By CL Jose
Public to be largest stakeholder with 39 pc; state at 32.3 pc, Centre (28.7 pc)
THIRUVANANTHAPURAM/February 15-2022: Amidst doubts cast over the prospects of the overseas funding to the rail mobility project that kickstarted ‘high-decibel’ political ruckus, the K-rail officials said that the Centre’s guarantee for the $4.5 billion (approximate) funding for the project is expected without much delay.
While public will hold the largest stake, at 39 per cent, in the Rs10,900 crore equity capital of the SilverLine project, the State of Kerala will own to the extent of 32.3 per cent in the equity, with the remaining 28 per cent falling in the hands of the Centre (Railways).
The Rs33,700 crore (equivalent in dollar) funding under negotiation, with different financial institutions abroad, is a vital component for the success of the much-debated project, whose total cost has been estimated at close to Rs64,000 crore.
The project, which its detractors dub as the last nail in the coffin of the state’s financial mismanagement, it’s certainly a make-or-break for LDF Government headed by Pinarayi Vijayan.
The project has indeed driven a wedge between the ruling LDF and the Oppositions, prompted by their political affiliations, but on the other hand, there are genuine apprehensions flagged by certain other sections too.
Talking to businessbenchmark.news at the K-rail office in Thiruvananthapuram a few days ago, Anil Kumar G (seen in the picture), Joint General Manager and Company Secretary, K-rail, said, “Guarantee to the overseas borrowing is expected from Central Government as the conditions mentioned by Department of Economic Affairs (DEA) have been accepted by the State Government.”
It’s true that Centre has unequivocally stated that the liability arising from the borrowing ought to be borne by the state (Kerala) itself.
The Centre’s letter says, “The 117th meeting of the screening committee of Department of Economic Affairs (DEA) [has] minuted that the State Government must provide an undertaking that the project will be independent of budgetary support from Ministry of Railways (MoR), and clarity that in the event of the special purpose vehicle (SPV) failure in debt servicing, the liability will be borne by the State Government.”
Kumar said the State Government has already responded to the Centre providing the undertaking regarding the debt servicing of the overseas borrowing in the rail project, which is considered to be the largest project ever taken up by the state government.
Project take-off in 6 months
The preliminary spade-work of the land acquisition has already started. The social impact assessment study, which is already on, may take another 4 to 5 months to be concluded.
This will be evaluated by an expert committee constituted by the State Government and once this is over, Kumar explains, the Central Govt is likely to give its go-ahead, “which may take another six months or little more, from now.”
Though environment clearance is not needed for railway projects, K-rail claims, it has done a rapid environment impact assessment study and the mitigation measures aiming to contain the shortcomings, if any, have already been provided as part of the detailed project report (DPR).
Overseas lenders
While Japan International Cooperation Agency (JICO) is likely to be the largest lender in the project with a commitment of $2 billion, the Asian Development Bank (ADB) is expected to offer $1 billion in loan and Asia Infrastructure Investment Bank (AIIB) another $500 million. (One dollar is approximately Rs75)
It is also learnt that talks are in final stages with another European financial institution for the remaining funding of approximately $1 billion.
The Japanese agency’s loan at $2 billion once approved will likely be priced at as low as 0.2 per cent and the tenure could be as long as even 40 years.
But there could be a less cumbersome string attached to the Japanese funding, whereby 30 per cent of such funding needs to be spent on component projects where a Japanese company will also have to be roped in as joint venture partner, and the project can very well be domiciled in India itself.
The ADB and AIIB loans could attract an interest rate of 1 to 1.5 per cent, and to be repaid over a period of 20 years.
Repayment of loans
Dwelling on the repayment process, Kumar said the company hopes to pay up the loans deploying the positive cash flows generated by the project from the third year of operation onwards. “The first two years of operation is unlikely to generate positive cash flows and hence we have set aside about Rs223 crore to be paid during the initial two years,” he said, adding that the project is expected to ‘break even’ by the year 2043 if everything goes well as planned.
He also acknowledged that there could a delay of one year or a little more from what has been initially envisaged for the project to take off, and this could escalate the project cost by another Rs 3000 or Rs4000 crore.
Subordinate debt
There will be a substantial ‘subordinate debt’ portion in the project, the repayment of which, by definition, could take much longer. K-rail will have tax commitments to be paid to the Centre as well as the State. But these will be provided as subordinate debts (SDs) from the company to the Centre and State.
While the tax dues to the Centre is estimated to be Rs3189 crore, that to the State will be to the tune of Rs2896 crore.
While Centre will be required to pay up Rs3125 crore (Rs975 crore as value of land) towards its equity stake discussed earlier, State’s portion will be Rs3523 crore and the public will chip in Rs4252 crore to ensure the skin in the game. According to K-rail officials, lot of enquiries are flowing in from private investors expressing desire to take part in the project
The state will have to cough up another Rs13,562 crore towards the land acquisition as this will remain as another parcel of subordinated debt (SD) owed by the company to the State Government.
Big burden on State
This means that the State will have to raise Rs16,885 crore including its equity commitment of Rs3523 crore, but fortunately HUDCO and KIIFB have agreed to pay Rs3000 crore and 2100 crore respectively, towards this, with long term payment arrangements, though KIIFB may not even insist for a repayment.
The K-rail official said the company is also in talks with a few more financial institutions including Indian Railway Finance Corporation (IRFC) and certain banks with operations in the state to ease the state’s immediate funding needs.
So there won’t be any repayment compulsions staring at the state for the next 15 to 20 years, but will be required to draw up plans well in advance, once the count-down for payment begins.
