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Centre releases Green Bonds framework; large hydropower plants ineligible for financing

Announced by Finance Minister Nirmala Sitharaman in her FY23 budget speech in February, India is set to issue its maiden sovereign Green Bonds this financial year

November 09, 2022 / 07:23 PM IST
Representative image.

Representative image.


The Centre on November 9 released the framework for its proposed sovereign Green Bonds, with a committee headed by the Chief Economic Adviser being put in place to select eligible projects for financing, which do not include large hydropower plants.

The proposed 'Green Finance Working Committee' will meet at least twice a year and include members from relevant line ministries, the Ministry of Environment, Forests and Climate Change, NITI Aayog, and the Budget Division of the finance ministry's Department of Economics, among others.

Procedure for selection of eligible green expenditures (Source: Government of India) Procedure for selection of eligible green expenditures (Source: Government of India)

Announced by Finance Minister Nirmala Sitharaman in her budget speech in February, India is set to issue its maiden sovereign Green Bonds this financial year, with the government saying in late September that it would auction Rs 16,000 worth of these bonds in the second half of FY23.

This would make up a fraction of the Centre's borrowing programme for October-March, with government bonds worth a total of Rs 5.92 lakh crore scheduled to be issed in the second half of the year.

As per the framework released today, the payment of principal and interest on the Green Bonds will not depend on the performance of the eligible projects. As such, investors will not bear any project-related risks.

"The eligible expenditures are limited to government expenditures that occurred a maximum of 12 months prior to issuance. It will be endeavored that all the proceeds get allocated to projects within 24 months following issuance," the framework added.

While the finance ministry reserves the right to make changes to the framework, any modifications will be reviewed by an independent organisation.

The framework has been reviewed by Norway-based CICERO, the government said. CICERO Shades of Green, a leading provider of second opinions on green bond frameworks, has rated the framework as 'Medium Green' with a 'Good' governance score.

CICERO gives the 'Medium Green' rating to "projects and sollutions that represent significant steps towards the long-term vision, but are not quite there yet".

Project Selection

The projects eligible to be financed or re-financed by the proceeds of Green Bond issuances fall under the following nine categories:  renewable energy, energy efficiency, clean transportation, climate change adaptation, sustainable water and waste management, pollution prevention and control, green buildings, sustainable management of living natural resources and land use, and terrestrial and aquatic biodiversity conservation.

"All eligible Green Expenditures will include public expenditure undertaken by the Government in the form of investment, subsidies, grant-in-aids, or tax foregone (or a combination of all or some of these) or select operational

expenditures, R&D expenditures in public sector projects that help in reducing the carbon intensity of the economy and enable country to meet its Sustainable Development Goals (SDGs)," the framework said.

Green expenditure can be in the form of equity only in the case of metro

projects under 'Clean Transportation' category.

While expenditures directly related to fossil fuel are excluded, the "relatively cleaner" Compressed Natural Gas (CNG) is allowed as an 'eligible expenditure', but only when it is used in public transportation projects.

"Subsidy/incentive for private transportation using CNG is neither envisaged nor included," the framework said.

Other excluded projects include hydropower plants larger than 25 MW, Nuclear power generation, direct waste incineration, alcohol, weapons, tobacco, gaming, palm oil industries, renewable energy projects generating energy from biomass using feedstock originating from protected areas, and landfill projects.

 
Siddharth Upasani is a Special Correspondent at Moneycontrol. He has been covering the Indian economy, economic data, and monetary and fiscal policies for nine years. He tweets at @SiddharthUbiWan. Contact: siddharth.upasani@nw18.com
first published: Nov 9, 2022 06:50 pm