The Indian Railways is set to raise $750 million from the Asian Development Bank (ADB) through its financing arm IRFC, which will help the transporter stick to its capex plan for FY20.
According to an official, the deal will be signed soon; the Election Commission has been informed about the likely announcement, given that its Model Code of Conduct is in force.
IRFC will be receiving the rupee-equivalent of the amount which means there would be no currency risk, and no hedging would be required, making the loan cheap. Though the exact cost of the ADB loan could not be immediately ascertained, the transporter is likely to get it at a rate of interest which would be only 125 basis points higher than the cost of funds for ADB.
“It is not a sovereign deal but a commercial deal,” the official said. However, since IRFC is 100% owned by the government of India, the firm has sovereign backing.
The deal comes close to the heels of World Bank’s Multilateral Investment Guarantee Agency backtracking from a proposal to arrange a virtual soft loan of $500 million to IRFC (this loan was to come in at 5%). Also, there are regulatory hurdles in getting the planned support from LIC.
According to the official, under an initial plan, the ADB was to give $500 million and the railways was required to put $250 million in the electrification project as counter-party investment. “We however explained that the asset (land and tracks) are owned by the railways, so in a way there is already committed capital,” the official said, adding that eventually ADB agreed for the entire amount of $750 million which will be enough to electrify 4,000 route km.
The transporter plans 100% electrification of its un-electrified broad-gauge routes by 2021-22. The railways drew up a yearly target, according to which it will electrify 6,000 route km in 2018-19, 7,000 route km in 2019-20, and 10,500 route km each in 2020-21 and 2021-22. However, as reported by FE, the railways is likely to fall short of the FY19 target as it had electrified around 3,800 route km till March 20, 2019. But another railway official added that the number will go up sharply by the close of the financial year as a lot of sections have been electrified but are awaiting certification from the Commission of Railway Safety.
Insurance regulator Irdai’s single-entity exposure cap for insures had come in the way of the railway’s plan to raise funds form LIC. As per a March 2015 memorandum of understanding between the transporter and LIC, the insurer was to provide a financial assistance to the tune of `1.5 lakh crore to the latter’s identified projects between 2015 and 2019. Though the regulator is said to have been told the need to relax the norms, till date only around `17,000 crore has come in from LIC. While the IRFC was to raise `26,000 crore from LIC for FY19 as part of extra budgetary support, it could raise only `1,600 crore.
According to the first railway official quoted above, the contours of the deal with ADB are such that it can be replicated. “Some other (funding) agencies have also shown interest,” the official said