Kerala's Rs 250-million Green Bond move could wither in shadow of CAG audit row

Kerala Finance Minister Dr Thomas Isaac has been stone-walling the opposition demand for a Comptroller and Auditor General (CAG) audit of the accounts of two state sector companies on the ground that it would drive away investors. However, the failure of the government to ensure accounting transparency could adversely affect the fundraising attempts of infrastructure special purpose vehicle Kerala Industrial Infrastructure Fund Board (KIIFB) and the Kannur International Airport Limited (Kial), reports suggest.

KIIFB has proposed a $250 million Green Bonds issue to fund its non-conventional energy projects as the government is reeling under two successive years of devastating monsoon seasons that took a toll of nearly 600 people and caused damage to property worth thousands of crores.

The Green Bonds would be part of KIIFB's planned mobilisation of about $1 billion aimed at climate-friendly financing initiatives, a report in the Economic Times said citing Isaac. "These are globally recognized, financing models. Several agencies have evinced interest in such projects and we are exploring the best possible ways to find finances for the state's development," said Isaac.

Green bonds fixed-income securities that raise capital for are environment-friendly projects that substantially help reduce carbon emission, the report says. With a substantial NRI population hailing from Kerala, the government has been hoping that the Green Bonds would develop traction among NRIs. Union Finance Minister Nirmala Sitharaman's decision to waive tax on NRI investments on infrastructure debt funds of less than three years was expected to benefit Green Bonds that are favoured by fixed-income funds.

The cumulative value of green bond issues has topped $107 billion, according to the Climate Bonds Initiative, a London-based non-profit which promotes investment in the low-carbon economy. The government of Prime Minister Narendra Modi has been going big on the transition to a low-carbon economy with stress on renewable energy.

While the formal launch of the Green Bonds issue is expected soon, the International Finance Corp, the investment arm of the World Bank, has already made an initial commitment. "The idea is to create a completely carbon-free zone and developments," the state finance minister said.

The Kerala government founded KIIFB in 1999 to mobilizes funds for the state's infrastructure development to avoid the procedural bottlenecks of the budgetary route. It has so far sanctioned projects worth Rs 52,000 crore that are in various stages of execution. KIIFB is taking a leaf out of Hyderabad-based green energy company Greenko that recently raised $950 million through the debt-equity route. "This will be part of a larger sustainable financial solution to the state's infrastructure needs," the report quoted KIIFB deputy managing director Sanjeev Kaushik as saying.

Earlier this year, KIIFB raised about Rs 2,600 crore through a masala bond issue, which drew investors from North America to Europe, the Middle East, and Southeast Asia, according to the report.

Kerala's opposition parties have been campaigning against the failure of the government of Chief Minister Pinarayi Vijayan to ensure audit supervision of CAG to KIIFB and Kial that runs the newly opened Kannur International Airport. The government has maintained that the articles of association of these companies stipulate that their boards can appoint private auditors.