1.What is the development imperative for the proposed loan?
More than 44% of households in India do not have electricity for their daily needs. The shortage of reliable power supply is also constraining economic growth, with various regions facing energy shortages that vary between 4% and 16%. As the country’s energy resources are spread unevenly across the country, the national grid has been set up by the national transmission utility, Powergrid, to connect various regions and transfer power to consumers efficiently.
With the Government of India embarking upon an ambitious program to increase power generation and bring electricity to all by 2012, there is a pressing need to augment and strengthen the existing transmission network so that this additional power reaches the entire country efficiently. According to plans, the cumulative transmission network of Powergrid is targeted to increase substantially over the 11th Plan (2007-12) allowing Powergrid to transfer 60% of power generated in the country as against 45% today.
2.What is the level of financing needed for this program?
The national transmission expansion plan is estimated to cost Rs 75,000 crore (approximately $16.5 billion), of which Rs 20,000 crore is expected to be brought in by private investors, while the major portion --- Rs 55,000 crore (approximately $12 billion1) – will be mobilized by Powergrid from internal resources and external financing such as the World Bank’s loan.
Powergrid’s robust financial position ensures that it will not face difficulties in raising domestic financing – in fact it issued bonds of $750 million in 2008/9 and intends raising close to another $3 billion in the capital markets over the next three years. However, faced with a contraction of capital flows into the country following the global financial crisis, the Government of India requested World Bank financing to ease Powergrid’s need for commercial financing for its expansion program. This project will thus also contribute to GOI’s efforts to stimulate the economy by enhancing investments in infrastructure. World Bank financing also comes with easy terms of interest.
3.The World Bank has supported Powergrid in the past. What has that experience been like?
The proposed project builds on the Bank’s successful 15-year partnership with Powergrid that has seen the company emerge a world-class professional entity. The Bank’s engagement with Powergrid has not only financed its investment programs with cumulative assistance of $3.1 billion to date, but it has also supported Powergrid’s ongoing efforts to achieve world-class operations and management standards, improve its social and environment practices, and attract greater private participation.
In the 15 years it has been operating, Powergrid has achieved manifold growth and has contributed significantly towards development of the Indian power sector. Through steady improvements in planning, operations, management and overall governance, Powergrid now serves as an institutional role model not only for other transmission companies in India, but for other state-owned enterprises in developing countries. It operates and maintains one of the world’s largest extra high voltage (EHV) transmission systems, with state-of-the art national and regional load dispatch centers. In recognition of its sound governance practices, the Government of India conferred the coveted “Navratna” status on Powergrid in May 2008, the highest honor for a public sector enterprise. In addition to its core transmission functions, Powergrid is providing consultancy services both at the national and international level, most notably in Afghanistan for all activities related to setting up and running efficient transmission systems.
The partnership with the Bank has also helped Powergrid adopt higher corporate standards in protecting the local environment and in safeguarding the social well-being of people who may be affected by its activities. One of Powergrid’s most successful achievements lies in managing the possible environmental impacts of its operations. It has made several technological innovations that seek to minimizing damage to natural resources and human habitats. For instance, geographical information system (GIS) and satellite imagery are used to determine the least-intrusive routes for transmission lines and sites for substations. This has proved very useful in sanctuaries and protected forests, saving much green area from being cleared.
1 At Exchange Rate of 1 USD = Rs. 45