Southern States - Kerala

$500 million ADB loan for Kerala

By Our Special Correspondent

THIRUVANANTHAPURAM APRIL 29. The Asian Development Bank (ADB) is committed to providing a loan of $500 million (about Rs. 2,400 crores) in two instalments in the next two years, said the Country Director of the ADB in India, Frank Polman, here on Wednesday.

Addressing a brief press conference, the Director said the first instalment of the loan _ $300 million for fiscal reforms _ would be disbursed this year. The disbursement of $200 million for power sector reforms was slated for next year.

Mr. Polman said the loan would be granted only against the achievement of specific milestones and actual construction of assets. "We don't talk of conditions, but of performance indicators. There is a strong internal mechanism to monitor the progress of programmes.''

He said that agreements would have to be reached with the Government of India, the Ministry of Power and the Reserve Bank of India (RBI) before the loan is sanctioned. "Once the agreements are concluded, we will come back here to work out the details.''Restructuring of public sector units, he said, would be part and parcel of the fiscal reforms programme. However, the ADB team has not gone into any details of privatisation or closure of public sector units.

He said that Kerala had a deeper and wider plan for reforms compared to that of Madhya Pradesh and Gujarat that called for broad-based consultations. "We are very impressed by the way the Government of Kerala has carried the programme this far. It was the first time that an ADB loan for a reform-minded State necessitated such broad-based and wide-ranging consultations with all the people concerned. We had to subject ourselves to a heavy dose of criticism. All that was in right sense, which we appreciate,'' he said noting that this had delayed the implementation of the programme.

The interest rate on the loan, he said, would be based on the London Inter Bank Offered Rate (LIBOR). The spread will be 60 basis points (0.6 per cent). At the current LIBOR for the dollar, this comes to nearly three per cent. There will also be a front-end fee of 0.5 per cent.

He said the repayment of the loan is guaranteed by the Central Government. "We always get our money back.'' As the loan is routed through the Central Government, the State would be paying an interest of 12 per cent to the Centre in rupees on the loan."

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