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IREDA tax-free bonds are just the first step forward, says Jayant Chaudhary

Jayant ChaudharyThe Government of India has recently allowed 13 public sector institutions to raise nearly Rs 48,000 crore in 2013-14 through tax-free bonds, to meet their infrastructure investment needs. Indian Renewable Energy Development Agency (IREDA) has also been permitted to raise Rs 1000 crore by issuing these bonds. Climate Parliament positively notes the development of new mechanisms in the country for raising investment for the renewable energy sector.

The Members of Parliament in their pre-budget memorandum submitted to the Union Finance Minister in January 2013, have asked for the timely ‘creation and implementation of tax-free bonds to raise low cost financing for renewable energy projects’.

According to Jayant Chaudhary, MP and Steering Committee Member of Climate Parliament India Group, ‘Tax free bonds are an efficient way of raising funds for financing renewable energy projects. Green bonds and the climate bonds market are growing globally and several international institutions and banks are issuing such bonds to increase investment in climate change adaptation and mitigation projects. However, Government’s decision to issue bonds is just the first step forward. While an appropriate timing and design of these bonds is required to attract investors, strong financial plan will be needed to ensure timely return of their funds.’

Jayant Chaudhary has also been asking the Government to restructure the National Clean Energy Fund (NCEF) for the purpose of increased financial support to the renewables. In the Union Budget 2013-14, the Government has promised to allocate a portion of NCEF to provide low cost loans through IREDA. ‘With allocation of NCEF and tax free bonds this year, IREDA should make most of this opportunity to pave the way for achieving NAPCC targets.’

It is worthy to note that IREDA till now raised a very small portion of its resources from tax free bonds. In 2012-2013 also, a similar approval of issuing tax free bonds was granted to IREDA but it was not able to able to raise significant resources through this mechanism. This may be partly attributed to the fact that the Government notification was issued later last year as compared to this year and thus very limited time was available to the institution.

Chowdhary also stressed on the optimal utilization of the resources raised by tax free bonds There have been past instances where PSUs have been unable to utilise the total funds raised and parked funds in other financial instruments instead of investing in projects. Some of the crucial areas of intervention can be:
• Refinancing commercial bank loans to existing and new renewable projects in India. In our country where the banking community is very sceptical in lending to the renewable energy sector and inferior terms of lending and high interest rates are a major burden on the investors, re-financing can prove to be an efficient tool for reducing the cost of funds and drawing further investment into the sector.
• Similar to large scale projects, refinancing scheme of loans to small scale off-grid projects by local commercial banks is a major need of the hour as the needs and capability of repayment of the consumers are unique in rural areas. Many lucrative business models are unable to scale up due to lack of financing options in villages.
• Financially supporting private sector in setting up sound evacuation facilities from the remote locations of installed RE projects to the nearest substation is another area which needs immediate attenion.
• MNRE, through funds raised by IREDA, can look at a low cost lending strategy for scaling up storage devices for decentralised RE applications in order to bring down their costs within a stipulated timeframe. Storage is crucial because of variable nature of RE. Today, most off-grid RE applications become unviable when storage is added to the system.

Source: Climate Parliament


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