
• High cost of long term debt

• Now, therefore, the Government of India has decided to put into effect the following scheme for providing financial support to improve the viability of infrastructure projects.

Short Title and Extent

• The Scheme will be called the Scheme for financing Viable Infrastructure Projects. It will be administered by the Ministry of Finance through IIFCL.
• The Scheme will come into force with immediate effect

Definitions

• In this Scheme unless the context otherwise requires:

• Empowered Committee means a Committee set up for the purposes of this Scheme under the chairmanship of Secretary (Economic Affairs) and including Secretary, Planning commission, Secretary (Expenditure), Secretary (Financial Sector) and in his absence Special Secretary/Additional Secretary (Financial Sector) and Secretary of the line Ministry dealing with the subject.
• IIFCL means the India Infrastructure Finance Company Ltd (A company incorporated under the Companies Act, 1956).
• Lead Bank means the Financial Institution (FI) that is funding the project and is designated as such by the Inter-Institutional Group or consortium of Financial Institutions provided the risk exposure of IIFCL is less than that of the lead bank in a project.
• Long Term Debt means the debt provided by the IIFCL to the Project Company where the average maturity for repayment exceeds 10 years [8.5 years in the case of India Infrastructure Finance Company];
• Private Sector Company means a company in which 51 percent or more of the subscribed and paid-up equity is owned and controlled by private entities;
• Project Company means the company which is implementing the infrastructure project for which assistance is to be given by the IIFCL.
• Project Term means the duration of the contract or concession agreement for a PPP project;
• Public Private Partnership (PPP) Project means a project based on a contract or concession agreement, between a Government or a statutory entity on the one side and a Private Sector Company on the other-side, for delivering an infrastructure service on payment of user charges;
• Public Sector Company means a company in which 51 percent or more of the subscribed and paid-up equity is owned and controlled by the Central or a State Government, jointly or severally, and includes any undertaking designated as such by the Department of Public Enterprises and companies in which majority stake is held by Public Sector Companies other than financial institutions.
• Total Project Cost means the lower of the total capital cost of the project:

• as estimated by the government / statutory entity that owns the project;
• as sanctioned by the Lead Bank; and
• as actually expended
  But does not include the cost of land incurred by the government/statutory entity.

Funding of IIFCL

• Apart from its equity, the IIFCL shall be funded through long-term debt raised from the open market. This debt can be any or all of the following:

• Rupee debt raised from the market through suitable instruments created for the purpose; the IIFCL would ordinarily raise debt of maturity of 10 years and beyond.
• Debt from bilateral or multilateral institutions such as the World Bank and Asian Development Bank.
• Foreign currency debt, including through external commercial borrowings raised with prior approval of the Government.

• The IIFCL would raise funds as and when required, for on lending, in consultation with the Department of Economic Affairs. The magnitude of funds raised would be determined by demand from viable infrastructure projects. To the extent of any mismatch between the raising of funds and their disbursement, surplus funds would be invested in marketable government securities.
• The borrowings of IIFCL may be guaranteed by the Government of India. The extent of guarantees to be provided shall be set at the beginning of each fiscal year by the Ministry of Finance, within the limits available under the Fiscal Responsibility & Budget Management Act. However bonds issued by IIFCL, unless otherwise directed by Government of India, will not be included against Statutory Liquidity Ratio requirements. For 2005-06, the extent of guarantee to be provided by Government of India will be Rs.10,000 crore.
• The guarantee fee payable by the IIFCL would be 0.25 percent per annum on outstanding balances.
• The facility of guarantees including the terms for guarantee will be reviewed after 5 years, and its continuation shall be subject to the outcome of the review.
• IIFC may raise funds from domestic institutions namely, banks, FIs etc, on the basis of the guarantees issued to IIFC. Funds of shorter duration than ten years may be raised only on account of asset-liability management consideration.

Eligibility

• The IIFCL shall finance only commercially viable projects. Viable projects may also include those projects that will become viable after receiving viability gap funding under a government scheme.
• In order to be eligible for funding under this Scheme, a project shall meet the following criteria;

• The project shall be implemented (i.e. developed, financed and operated for the Project Term) by:

• A Public Sector Company;
• A Private Sector Company selected under a PPP initiative; or
• A Private Sector Company

• Provided that the SPV shall assign overriding priority to Private Public Partnership projects that are implemented by Private Sector Companies selected through a competitive bidding process.
• Provided further that a Private Sector Company, other than that defined in the first proviso above, would not be eligible for direct lending by the SPV and may be funded only through the refinance mode. The total lending for such private projects shall not exceed 20 percent of the lending programme of the SPV in any accounting year. The eligibility for direct lending and / or raising the limit of 20 percent will be reviewed at the end of one year having regard to the progress made in funding public sector and PPP infrastructure projects.
• SIFTI stands clarified so as to enable IIFCL to lend directly to projects set up by private companies subject to the following conditions:

• The service to be provided by the Infrastructure project is regulated, or the project is being set up under an MOU arrangement with the Central Government, any State Government or a PSU.
• The tenor of IIFCL lending should be larger than that of the longest tenor commercial debt by at least two years.
• Direct lending plus the refinance business, if any, on account of this category of borrowers (private sector companies not selected through a competitive bidding process) should not exceed 20 percent of the total lending by IIFCL in any accounting year. (This limit is the same as the limit currently imposed for the refinance window.

• Provided that in case of Railway projects that are not amendable to operation by a Private Sector Company, the Empowered Committee may relax the eligibility criterion relating to operation by such company.
• The project should be from one of the following sectors:

• Road and bridges, railways, seaports, airports, inland waterways and other transportation projects;
• Power;
• Urban transport, water supply, sewage, solid waste management and other physical infrastructure in urban areas;
• Gas pipelines;
• Infrastructure projects in special Economic Zones; and
• International convention centres and other tourism infrastructure projects.

• Provided that the Empowered Committee may, with approval of the Finance Minister, add or delete any sector / sub-sectors from this list.

• Only such projects which are implemented through a Project Company set up on a non-recourse basis shall be eligible for financing by IIFCL.

  SIFTI is clarified so that only such projects, which are implemented by the borrower company directly, or though a special purpose vehicle, on a non-recourse basis, shall be eligible for financing by IIFCL.

  The amendments of SIFTI would be subject to maintaining an escrow account which may be entrusted to any bank involved in financing of the project and the discretion with regard to the bank would be that of the Board of Directors of IIFCL.

• In the event that the IIFCL needs any clarification regarding eligibility of a project, it may refer the case to the Empowered Committee for appropriate directions.

Appraisal & Monitoring by Lead Bank

• Viable infrastructure projects appraised by the reputed appraising institutions / banks/international financial institutions be considered by IIFCL. The disbursement of loans by IIFCL is, however, subject to the appraisal being done by reputed appraising institutions, the Lead Bank accepting and adopting the same. IIFCL shall disburse the loan only after getting the sanction from the Lead Bank.
• The IIFCL will not normally be required to carry out any independent appraisal of the project.
• The Lead Bank shall be responsible for regular monitoring and periodic evaluation of compliance of the project with agreed milestones and performance levels, particularly for purpose of disbursement of IIFCL funds. It shall send periodic progress reports in such form and at such times, as may be prescribed by IIFCL.

Lending Terms

• The IIFCL may fund viable infrastructure projects through the following modes:

• Long Term Debt;
• Refinance to Banks and Financial Institutions for loans, with tenor exceeding 10 years, granted by them.
• Any other mode approved by Government from time to time.

• The Project Company will have the right to choose any of the modes of lending given above. The terms at which the Project Company can access Long term Debt shall not be inferior to the terms at which refinanced debt is available to the Project Company.
• The total lending by the IIFCL to any Project Company shall not exceed 20 percent of the Total Project cost. Loans will be disbursed in proportion to debt disbursements from financial institutions.
• The rate of interest charged by IIFCL shall be such as to cover all funding costs including administrative costs and guarantee fee, if any.
• IIFCL to disburse the loans on a pro-rata basis in terms of the project inter-se agreement / common loan agreement into the Escrow Account simultaneously along with the other banks in the consortium through the RTGS after receiving the Conformation Notice regarding the draw-down date from the Lead Bank / Lenders’ Agent appointed during the inter-institutional meeting.
• Recovery of loans advanced by IIFCL shall be the responsibility of the Lead Bank. Recovery of IIFCL loans shall be pari passu with project debt till 80% of the project debt of the Lead Bank and FI consortium (inclusive of interest due) has been recovered. Thereafter, the Lead Bank/FI Consortium would assume the payment risk as guarantors of the IIFCL loan from that stage onwards.
  
  As per the modifications in SIFTI brought out vide GoI, Banking Division (now DFS) OM No.1/78/2005-IF-1 dated April 23rd 2007, there is no need to insist on guarantee by the Lead Bank as provided in paragraph above and on tripartite agreement provided in the following paragraph of SIFTI but IIFCL must position on its staff, personnel with expertise in risk assessment and the regulatory norms that should govern IIFCL should be defined and brought into operation at the earliest.
  
  The IIFCL, the Lead Bank and the Project Company shall enter into a Tripartite Agreement for the purposes of this scheme. The format of such Tripartite Agreement shall be prescribed by the Empowered Committee from time to time.
• The charge on project assets shall be pari passu with project debt (other than subordinate debt) and will continue beyond the tenure of project debt (other than subordinate debt) till such time the amounts lent by IIFCL, together with interest and other charges thereon remain outstanding.
• In the first two years of operation of the Scheme, projects meeting the eligibility criteria could be funded on a first-come, first served basis. In later years, if need arises, funding may be provided based on an appropriate formula, to be determined by the Empowered Committee, that balances needs across sectors in a manner that would broad-base sectoral coverage and avoid pre-empting funds by a few large projects.

Lending to PPP Projects

• A project awarded to a Private Sector Company for development, financing, construction, maintenance and operation through Public Private Partnership (as defined in the Scheme for Viability Gap Funding) shall be accorded priority for lending under this Scheme.
• In case of PPP projects, the private Sector Company shall be selected through a transparent and open competitive bidding process.
• PPP projects based on standardized/model documents duly approved by the respective government would be preferred. Stand-alone documents may be subjected to detailed scrutiny by the IIFCL.
• Prior to inviting offers through a open competitive bid, the concerned government or statutory entity may seek ‘in principle’ approval of the IIFCL for financial assistance under the Scheme. Any indication given by IIFCL at the pre-bid stage shall not be treated as a final commitment. Actual lending by IIFCL shall be governed by the appraisal by the Lead Bank carried out before financial closure of the project.

Review of the Scheme

• The Scheme may be reviewed by the Government at the end of 5 years or earlier if required. The continuation of the Scheme, with or without modifications, will be dependent on the outcome of such a review.
• Other modifications / additions made in SIFTI are as under:

• IIFCL would be regulated directly by the Government and a sui-generis regulatory regime for IIFCL may be brought into operation at the earliest.
• In order to avoid frequent references to the Cabinet on procedural matters, modifications to the SIFTI may be made at the level of Empowered Committee already set-up under the Scheme subject to the approval of the Finance Minister and the Prime Minister.
• An Oversight Committee of Secretaries would be constituted for reviewing the working of IIFCL on a bi-annual basis.
• The debt equity ratio in respect of the road sector projects considered for financing may not exceed 4:1.

Other provisions relating to lending by IIFC(UK) Limited

Exposure Limits:

• SIFTI, IIFC(UK) would sanction loans less than the lead bank’s share. Further, IIFCL and IIFC(UK), which are separated by arm’s length relationship, would ensure that the aggregate exposure of both remains at 20 per cent of the total cost of the project and shall be less than that of the lead bank.
• With respect to the lending to private sector companies (not selected through a competitive bidding process), the ceiling of 20 per cent as given under the eligibility criteria shall be computed for both IIFCL and IIFC(UK) together and the allocation for lending within 20 per cent limit between the two companies shall be decided by the Board of IIFCL, depending upon the available eligible proposals with the two companies.

Tenor

• Long Term Debt means the debt provided by the IIFCL to the Project Company where the average maturity for repayment exceeds 10 years [8.5 years in the case of India Infrastructure Finance Company];

Disbursement of loans by IIFC(UK) Limited

• The disbursement of the loan to the project shall be made to the standard supplier(s) of the equipment directly as per Letter of Credit, based on the confirmation from the lead/designated bank on receipt of satisfactory reports from the project and fulfilment of other prescribed requirements. In case, there is/are any other bank(s) participating in the foreign currency loan to such project(s) and an escrow account for disbursement of loans is maintained by one of such banks outside India for the project, the disbursement of IIFC(UK) Limited may be considered for routing through the said account for onward payment to the supplier(s).

Lending by IIFC(UK) Limited to be treated as ECB for the projects

• The lending by IIFC(UK) Limited to the project(s) would be treated as external commercial borrowings (ECBs), as permitted under the extant guidelines. Such lending would, accordingly be subject to the ECB conditions and the prescribed reporting & disclosure requirement by the Reserve Bank of India from time to time.