The institution is proposed to be set up on the lines of Railway Finance Corporation and Power Finance Corporation.

TFC is proposed to be formed with contributions from the department of telecommunication (DoT) and major financial institutions including Infrastructure Development Finance Corpn (IDFC) and Industrial Development Bank of India (IDBI).

The TFC shall tap both the equity and debt route for re-financing and will have recourse to retail and institutional borrowings. The TFC shall have access to both domestic and international markets for raising funds.

It will act as a specialised financial intermediary with the objective to promote investment in telecom and to offer various forms of financial assistance and technical advice to existing and new telecom projects. It shall also take up financing of projects of social relevance including rural telecom projects and those concerning reserach and development in telecom.

The TFC will also create a fund for extending credit for promotion of export and provide credit to the service providers in procurement of indigenous telecommunication equipment.

Sources said that the move has been prompted by the needs of new entrants in the telecom sector, who have been hedged by the lack of institutional finance. These operators are not only cash strapped but are also finding it hard to obtain support of financial institutions.

In line with its policy of encouraging growth in the telecom sector, the new government has decided to take a proactive and responsible role for bringing about timely financial closure. "The new policy will clearly spell out and show the government's support on the financial front", said sources.

Sources added that a massive dose of funds to the tune of Rs 2,70,000 crore is required to meet the ambitiuous target of nine per cent telephone density in the future. Uptill now, the DoT has depended heavily on MTNL for accessing the institutional debt market for additional resources to meet plan targets.

Sources said that DoT revenues may have a downward movement on account of rationalisation of tariffs, competition from private operators, introduction of value added services and segmentation of high value generating areas. This will lead to an additional requirement of resources to finance the plan objectives is slated to increase in the future.

Highlights

* Specialised financial intermediary

* Promote investment, offer financial & technical assistance

* Finance rural telecom projects

* Provide capital for R&D projects