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Biju Mathew
Mumbai, Dec 27: Financial institutions (FIs) have decided to move away from funding infrastructure projects with unhedged forex-loan components. The projects to be affected the most are in the telecom, road and port sectors, while power plans will be unaffected owing to the `pass through' mechanism built into power-purchase agreements (PPAs). The mechanism allows power producers to pass on to consumers any rise in cost owing to foreign-exchange fluctuations.
While no joint decisions have been taken by the FIs on this count, individually institutions are mooring round to the conclusion that the repayment capacity of infrastructure projects will be strained in case of a steep fall in the rupee value. Officials of the Infrastructure Development Finance Company (IDFC) and ICICI, two of the leading domestic funders of infrastructure projects, said that the south-east Asian experience had demonstrated that forex funding for infrastructure projects was not viable without a hedging mechanism in place.
"Ourposition is that we should participate only in projects that have a hedge on their forex-loan component. Power projects have a hedge in the form of the pass through mechanism. Projects in telecom, roads and ports will need to look for means to hedge their forex risk if they have foreign-currency exposures," said ICICI general manager Kalpana Morparia.
Similar sentiments were expressed by IDFC deputy managing director Nasser Munjee.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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