Lok Sabha Question No. 746 (UNSTARRED), answered on 2019-06-26
Subject: CFS for Indian Entities
Ministry: EXTERNAL AFFAIRS
Asked by: Hibi Eden

## GOVERNMENT OF INDIA MINISTRY OF EXTERNAL AFFAIRS

## LOK SABHA UNSTARRED QUESTION NO.746 TO BE ANSWERED ON 26.06.2019

## CFS FOR INDIAN ENTITIES

## 746.    SHRI HIBI EDEN:

Will the Minister of EXTERNAL AFFAIRS be pleased to state:

- (a) whether  the  Government  has  approved  first  extension  of Concessional  Financing  System  (CFS)  for  another  five  years from  2018  to  2023  to  support  Indian  Entities  bidding  for strategically important infrastructure projects abroad;
- (b) if so, the details thereof;
- (c) whether  the  scheme  also  has  been  liberalized,  allowing  any Indian company irrespective of ownership, eligible to benefits of it; and
- (d) if so, the details thereof?

## ANSWER

## THE MINISTER OF STATE IN THE MINISTRY OF EXTERNAL AFFAIRS [SHRI V. MURALEEDHARAN]

- (a) Yes.

(b) The  Concessional  Financing  Scheme  (CFS)  to  support  Indian Entities  bidding  for  strategically  important  infrastructure  projects abroad has been extended for another five years from 2018 to 2023. The revised guidelines dated 10 August 2018 are Annexed.

- (c) No.
- (d) Does not arise.

Guidelines  on  Concessional  Financing  Scheme  (CFS)  to  support Indian      Entities  bidding  for  strategically  important  infrastructure projects abroad.

In  supersession  of  the  guidelines  issued  by  Department  of Economic Affairs, Ministry of Finance vide O.M.No.16(6)/2015-MR III, dated 16-9-2015 on Concessional Financing Scheme  (CFS) to support Indian Entities bidding for strategically important infrastructure projects, abroad, a new set of guidelines have been finalized on CFS with the approval of the competent authority and same are being issued as below:-

(i) The scheme  envisages Government of India (hereinafter referred  to  as  GoI)  to  provide  counter  guarantee  and  interest equalization of 2% to the EXIM bank to offer concessional finance to any foreign Govt. or foreign Govt. owned or controlled entity; If any Indian  Entity  succeeds  in  getting  contract  for  the  execution  of  a project tendered by such foreign entity and the project is considered strategically important. Indian Entity, should be constituted, incorporated, registered in and operating in accordance with the provisions of the laws of India, as evidenced by its articles of incorporation and its registration documents. Such Indian entities may be engaged as Project Management Consultants/Contractors for implementation of the project (including for supply of goods and services).

(ii)    The  strategic  importance  of  a  project  to  deserve  financing under this Scheme, will be decided, on a case to case basis, by a Committee  (hereinafter  referred  to  as  Empowered  Committee) chaired  by  Secretary,  Department  of  Economic  Affairs  (DEA)  and will have members from Department of Expenditure (DoE), Ministry of  External  Affairs  (MEA),  Department  of  Industrial  Promotion  and Policy  (DIPP),  Department  of  Commerce  (DoC),  Department  of Financial  Services  (DFS)  and  Ministry  of  Home  Affairs  (MHA).  The Deputy  National  Security  Adviser  will  also  be  a  member  of  this Committee.

(iii)   MEA while submitting such proposals to DEA will ensure that entities  whose ownership or control rests with nationals of countries  considered  inimical  to  Indian  interests  are  excluded. While submitting such proposals, MEA will place full details about the ownership and control before the Empowered Committee so as to  eliminate  completely  the  chances  of  any  entity  considered inimical to Indian interests getting benefits under the CFS. MEA will

also inform the Empowered Committee regarding the performance of  the  foreign  Govts.  in  repaying  Indian  loan  [such  as  under  GoI supported Lines of Credits (LoCs) etc.].

(iv)   The foreign government owned or controlled entity is one that has  not  less  than  50%  of  its  share  owned  by  the  foreign  govt. However,  the  Empowered  Committee  may  relax,  on  case  to  case basis,  minimum  50%  foreign  govt.  ownership/control  norm  and allow:-

(a) Any entity in which foreign Govt. has not less than 24% share and is according special concession to the project; or

(b) Any entity modelled on PPP .

(v) EXIM Bank shall extend credit at a rate not exceeding LIBOR (avg.  of  six  months)  +  100  bps.  While  the  US  Dollar  would  be  the normal  currency,  in  projects  which  are  considered  of  greater strategic  interest  by  the  Empowered  Committee,  finance  in  any acceptable freely convertible currency or even in the Indian Rupee may  be  allowed  by  the  Empowered  Committee.  Since  the  said currency  and  pricing,  unlike  the  US  Dollar,  cannot  be  known  in advance,  the  applicable  rate  of  interest  equalization  support  to EXIM  Bank  would  remain  unchanged,  unless  such  financing  is offered on EXIM Bank's commercial terms, in which case Govt. of India's support will be limited only to the extent of the guarantee/counter guarantee to the EXIM Bank.

(vi)   The repayment of the loan would be guaranteed by the foreign govt., in case the borrower is the foreign govt. owned or controlled entity.  GoI  shall  provide  guarantee  in  case  the  borrower  is  the foreign  govt.  and  counter  guarantee  in  case  the  borrower  is  a foreign govt. owned or controlled entity.

(vii)   The Empowered Committee may insist on sourcing of at least 75% (by value) of the project requirements from India, if it is found compatible  with  the  request  for  bids.  However,  the  Empowered Committee  may  relax  the  Indian  content  requirement  by  another 25% (by value) (other than material and machinery), on case to case basis, in respect of projects involving significant civil work or stateof-the-art technology not available in India.

(viii)  The  Empowered  Committee  may  also  consider  supporting associated contracts awarded to entities in the borrower's country subject  to  the  condition  that  the  contractors  of  the  borrower's country must be owned and controlled by resident citizens of the

borrower's country and must be producing goods/providing services to the extent of at least 75% of the value of their contract.

- (ix)   While  competitive  bidding  shall  be  a  preferred  route,  the Empowered  Committee  may  consider negotiated contracts or nomination  on  merits,  in  case  of  entities  or  PSUs  owned  and controlled by Govt. of India.
- (x) The projects financed under these terms will be reviewed by the Empowered Committee periodically.
- (xi)   The Empowered Committee will also consider financing strategic  projects  through  Public  Sector  Banks  other  than  EXIM Bank on the same terms.
- (xii)   The experience with the scheme will be evaluated after five years and the scheme will be continued if found useful with the approval of the competent authority, subject to such modifications as may be deemed appropriate.

Source: OM No.5/58/2017-IDEAS issued by Bilateral Cooperation Division, Department of Economic Affairs, Ministry of Finance on 10 August 2018

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