Lanco Infratech

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	25829
Company name	Lanco Infratech Limited LITL
Country	India
Sector	Utilities
Environmental category	B
Department	Infrastructure
Status	Pending Disbursement

Date SPI disclosed	September 13, 2007
Projected board date	November 20, 2007
Previous Events	Signed: August 29, 2008 Approved: May 12, 2008

View Environmental & Social Review Summary (ESRS), click here

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

Lanco Group (Lanco or the Group), based in Hyderabad India, is a diversified industrial group with interests in power, construction, pig iron and real estate development.

Lanco’s strategy is to develop into a major infrastructure developer and construction company by capitalizing on India’s strong and growing demand for power and urban infrastructure. In line with this strategy, Lanco has rapidly grown to be one of the largest players in India’s power sector. It has a current operating capacity of 519 MW in a combination of gas based, biomass and wind power plants and a cumulative capacity of about 3957 MW under development. LITL’s construction business focuses on power and real estate related construction contracts and is expected to grow rapidly with strong growth in infrastructure in India and construction orders from the Group’s own project companies.

LITL has an investment plan of more than $700 million for capital expenditure in the expansion of its construction business and equity investments in its various power and infrastructure projects over the next 4 years till FY2011 (the Project). LITL has invited IFC to invest up to $100 million comprising of $80 million debt and $20 million equity in the company to partly finance the program.

Anticipated development impact of the project

IFC’s involvement in the project is expected to have a development impact in terms of:

- Development and Access to infrastructure services in the country: Development of infrastructure investments in India has in the past remained primarily in the public domain. There is growing recognition that these investments have been inadequate and of poor quality. The growth and success of local, private sector infrastructure companies such as LITL has given the government confidence to promote private sector participation in sectors such as power, roads, and airports. It has also enabled infrastructure projects to be built on cost and time and successfully increased badly-needed infrastructure stock and services in India. The net positive impact on economic growth and the productivity of end-users is significant.

- Attract foreign banks/institutions to lend to local infrastructure companies in India: Promoting the mobilization of financing to the company, at a time when the Indian Government has announced an aggressive plan to increase the proportion of infrastructure development through private sector promoted BOT projects. IFC’s involvement is expected to attract other local and foreign commercial lenders in providing financing to LITL and other EPC companies.

- Job creation: Companies like Lanco are expected to generate huge employment opportunities for skilled and unskilled labor in its various projects. The development of these projects in remote areas will also result in creation of peripheral economies in different areas of the country resulting in significant in-direct employment.

IFC's expected development contribution

Promotion of private and financial sector development is one of the elements of the current World Bank Group Country Assistance Strategy. This Project is consistent with IFC and the World Bank's strategy of promoting private investment in the infrastructure sector in India. The company is expected to play a vital role in India’s power sector by building cost competitive power plants which will enhance competition in the sector leading to better tariffs and access to end consumers. The low cost of power, in turn, will lead to better competitiveness of the Indian manufacturing and services companies. The company is also expanding its role in other areas of infrastructure like roads and urban infrastructure which will pave the way for better services for consumers and efficiencies for the economy.

IFC is needed for this project for the following reasons:

- Catalytic Role: IFC’s financing of the Group’s parent company will enhance its profile among international banks and financial investors which will be needed by the company as it grows in future and plays a bigger role in the development of India’s infrastructure sector.
- Long Tenor Financing: IFC’s long term financing will enhance its ability to leverage its balance sheet with long term loans from local and international institutions more than what it has been able to do so far.
- Higher E&S Standards: IFC will endeavor to ensure that the company conforms to high standards of environmental, health and safety as well as of corporate governance. IFC will assist the sponsor in dealing with environmental and social issues and develop mitigation plans for any adverse impact that its projects may have on the environment and local community.

Environmental and social issues - Category B

This corporate investment proposed by IFC is a category B project according to IFC’s environmental and social review procedure because a limited number of specific social and environmental impacts may result, which can be avoided or mitigated by adhering to generally recognized performance standards, guidelines or design criteria. The following potential environment, health and safety and social aspects of the project were analyzed: Social and Environmental Assessment and Management System; Labor and Working Conditions; Pollution Prevention and Abatement; and Community Health, Safety and Security. Further, it is possible that the projects being developed through LITL’s subsidiary companies and/or its EPC/construction activities may from time to time cause impacts pertaining to: Land Acquisition and Involuntary Resettlement; Biodiversity Conservation and Sustainable Natural Resource Management; Indigenous Peoples; and Cultural Heritage.

A summary discussion on the social and environmental aspects of relevance to the project including the company’s plans to address these impacts, has been provided in the Environmental and Social Review Summary (ESRS) prepared by IFC including an Environmental and Social Action Plan (ESAP), both of which will be publicly disclosed at IFC’s website. The company will make available on its website, the measures it proposes to implement so as to conduct its business in accordance with IFC’s Performance Standards. This information will be available at the following website: http://www.lancogroup.com.

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