India steps up power sector reforms

METRO MANILA, Phillippines, Oct. 12, 2000à‚–India’s power sector will be further reformed with the establishment of a national grid for interstate power transmission for which the Asian Development Bank today approved a loan of US$250 million. The ADB also extended its partial credit guarantee for raising another US$120 million from commercial banks.

The national grid will improve efficiency through the sharing of reserve margins, trading of surplus generation and long-term power transfer between regions with low-cost hydropower or coal resources.

The project also supports ongoing reforms to improve governance, strengthen newly-established regulatory mechanisms, build long-term institutional capacity, improve efficiencies and facilitate private sector participation in transmission.

In addition, the project enhances the autonomy of Power Grid Corporation of India (Powergrid), a government agency responsible for the construction and operation of the main transmission network. It also facilitates its commercialization by introducing it to international capital markets and private sector participation.

At present, the transmission links between India’s five regional electricity grids are very limited. Powergrid will construct and operate regional system coordination centers to improve grid coordination and facilitate bulk power trading between state electricity boards (SEBs). The project will upgrade and expand 400 kilovolt (kV), 220 kV and 132 kV transmission systems to transfer additional power, improve reliability and enhance the utilization of existing power plants, and to transmit the power generated by the power stations of central power utilities and independent power producers.

The project will provide additional and reliable power supply to all categories of customers, reduce electricity costs through economic load dispatch and help develop a regulatory framework for operating the national grid system.

States which implement power sector reforms will receive preference for investment by Powergrid. “Power sector reforms will be encouraged by channeling investments to states with good payment record to Powergrid. Most importantly, competitive pricing will provide the much needed boost to public and private sector investment in the power sector,” said S. Chander, ADB’s senior project engineer for the project.

ADB’s support of Powergrid is part of a move to encourage private sector involvement in the power sector. In December 1999, ADB approved a technical assistance grant for US$600,000 to assist Powergrid in competitively soliciting for private sector implementation of the Vizag-Vijayawada 400 kV transmission line. When implemented, this line will be the first extra high-voltage line established by the private sector for a central or state power utility.

Power shortage is currently estimated to be about 11.3 per cent of peak load and 8.3 per cent of energy supply throughout India. It is expected that only about 25,000 megawatts (MW) of extra capacity will be realized during 1997-2002, although the need is for 40,000 MW. About US$5 billion in investment will be required to transmit the additional capacity with adequate reliability and quality.

ADB is financing 51 per cent of the total project cost of US$491.5 million equivalent. The balance will be funded through commercial co-financing, domestic borrowing and Powergrid’s internal resources. ADB’s loan will come from its ordinary capital resources and is repayable over 20 years, including a grace period of 5 years. The interest rate will be based on ADB’s pool-based variable lending rate for US dollar loans.

ADB’s partial credit guarantee for a US$120 million syndicated loan is the first for India by a multilateral agency for securing long-term commercial bank financing for power transmission system projects.

The project is scheduled for completion in September 2005.

For more information, visit the Asian Development Bank,

No posts to display