India looking to raise first loan from AIIB for solar projects

31 Mar 2016

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The Asian Infrastructure Investment Bank (AIIB), which opened for business on 16 January 2016, is likely to lend India for the first time as the country looks to raise $500 million, mainly for its rooftop solar power projects. 

The Beijing-based multilateral investment bank, which started off with initial capital subscriptions totaling 50.1 per cent of the shares allocated, has an authorised capital of $100 billion.

AIIB plans to join global clean-energy initiatives, and could fund eco-friendly investment projects to avoid allegations of promoting pollution. Funding for clean energy projects would allay fears of environmental lobbyists that the bank's relaxed lending criteria could promote dirty fuels like coal in developing economies, like India, that are in a hurry to ramp up energy output.

India, the bank's second biggest shareholder after China, plans to expand installed solar capacity to 100 gigawatts by 2022 and is looking to borrow from the AIIB, reports quoting a senior government official said.

"In about six months, funds could start flowing from AIIB," Reuters quoted Tarun Kapur, joint secretary in the ministry of new and renewable energy, as saying.

Interest on the loan is likely to be 2-2.5 per cent and would be linked to LIBOR - a floating benchmark based on the rate at which commercial banks lend to each other - for a term of over 15 years.

India is also in talks with the World Bank, the Asian Development Bank, Germany's KfW and the New Development Bank, set up by the BRICS grouping of major emerging economies, including India, to raise more than $3 billion in the financial year that starts tomorrow.

India needs to invest up to $100 billion in solar power in the next 6-7 years to meet its ambitious target of boosting capacity by roughly 17 times from current levels of 5,800 megawatts.

The AIIB is expected to lend $10 billion-$15 billion a year for the first five or six years and could start operations in the second quarter of 2016.

The inaugural meeting of the Board of Governors of the Asian Infrastructure Investment Bank was held in January 2016. At that meeting, the board of governors announced the commencement of operations, in accordance with Article 60 of the Articles of Agreement.

The board of governors also formally elected the board of directors and the president.

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