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IIFCL Seeks Easier World Bank Terms for Infrastructure Lending

  • Unable to utilize a $1.2 billion World Bank line of credit because of strict environmental and social safeguards for infrastructure projects, India Infrastructure Finance Co. Ltd (IIFCL) has asked the multilateral lender to amend conditions for lending to such projects.“Whenever we referred projects to the World Bank, it did not meet their criteria. Because of this, we have not drawn on the credit till now,” said S.K. Goel, chairman and managing director, IIFCL. “We have sent a proposal for restructuring the line of credit. A part of the fund can be used for funding some of our other schemes such as take-out financing and credit enhancement scheme.”

  • Infrastructure projects that get assistance from the World Bank need to adhere to a set of environmental and social safeguards, procurement policies, as well as accounting and auditing standards to ensure that people and the environment are not harmed. With most infrastructure projects failing to meet these terms, IIFCL has written to the multilateral lender seeking a change in the terms of lending and a relaxation in environmental and social safeguard norms.“We have requested the World Bank to be flexible on the environment issues. They are very strict on environmental and social safeguards,” Goel said. “Only solar or wind energy projects in India may be able to meet the criteria.”

  • The line of credit, approved in 2009 for on-lending by state-owned IIFCL to sectors such as roads, power generation and transmission, and ports, was meant only for direct lending to infrastructure projects and not for take-out financing and credit enhancement. Take-out financing involves buying the loan portfolio of an initial lender. Road and power projects account for more than half of IIFCL’s total loan book of around Rs.19,000 crore.At the time the funding was announced, it was envisaged that the support will increase the availability of long-term financing for infrastructure public-private partnership projects and aid the development of a long-term local currency debt financing market for infrastructure in India.

  • A World Bank spokesperson said it is working closely with IIFCL to ensure the availability of long-term financing to infrastructure while meeting environmental and social safeguards.“An environment and social management unit has been set up and an enhanced environmental and social safeguards framework has been prepared. These standards would help in faster and smoother implementation of infrastructure projects, once under way,” the spokesperson said in an emailed response. “In line with these developments, two transmission projects have recently been approved for bank financing and disbursement has begun in one of the transmission projects.”

  • “We have not received a formal restructuring proposal of the line of credit from government of India,” the spokesperson said.Most infrastructure projects didn’t meet conditions on pollution control, land acquisition policies and rehabilitation of the displaced.“It requires a certain mindset change on the part of Indian companies. Though adhering to social and environmental safeguards does add to costs, it is really a question of cost sharing,” said Leena Srivastava, executive director, operations, TERI. “If companies do not put these safeguards in place, someone else has to bear the costs.”

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