India - Financing Infrastructure PPP Projects in India: $1.195 billion

September 22, 2009: Ramping up investments in infrastructure is critical for India’s growth, and to sustain the country’s battle against poverty. Supporting infrastructure investment is particularly important at this time, not just to sustain total domestic demand at a time of global crisis, but also to lay the foundations for stronger economic growth in the future.

However, since the onset of the global financial crisis in late 2008, long-term financing to sustain the development of infrastructure has become difficult to obtain. While in 2007, India was the leading destination among low and middle-income countries for private investment in infrastructure, recent evidence indicates that newer projects are being delayed because of the difficulties in securing private financing - particularly long-term private investment.

The development of infrastructure is a central theme of the Government of India’s 11th Five-Year Plan (2007–12). The Plan estimates that investments to the tune of $492 billion are needed during the five-year period in the roads, railways, ports, power, and water sectors. This means almost doubling infrastructure spending from its current 5 percent of GDP. Of this, the private sector would need to contribute a little over 30 percent – or some $160 billion - about four times more than it has done in the past five years.

To enable India to continue on its trajectory of rapid growth, the Government of India has requested the World Bank to help bridge the critical shortfall in infrastructure financing. The Bank has a long association with India in building infrastructure - be it the railways, national highways, state highways, or water systems - and has developed considerable expertise in these areas.

It will now provide the India Infrastructure Finance Company Limited (IIFCL) with an International Bank for Reconstruction and Development (IBRD) line of credit (LOC) of $1.195 billion for on-lending to eligible infrastructure sub-projects. IIFCL is a wholly government-owned financial institution that was established in 2006 to catalyze long-term private financing for PPP projects in infrastructure, and to foster innovations in the sector.

World Bank support will help increase the availability of long-term financing for infrastructure PPP projects in India and will help the IIFCL to stimulate the development of a long-term local currency debt financing market for infrastructure in India. IIFCL’s institutional capacity will also be strengthened. This will help strengthen the way infrastructure is built in India and enable the country to meet the best global standards.

Over the life of the Bank project (2009 - 2015), IIFCL’s support is expected to bring at least 150 new PPPs to financial closure, with a four-fold increase in the amount of private capital available. World Bank financing will support a sub-set of this pipeline of projects, mainly in the roads, power and ports sectors.

Q&A on Project

What is the amount of the World Bank loan to the IIFCL?
The lending instrument is a Financial Intermediary Loan, or “FIL”, to be financed by an IBRD line of credit of $1.195 billion. The IIFCL will then on-lend the line of credit to specific infrastructure sub-projects including for roads, ports and power. This is one of the biggest World Bank loans to the Indian infrastructure sector. It has a maturity of 28 years, including a grace period of 7.5 years. There will also be a package of IIFCL-executed grant funds totaling to $ 5 million which would be provided in parallel to finance capacity building.
What is the rationale behind the Bank’s support to the IIFCL?
In the current global financial crisis, the availability of private long-term finance has reduced considerably. To foster the country’s continued growth and enable it to continue its battle against poverty, the World Bank, at the request Government of India, will finance the India Infrastructure Finance Company Limited (IIFCL) - a financial intermediary - for on-lending to specific sub-projects. The IIFCL is a wholly government-owned financial institution that was established in 2006 to catalyze long-term private financing for PPP projects in infrastructure.
Which sectors will World Bank financing cover?
Through the IIFCL, World Bank financing will support infrastructure sub-projects in the core sectors of roads (national and state highways), power generation and transmission, and ports.
Will the Bank fund all IIFCL projects?
No, the World Bank will not support all the infrastructure sub-projects financed by the IIFCL. Among the large number of sub-projects that IIFCL will support, World Bank financing will support only a few. These sub-projects will need to comply with the Bank’s eligibility criteria. These criteria include the Bank's environmental and social safeguards, its procurement policies, as well as its accounting and auditing standards. The sub-projects must also show economic and financial rates of return of at least 12 percent.
What are the Bank’s environmental and social safeguard policies?
Large infrastructure projects can have substantial environmental and social impacts in the form of cutting of trees, diversion of forest land for other uses, impact on community and cultural resources, substantial land acquisition, involuntary resettlement of people, impacts on tribal groups (in some cases), relocation of community and religious properties, and construction related impacts on the environment.

The Bank is committed to ensuring that people and the environment are not harmed as a result of its financing. All World Bank assisted projects therefore adhere to a set of environmental and social safeguards and operational polices that contain provisions to address these impacts. The safeguards and policies seek to avoid or minimize impacts by exploring alternative options wherever possible. Where, however, it is not possible to avoid impacts, mitigation measures are designed and implemented in a sustainable manner through consultations with the people affected, assistance to project–affected people during the transition phase, as well as compensation at replacement cost for lost assets. Environmental impact mitigation measures are also integrated in implementation plans. The World Bank will help strengthen the environmental and social safeguards in all projects that it supports. Bank Safeguards Policies
Won’t all IIFCL projects have environmental and social safeguards that meet Bank requirements?
The Bank’s environmental and social safeguards will not apply to projects that are not financed by the World Bank. The IIFCL is developing its own set of safeguards policies. A draft for consultation is available on their website. The IIFCL is committed to preparing, adopting, and disclosing on its web site an enhanced ESS framework that fully incorporates the Bank’s environmental and social safeguard policies and standards. This framework will only be used by IIFCL for Bank-financed sub-projects. IIFCL is also committed to building up its capacity to implement this framework, benefiting, among other things, from the technical assistance provided by the project. IIFCL website
How will World Bank support help the IIFCL?
World Bank support will help the IIFCL to:
- Access long tenor, fixed-interest financing – not easily found in the market - for on-lending to infrastructure sub-projects
- Stimulate and tap the development of a long-term local currency debt financing market for infrastructure in India, and later, the international capital markets
- Help strengthen IIFCL’s institutional capacity in areas such as risk management, internal controls, financial reporting, and financial product development, which will become particularly relevant as it spurs innovations in infrastructure finance
- Help IIFCL adopt sound policies and procedures, enhance safeguards, procurement, financial management (FM) and reporting, and monitoring and evaluation (M&E) arrangements; and reduce the transactions costs for IIFCL in dealing with its various international development partners.

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Financing Infrastructure PPP Projects in India: $1.195 billion