India said to seek investment by LIC, pension fund in green energy

LIC and EPFO have combined assets under management of ₹50 trillion ($604.87 billion). A commitment of billions of dollars in bonds by two of the biggest funds in the country would be key to filling an estimated $3 trillion investment gap in meeting a 2070 goal for net zero emissions

Updated - February 09, 2023 09:47 am IST

Published - February 08, 2023 07:24 pm IST - NEW DELHI

The Indian government is considering mandating the Life Insurance Corp of India (LIC) and sovereign pension fund to invest 1% of their assets under management in bonds issued by state-run power lending firms to finance green projects, two sources said.

The federal Power Ministry has written to the Finance Ministry asking that the LIC and Employees' Provident Fund Organisation (EPFO) be mandated to invest in such bonds issued by Power Finance Corp (PFC), REC Ltd. and Indian Renewable Energy Development Agency (IREDA), according to two government officials who declined to be identified.

LIC and EPFO have combined assets under management of ₹50 trillion ($604.87 billion). A commitment of billions of dollars in bonds by two of the biggest funds in the country would be key to filling an estimated $3 trillion investment gap in meeting a 2070 goal for net zero emissions.

"The government is working on a proposal seeking investment of 1% of the market value of assets managed by LIC and EPFO in the bonds that would be raised to fund green projects," one of the officials said.

The Power and Finance Ministries, the LIC, PFC and REC did not reply to emails seeking comment.

A third government official said the Finance Ministry was looking at steps to push climate financing.

The proposal, if approved, may have to go through the investment committees of both LIC and EPFO, one of the officials and a partner at a law firm said.

"If the government is proposing to mandate investment in bonds issued by PFC and REC, it can propose the same to LIC and its investment committee," Harvinder Singh, a partner at DSK Legal.

"The investment committee of LIC will have the flexibility to tweak their investments accordingly," Mr. Singh said.

The Power Ministry has also proposed reducing fees for sovereign guarantees on foreign currency loans taken out by three state-run power financiers from overseas markets at 0.1% to 0.6% against the current 1.2% of the funds being raised.

The Power Ministry has asked the three power financiers to extend foreign currency loans to Indian borrowers for payment to overseas vendors in order to save hedging costs.

The Power Ministry has sought allowing the three companies to issue tax-paid bonds, where the issuer pays for taxes instead of the investor to lure investments, the source said.

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