Independent Evaluation

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Performance Evaluation Report on the Private Sector Infrastructure Facility in India
Completed: 2006

This report evaluates the performance and achievements of the loan in bolstering Government's initiative in promoting Private Sector Infrastructure Facility (PSIF) in the priority sectors of energy, transport, communications, and urban infrastructure; attracting private capital through long-term debt financing; and promoting a policy dialogue establishing an appropriate regulatory framework.

The overall rating of the ADB's PSIF was successful in support of the loan to Industrial Credit and Investment Corporation of India Limited (ICICI), and partly successful in support of the loan to Industrial Finance Corporation of India Limited (IFCI). While it augmented the limited public sector resources critically needed in the infrastructure sector in India, it fell short in developing a secondary market in debt securities.

  Summary of Findings

• ICICI fully utilized the PSIF for six subloans totaling $150 million. IFCI utilized the PSIF to finance five subloans totaling $62.5 million. Of the five subprojects, two were also financed by ICICI under the PSIF.
  
  
• Most of the 9 subprojects under the PSIF achieved their production and/or revenue targets, and their demonstration effects regarding promotion of private sector participation in infrastructure projects were significant. However, the PSIF contribution to the corporate debt market was marginal.
  
  
• Ten of the 11 subloans under the PSIF were prepaid after the commencement of subproject operations, because the subborrowers found alternative means of financing.
  
  
• ICICI's performance was satisfactory. IFCI's performance was less than satisfactory because it utilized only 65% of the loan and could not utilize the revolving funds due to the financial problem.
  
  
• The PSIF to ICICI is rated as successful. It was judged to be relevant, effective, and efficient, with likely sustainability. The PSIF to IFCI is rated partly successful. It was judged to be partly relevant, partly effective, and efficient, with likely sustainability.

  Lessons Identified

• The timeliness and complementarities of ADB operations were key factors in the success of the PSIF, which was a pioneering project with a broad objective (facilitating private sector participation in infrastructure development).
  
  
• There are merits in redirecting the focus from assessment of environmental and social impact of subloans at entry stage to that of actual implementing and enforcing of these guidelines.
  
  
• The usefulness of ADB's credit lines could be better enhanced by applying flexibility in financing arrangement that addresses the currency mismatch between dollar-denominated credit lines extended by ADB and local currency-denominated subloans extended by financial intermediaries.
  
  
• More active use of floating interest rates for subloans could reduce incidence of their prepayments.
  
  
• Strengthening ADB's capacity in subsovereign and nonsovereign public sector financing, as envisaged in ADB's Innovation and Efficiency Initiative reforms, would be essential in responding to the changing economic environment and client needs in India.
  
  
• Credit line loan agreements should clarify the benefit monitoring and evaluation of subprojects which pay back the loan before maturity.