Business

Maharashtra govt looks to alternative sources to fund irrigation projects

The Maharashtra government, which will need a whopping Rs 85,000 crore to complete nearly 800 irrigation projects, plans to use multiple instruments including project finance, annuity based funding and deferred payment.

The government has identified about 90 last mile projects which are more than 75% completed and were pending due to the paucity of funds.

The government expects the completion of these projects would benefit farmers across 14 districts and thereby boost the farm growth which is estimated at minus 12% for 2014-15 in the state economic survey. 

State finance minister Sudhir Mungantiwar, who has already made allocation of Rs 7,272 crore in the annual budget of 2015-16, has admitted that there are constraints in the resource mobilisation. However, he informed that during 2015-16, governments wants to fund 38 of those 90 projects which are 75% complete.

Mungantiwar told Business Standard: “The state government will try to replicate the annuity based funding model implemented by the BJP government in Madhya Pradesh. The annuity model implemented by Madhya Pradesh envisages concession period of 15 years including two years of construction. Six monthly annuity is quoted by the bidders. Annuity is the bidding criteria. The state government will soon study how this model can be replicated to complete incomplete irrigation projects in Maharashtra.”

A senior government official said in Madhya Pradesh annuity is the deferred payment over a period of 13   years as per payment schedule defined in Concession Agreement. There is a provision of incentive for early completion as a bonus along with first annuity. Besides, penalty is imposed for delay as a reduction of annuity.

According to the official, under the deferred payment model implemented by the Nationali Haighways Authority of India the developer can defer their premium payments. The model, which is based on the revenue shortfall loan mechanism provided in the model concession agreement, developers facing economic stress can stagger the premium payments.

As far as Project Finance model is concerned, the official said it is the long term financing based upon the projected cash flows of the project rather than the balance sheets of the project sponsors. The loans are most commonly non-recourse loans, which are secured by the project assets and paid entirely from project cash flow, rather than from the general assets or creditworthiness of the project sponsors, a decision in part supported by financial modeling. The funding is typically secured by all of the project assets, including the revenue-producing contracts.