BACKGROUND

Power Finance Corporation Limited (PFC), set-up in July 1986, as a Development Financial Institution dedicated to the Power Sector, has been playing an increasingly important role in mobilising financial resources from within and outside the country and in providing various kinds of financial assistance to the power projects. Besides FC as DFI, also focuses on the, institutional development of its borrowers State Power Utilities, in particular. 

The Corporation was registered as a non-Banking Financial Institution (NBFC) by RBI in February 1998. In September 1998, Gal declared PFC as a Mini Ratna Category-1 PSE. 

PFC is a profit making organisation since inception and has been rated 'Excellent' consistently based on MOU performance.

BORROWERS

PFC's borrowers are primarily the State Electricity Boards, State Generation Corporations and the State Electricity Departments. The lending portfolio has been broadened; to include Central Sector, Joint Sector, Private Sector and Co-operative Sector Power Utilities.

PRIORITIES

PFC's lending priorities are aligned with GOI's policies to ensure optimal and balanced power sector development. The type of schemes, identified for providing financial assistance, in order of priority as well as their extent of financing as % of project cost is given as under:
 

INSTITUTIONAL DEVELOPMENT

Consistent with the envisaged role as a Development Financial Institution, PFC continues to attach high priority and importance to qualitative improvement in the functioning of SEBs/SGCs in managerial, technical and financial areas within the existing structural framework through formulation and implementation of Operational and Financial Action Plans (OFAPs) for its borrowers. These Plans are prepared in consultation and in agreement with the Utilities and the State Governments concerned. The implementation of OFAP has led to qualitative and quantitative improvements in the functioning of the State power-utilities. However, due to various structural constraints, the improvements are not sustainable. The most significant achievement of OFAP has been to heighten awareness towards reforms in the State power sector. As on 31.03.2000, 10 SEBs, 9 State Generating Corporations, 1 Transmission Company, 5 State Power Departments and 1 Autonomous Body have OFAP In place. 

To motivate States towards reforms and restructuring, PFC had adopted pro-active approach and has been providing technical and financial assistance to State Govts. and State power utilities for structural reforms in State power sector. Recognising that offer of complete financial package of financial assistance up front covering the requirement of funds for 5-7 years in the State power sector will help speed up the pace of reforms, PFC has recently introduced a policy covering complete financial package, funding a major portion of the investment plan for the balance period of Ninth Plan and the Tenth Plan linked to achievement of milestones as covered under the Reform - OFAP. PFC has had discussion with most of the State Govts. and presently, 12 States have agreed to reform their power sector with technical and financial assistance of PFC.

PFC has also been providing grant interest free loans/soft loans to State Govts./State power utilities and State Electricity Regulatory Commissions to carry out reforms related studies. Technical assistance from multilateral agencies is also channelised as grant to support further studies. PFC has been conducting at intervals workshops/seminars for dissemination of vital information concerning the improvements in the power sector and the emerging
requirements, and also conducting training for power sector personnel in India and abroad.

Resource Mobilisation (Market Borrowings) 

During the year, (August 1999) PFC has successfully mobilised US $100 million through 7-year Floating Rate Notes (FRN) issue at 145 basis points above LIBOR. This gains all the more prominence in view of then prevailing environment factors- Kargil crisis and default by M/s Essar Steel in redemption of their FRN-and the low pricing at which it was completed. This was the fourth successful offshore issue. Earlier, PFC, mobilsed US $100 million through syndicated loan in July] 998, US $ ] 00 million in July ] 997 by way of fixed Euro Note Issue and US $75 million in January 1997 as syndicated loan. All these Loans/Notes have attracted the best rates available for any Indian Company at the time of mobilisation. The one in July 1998 was completed immediately after the Pokhran nuclear test. 

The domestic borrowings are in the form of Regular Bonds, Tax Exempt Bonds and Long Term Loan from Banks, besides, Gal Loan (WB/ADB/ODA). The domestic market borrowings have also been at the lowest possible rates/prime lending rates. The external and domestic] borrowings at the above rates coupled with high recovery performance have enabled PFC to lend at 1 the most competitive interest rates. 1 Besides that, it has also earned PFC best credit rating from domestic and; international rating agencies. 

CRISIL and ICRA have accorded highest safety rating 'AAA' and 'LAAA' respectively for PFC's long-term debt-raising programme. Moody's and Standard & Poor's have accorded sovereign Tatting for (PFC's foreign currency debt. 

Accelerated Generation and Supply Programme (AG&SP) Accelerated Generation and Supply Programme was launched by PFC, in 1997-98 with the approval of Government in order to accelerate the completion of on-going generation projects arid increasing the supplies from existing facilities. Under this Programme, PFC provides financial assistance at concessional rates to its borrowers for the various projects covered. These projects are:

• Renovation, Modernisation, Life Extension and Refurbishment of Thermal and Hydel Power Plants which improve the utilisation of existing assets;
• Missing Transmission Links & System Improvement Projects . Completion of On-going/incomplete thermal and hydel power generation projects.

PFC provides financial assistance to these projects at 4% below the normal lending rate. For projects situated in North-Eastern States, an additional concession of 1% is given.

Lender's Engineer Services 

In line with its strategy for diversification into related areas of power sector, PFC has set-up a new Unit "Lender's Engineer Services" to provide specialised support services to lenders and borrowers. This Unit aims at integrating lenders perspective with that of engineers. The main thrust of this. is to help lenders in protection from project investment and implementation risks and to provide an effective alternative to engineering consultants and to integrate knowledge-base of SEBs with Power Sector operations. The services offered comprise of activities ranging from project conceptualisation to post completion.

Consultancy Services

In pursuance of its diversification strategy, PFC has recently created, a separate Unit "Consultancy Services" for power and financial sectors. The range and scope of consultancy services includes:

• Restructuring and reform activities including operationalisation of reform entities
• Financial management of resources including mobilisation and accounting systems
• Project Planning and Implementation
• Human Resource Development
• Management Information systems

PFC has been consistently ranked "Excellent" for its performance against MOU targets ever since it started signing MOO in 1993-94.

FUTURE PERSPECTIVE

In the years ahead, PFC's efforts will be directed towards further consolidating its position as the premier Development Financial Institution for the power sector. Towards this end, PFC with the active support of Gal will strive to emerge as the nodal agency through which all credits to power sector from bilateral/multi-lateral sources, would be channelled.

Products and Services

Presently, the financial assistance provided by PFC is by way of Term Loans, Leasing, Bill Discounting, Guarantees and Working Capital and Grants. In times to come, PFC plans to broaden its range of products and services to include both fund-based and non fund-based activities. Towards this end, PFC has already made a beginning by starting Lender's Engineer Services and Consultancy Services Group.