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World Bank approves $450-million India power reform loan

The World Bank on Thursday approved a $450-million loan for India's Power Grid Corp aimed at reforming the power system and promoting inter-regional and interstate power trading.

The five-year loan, guaranteed by the Indian government, will extend Power Grid's program of providing state utilities across the country with modern facilities to manage their power systems more efficiently.

The loan is part of a broader $1.3 billion power system reform project. Other contributors include Power Grid, local financiers and Germany's development bank Kreditanstalt fuer Wiederaufbau.

While Power Grid has made considerable progress in improving co-ordination and consolidation of India's fragmented transmission services, the World Bank remains concerned that power failures and lack of capacity, which result in frequent blackouts, are a constraint on economic growth in India.

"Power Grid is moving India towards an interconnected national grid -- a win-win scenario for both customers and suppliers," said Kari Nyman, the World Bank's project leader.

"The growth of Power Grid and the success of state power reforms are interdependent. As Power Grid provides state utilities access to new customers, the newly restructured utilities themselves become viable clients for Power Grid."

The World Bank loan also supports regional system co-ordination and control projects in the Eastern and Western regions. Similar projects in the Southern and Northern regions were supported under two previous World Bank loans.

The project will expand or reinforce power transmission linkages between regions and will support ongoing institutional development of Power Grid services and staff in key areas.

Funds will also be used to encourage private sector participation in the power sector through rationalisation of regulatory and tariff barriers and will also be used to establish a national telecommunication network.

Optical fibre ground wire will be installed on the company's transmission lines, which can be used for telecommunications. The company has announced plans to establish a joint venture with a qualified telecom operator.

"Power Grid is ideally positioned to strengthen India's information infrastructure to help meet India's rapidly growing telecommunications needs," Nyman said.

"Given it's existing power transmission infrastructure, with a nationwide network with rights-of-way readily available, Power Grid is strategically placed to install and provide long-distance telecommunication facilities and service," he added.

India threw open its long-distance telecommunications sector last August, and Power Grid, which has a network of 40,000 km of transmission lines, plans to provide end-to-end bandwidth services.

The loan is granted directly to the state-owned power distribution utility but is guaranteed by the sovereign government of India.

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