ADB's Board of Directors today approved the multitranche loan for the Second India Infrastructure Project Financing Facility. The loan will be released over five years to the state-owned India Infrastructure Finance Company Ltd. (IIFCL), and is a follow-on of the first-stage facility of $500 million, approved in 2007. The IIFCL, established in 1996 to promote PPPs, will use the facility to support investments in a broad range of PPP infrastructure projects.

“The first-stage facility has proven to be effective in facilitating PPP infrastructure,' said Cheolsu Kim, Principal Financial Sector Specialist in ADB's South Asia Department. 'ADB is committed to assist India in promoting PPP projects, especially in the transport and power sectors, since infrastructure investments lead to higher farm and nonfarm productivity, increases employment opportunities and incomes, and reduces poverty.'

India's economy has grown strongly in recent years. However, to expand, or even maintain, infrastructure in the face of a rapidly growing population, fiscal constraints, and the recent global financial crisis, is a major task requiring the support of the private sector. Although the government has carried out broad financial sector reforms to create a market environment for long-term and innovative financing required for infrastructure projects, products and market, the appetite from private sector investors for long-term finance for infrastructure is still limited.

The multitranche loan will provide funds on commercial terms with more than 20 year maturities, which are not currently available in the domestic market. The facility is expected to enhance the availability of long-term funds for infrastructure and boost investor confidence when confidence is low. As of August 2009, IIFCL had received 192 PPP subproject proposals, of which it has identified 107 eligible cases. It is estimated that every dollar of IIFCL's investment in subprojects mobilizes close to $7 from the market.

The new loan will help India meet its infrastructure investment target of $514 billion under its current 11th Five Year Plan, and continue support for the government's effort to move forward the infrastructure agenda.

Loan monies under the latest facility will be released in three tranches, with $210 million in the first, $250 million in the second, and $240 million in the third. The funds, from ADB's ordinary capital resources, carry an interest rate determined in accordance with ADB's LIBOR-based lending facility. India Infrastructure Finance Company is the executing agency for the second phase of the project, which is due for completion by December 2014.#