RBI’s New Policy on ECBs Could Leave Renewable Energy Projects Stranded

The new framework makes the repayment of rupee loan to domestic lenders by renewable project developers through ECB proceeds impossible


The National Solar Energy Federation of India (NSEFI) has written a letter to the Prime Minister’s Office (PMO) regarding the new External Commercial Borrowings (ECB) policy framework implemented by the Reserve Bank of India (RBI), which is against the best interests of the domestic renewable industry according to the Federation.

The federation has argued that renewable energy generation projects require huge amounts of capital and long-term financing for 20-25 years. However, there is a lack of availability of domestic debt funds for renewable power projects. Foreign lenders are also hesitant to take risks before commercial operation, citing issues with land acquisition and laying of the transmission system.

Therefore, renewable power developers first take pre-construction and under-construction loans from domestic lenders at relatively higher interest rates and later refinance such high-cost rupee loans by low-cost foreign currency loans from foreign lenders through External Commercial Borrowings once the project is operational. Such a method is an accepted alternate funding practice for the renewable energy projects.

The RBI has allowed the external borrowing in the form of security bond/loan in U.S. dollar to replace the Indian rupees loan having a tenure of 10 years or more given by the domestic banks and financing institutions.

However, as per the notification issued by the RBI on January 16, 2019, in order to rationalize the framework for ECB and rupee denominated bonds to improve the ease of doing business – Tracks I and II have been merged as ‘Foreign Currency denominated ECB’ and Track III and rupee denominated bonds framework are combined as ‘Rupee Denominated ECB’.

In the revised Foreign Currency ECB framework, the existing end-use of repayment or refinancing of the rupee loan taken under Track-II of ECB has not been considered. This makes the repayment of rupee loan to domestic lenders by solar or wind project developers through ECB proceeds impossible.

NSEFI, in the letter, has requested the PMO to intervene in the matter and give the required directions to the RBI in this matter.

“RBI should carve out a special category such as earlier Track-II with ECB with a minimum average maturity period of 5 years and above within the new merged foreign currency ECB category and permit renewable project developers for repayment of their rupee loans to domestic lenders from ECB proceeds.”

It has also requested to rationalize the new ECB framework suitably excluding repayment of rupee loans from the negative list.

Recently, NSEFI also issued recommendations to help attain India’s solar targets.

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