Union Government to liberalise External Commercial Borrowing (ECB) Norms for the Power Sector

The Union government on 18 April 2012 decided to liberalise the external commercial borrowing (ECB) norms for the power sector. The announcement was made in tune with the announcement made in this respect by the Finance Minister, Pranab Mukherjee while presenting the Union budget 2012-13.

Power sector companies will now be able to use up to 40 per cent of ECB loans to refinance their rupee debt, provided the remaining 60% balance is utilised for investments in new projects. So far, power companies were permitted to use only 25 per cent of the ECB to refinance their domestic rupee-debt loan.

Besides, the government also opened the ECB route for capital expenditure on maintenance and operations of toll systems in the roadways and highways sector, only if these constitute a part of the original project.

The ECB route of raising funds is considered to be attractive as the cost is generally lower than that of mopping up funds in the domestic market. Also, the ECB provides borrowers with an additional avenue to access large amounts from the global financial market.

ECB, which totalled $35.9 billion in 2011-12, are considered attractive as cost of raising the loan is lower than that of domestic borrowings.

The proportion of ECBs having maturity between 5 to 7 years went up from about 47 per cent in 2007-08 to almost 70 per cent in 2010-11. ECBs for infrastructure sector moved up from 15.2 per cent in 2007-08 to 42.3 per cent in 2010-11.