India: India Infrastructure Project Financing Facility - Project 2

Sovereign Project | 40655-043

Summary

The Investment Program supports the "Scheme for Financing Description Viable Infrastructure Projects through the India Infrastructure Finance Company Limited" (the Scheme) for promoting infrastructure development through public-private partnerships (PPPs). Pursuant to its Scheme (Appendix 3), IIFCL will provide long-term debt financing at commercial rates for stand-alone non recourse infrastructure subprojects. IIFCL will prioritize the financing of PPP subprojects selected through transparent and competitive bidding process and assessed for commercial viability. IIFCL will finance subprojects only as a member of lending consortium where its total lending to any subproject will not exceed 20% of the total capital cost for the subproject.

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Project Name India Infrastructure Project Financing Facility - Project 2
Project Number 40655-043
Country India
Project Status Closed
Project Type / Modality of Assistance Loan
Source of Funding / Amount
Loan 2509-IND: India Infrastructure Project Financing Facility - Project 2
Ordinary capital resources US$ 200.00 million
Strategic Agendas Inclusive economic growth
Drivers of Change Governance and capacity development
Private sector development
Sector / Subsector Finance - Infrastructure finance and investment funds
Gender Equity and Mainstreaming No gender elements
Description The Investment Program supports the "Scheme for Financing Description Viable Infrastructure Projects through the India Infrastructure Finance Company Limited" (the Scheme) for promoting infrastructure development through public-private partnerships (PPPs). Pursuant to its Scheme (Appendix 3), IIFCL will provide long-term debt financing at commercial rates for stand-alone non recourse infrastructure subprojects. IIFCL will prioritize the financing of PPP subprojects selected through transparent and competitive bidding process and assessed for commercial viability. IIFCL will finance subprojects only as a member of lending consortium where its total lending to any subproject will not exceed 20% of the total capital cost for the subproject.
Project Rationale and Linkage to Country/Regional Strategy

Poor infrastructure is India's "Achilles' heel" which is estimated to cost India 3 4% of lost gross domestic product (GDP) a year. India needs to increase its spending on infrastructure from 4-5% to 9% of GDP to achieve the growth projection of 9% during the 11th (FY2007 FY2012) Five-Year Plan (FYP). With higher growth targets and a rising population, even maintaining current levels of infrastructure will require a staggering increase in investment. The total investment required is estimated at about $475 billion during the 11th FYP.

Public sector has been the main provider of infrastructure in India. However, public financing alone will not be able to generate the needed level of investment ($475 billion). Accordingly, the Government's priorities for bridging the infrastructure deficit includes (i) revising policies and regulations for enhancing private sector participation (PSP) in infrastructure development including through PPPs, (ii) strengthening the capacity at all levels for promoting PPPs, and (iii) enabling arrangements for bridging the enormous deficit in infrastructure financing especially for long-term funds through all possible sources. Corresponding reform measures are underway.

Infrastructure sector reforms are enhancing the enabling environment and encouraging participation of PSP from domestic and international sources. In addition, significant efforts are ongoing for mainstreaming PPPs in the states and in central line ministries. While a paradigm shift from public financing to PPP modality requires time, these measures have already facilitated the application of PPP modality in sectors such as road and power.

India has also witnessed a visible shift in financial sector policies since the 1990s. The reform measures have led to increased allocative efficiency of the financial system brought about by a reduction in intermediation costs, enhanced competition, and increased diversity of products and services. Notwithstanding these, the infrastructure finance market in India is largely characterized with inadequate flow of long-term funds. In this context, the Government is pursuing reforms in contractual savings (pensions and insurance) and the corporate debt market.

Considering several interlocking factors including policy and regulatory inadequacies in infrastructure and financial sectors, the impact of the ongoing reforms will only be felt over the medium- to long-term and as a result, the already significant gap in infrastructure financing will further increase. These concerns were extensively discussed within the Government as well as with financial market experts and international institutions for framing innovative responses consistent with the PSP and PPP agenda.

Among the options, establishing IIFCL to provide the much needed long-term debt at commercial terms specifically for promoting PPPs was considered important in view of the limited availability of long term debt for infrastructure financing. Central to the Government's PPP development strategy, IIFCL's operating paradigm is guided by the Scheme approved by the Government's Committee on Infrastructure chaired by the prime minister.

The Government has also designated IIFCL as the debt manager of a $3 billion debt fund of the $5 billion India Infrastructure Financing Initiative. IIFCL, in partnership with Blackstone Group, CitiGroup, and Infrastructure Development Finance Company are the initial investors in the $2 billion equity fund of the India Infrastructure Financing Initiative. Further, IIFCL and 3i Group plc. have entered into a strategic partnership for equity and long-term debt financing for projects in power, port, airport, and road sectors. IIFCL is also expected to be the lead agency for utilizing India's foreign exchange reserves for infrastructure financing. For this purpose, IIFCL is likely to establish two offshore special purpose vehicles.

The proposed India Infrastructure Project Financing Facility (the Facility) will directly support the Government's infrastructure development agenda by enhancing the availability of the much needed long-term funds for infrastructure financing. With ADB's assistance through the Facility, IIFCL will provide funds at commercial terms with over 20-years maturity for infrastructure subprojects which is currently not being provided by the market.

The Facility is an integral part of the ADB's sector strategy and complements ADB's parallel initiatives in contractual savings, corporate bonds, PPPs, and infrastructure development, all of which contribute to creating an enabling environment for infrastructure development in India.

Impact Improved per capita infrastructure availability in India
Project Outcome
Description of Outcome

(i) Increased private sector participation in infrastructure development through PPPs;

(ii) Containing and reducing fiscal deficit through private sector participation in infrastructure;

(iii) Improved lending terms of IIFCL for infrastructure subprojects;

(iv) Improved capacity in IIFCL to ensure that ADB funds are used for subprojects that conform to ESSF through relevant TA support;

(v) Improved resource management and project risk assessment capabilities in IIFCL.

Progress Toward Outcome
Implementation Progress
Description of Project Outputs

1. High quality infrastructure assets created in various subsectors across the country

2. Availability of long term funding to IIFCL and improved ability of IIFCL to provide long-term financing to subprojects;

3. International credit rating attained by IIFCL and periodically updated

4. Improved (i) financial policies, (ii) staff capacity, and (iii) risk management systems of IIFCL

5. Implementation of ESSF

Status of Implementation Progress (Outputs, Activities, and Issues)
Geographical Location
Safeguard Categories
Environment FI
Involuntary Resettlement B
Indigenous Peoples B
Summary of Environmental and Social Aspects
Environmental Aspects
Involuntary Resettlement
Indigenous Peoples
Stakeholder Communication, Participation, and Consultation
During Project Design
During Project Implementation
Business Opportunities
Consulting Services No consulting services required.
Procurement IIFCL will undertake the same obligations in respect to procurement as under Tranche I which will be in accordance with ADB's Procurement Guidelines (2007, as amended from time to time), and will also comply with the operations manual adopted by the Board of IIFCL on 14 November 2008.
Responsible ADB Officer Cheolsu Kim
Responsible ADB Department South Asia Department
Responsible ADB Division Public Management, Financial Sector and Trade Division, SARD
Executing Agencies
India Infrastructure Finance Company Limited8th Floor, Hindustan Times Building
Kasturba Gandhi Marg
New Delhi, India 110001
Timetable
Concept Clearance -
Fact Finding -
MRM 28 Feb 2008
Approval 24 Feb 2009
Last Review Mission -
PDS Creation Date 30 Jan 2009
Last PDS Update 09 Apr 2007

Loan 2509-IND

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
24 Feb 2009 26 Feb 2009 20 Mar 2009 30 Nov 2011 - 26 Aug 2011
Financing Plan Loan Utilization
Total (Amount in US$ million) Date ADB Others Net Percentage
Project Cost 200.00 Cumulative Contract Awards
ADB 200.00 24 Feb 2009 200.00 0.00 100%
Counterpart 0.00 Cumulative Disbursements
Cofinancing 0.00 24 Feb 2009 200.00 0.00 100%
Status of Covenants
Category Sector Safeguards Social Financial Economic Others
Rating - - - - - Satisfactory

Safeguard Documents

See also: Safeguards

No documents found.

Evaluation Documents

See also: Independent Evaluation
Title Document Type Document Date
India: India Infrastructure Project Financing Facility Validations of Project Completion Reports Nov 2014

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