‘PFC bullish on credit offtake’

VK Garg, chairman and managing director of PFC, in conversation with Hardnews
NOOR MOHAMMAD DELHI

EVEN THOUGH INFLATIONARY expectations worldwide are driving interest rates up, Indian power project financing major Power Finance Corp (PFC) remains bullish on credit off-take. The global credit crunch will not impact on credit demand from the Indian power sector, said VK Garg, chairman and managing director of PFC while talking to Hardnews. Garg said PFC's credit off-take grew by 48 per cent in the first quarter of the current financial year compared with the corresponding period in the last fiscal. Even the rupee's depreciation against the dollar will not have any significant impact on the actual financial performance of the corporation, at least in the short term, he said. It is because PFC borrows funds with long-term repayment schedule only, Garg clarified.
PFC reported a 4 per cent decline in its latest quarterly net profit, year-on-year basis. The corporation attributed this to loss of Rs 57 crore to foreign exchange variation. But the PFC chief maintained this was a notional loss as the corporation had no repayment obligations in the near term. It showed the notional loss in the balance sheet just to comply with the mandatory disclosure norms set by Stock Exchange Board of India (SEBI). If PFC were a trading company instead of a financing agency, the loss would have been real, Garg clarified.
PFC is the nodal agency for the development of the various ultra mega power projects envisaged by the Indian government. Its job is to secure all regulatory and statutory clearances as well as arrange key physical inputs like coal linkage and land for these projects. The corporation is also responsible for conducting tariff-based bidding for allocation of these projects. Expenditure incurred by PFC in the process is included in the project cost and recovered from developers. But beyond that, PFC has no role with regard to these projects. Tata Power, the developer of the Mundra ultra mega power project in Gujarat, has preferred to borrow from multilateral agencies like the Asian Development Bank rather than PFC to fund the project. Does this rankle with the PFC management? Not really, if we are to believe Garg.
PFC is focusing to generate business from state sector power projects. If developers of ultra mega power projects also approach it for financing support, they would be welcome. But if they want to raise funds from elsewhere, it is their choice and PFC has nothing against that. After all, the corporation is not banking on these projects for credit off-take, said the PFC chairman.
The global credit crunch will also not affect PFC's resource mobilisation for meeting its lending requirements, he said. The corporation is able to raise enough rupee-denominated funds at reasonable costs to meet the financing needs of its customers even though the domestic bond market still lacks the depth.
He said dollar loans account for just 5 per cent of PFC's overall lending portfolio and so managing that is not a big challenge for it. Still, the corporation has taken recourse to key financial instruments like hedging to deal with the risks of unpredictable foreign exchange movements.
While the state sector power project financing remains the mainstay of PFC's business operations, it has also drawn up plans to enhance its lending to private power projects in the wake of the government's recent decision to mandate switchover to tariff-based bidding from the nomination route for allocation of power projects.
The corporation has also laid out plans to tap emerging opportunities in the financing of non-conventional energy sources like wind, biomass and solar even as it is expanding its loan portfolio for power generation projects based on fuels like coal, lignite and oil and gas where it already holds 20 per cent of the market share.
Not only that, PFC is also working to get a bigger slice of the financing opportunities emerging from the government's new thrust on the development of infrastructure projects like rail lines and ports, where capacity constraints are hampering coal movement and growth of the power sector.