LIC fund probe call by CVC hits rural power projects

A recommendation made by the anti-corruption watchdog Central Vigilance Commission (CVC) that the Central Bureau of Investigation (CBI) investigate investments made by Life Insurance Corporation (LIC) in 2008 and 2009 is having a big bearing on increasing the flow of power to the rural areas - it has put a brake on funding for Rural Electrification Corporation (REC). The move as created obstacles to the disbursement of soft loans to the REC raising fears that India's power woes are here to stay.

REC, the state-owned lender to Indian power projects, is looking for soft loans of up to Rs 30,000 crore in the current fiscal for lending funds to various ventures in rural areas of the country.

"We are facing a delay in funding from LIC. But as REC is a public sector company, we hope to secure a loan from the organisation. LIC had disbursed a loan of Rs 3,000 crore to us in March this year," REC chairman and managing director (CMD) Hari Das Khunteta told Mail Today.

"We are also trying to secure other funds by June end," Khunteta hoped, adding that it had secured loans of Rs 26,000 crore from various agencies to fund for power projects during the last fiscal. However, REC has only been able to secure around Rs 1,650 crore from various sources till now. It has sought to borrow Rs 1,500 crore from the state-run insurer LIC at around nine per cent interest for a 10-year period.

The company is raising Rs 3,345 crore from international donor agencies and an additional Rs 3,345 crore after getting approval of apex bank, besides funding from other agencies, including the government. A senior LIC official however, said the organisation is not facing problems with funding.

"The investment happens as an opportunity is available in the market. We are already disbursing funds and there is absolutely no problem at all. REC is a state-owned company and that should not be a problem for it," said the official. "Being a state-owned company, we are always under scrutiny by the government. This is nothing new," the official added.

Industry sources, however, confirmed that LIC is in a fix after the probe recommendation that came after the finance ministry found some irregularities in LIC's investments. The organisation has seen a major rejig at the top level since the government stepped in.

Former LIC chairman T.S. Vijayan has been demoted to the position of MD early this month though he has two more years to go before retirement. Vijayan has been replaced by Rakesh Singh - who has been the additional secretary in the department of financial services of the Union finance ministry - as the acting chairman.

Power producers are setting up plants in India as the government has set a target of adding 120 gigawatts of generation capacity by 2017 in the backdrop of a 10.7 per cent peak power deficit during the end of the 2010-11.

The government has been able to add only 40,000 MW by now for the the 11th Plan period that ends on March 31, 2012, while the initial target for the 11th Plan was 72,000 MW, a figure that was revised to 62,000 MW.

Courtesy: Mail Today