ADB agrees massive loans for India grid upgrades

The Asian Development Bank (ADB) will invest USD1.1 billion for power transmission systems that will help India efficiently transfer electricity to regions where the need is greatest, spurring growth and poverty reduction.

The ADB Board of Directors has approved USD750 million in financing for a national grid improvement project which will allow the bulk transfer of electricity (3,000 MW) from independent power producers in the western state of Chhattisgarh, to areas of high demand in the north, including the national capital territory of Delhi, at ADB said in a statement.

It will be done through the establishment of a 1,300 km interregional transmission link using 800 kV high voltage direct current (HVDC) technology, a key driver of smart grid development. The funds will be made available to the Indian government-owned transmission utility, Power Grid Corporation of India (POWERGRID).

The ADB has also approved USD350 million of finance for the mountainous northern state of Himachal Pradesh, which has about a quarter of India's total potential hydropower resources. The multitranche financing facility is for the Himachal Pradesh Clean Energy Transmission Investment Program.

"Strengthening the interregional HVDC transmission network will promote open access to power supply, increase investment in both generation and distribution, help integrate the electricity market and encourage power trading and competitive electricity prices," said Kaoru Ogino, Senior Energy Specialist in ADB's South Asia Department.

India's demand for electricity, fueled by its strong growth, has sharply exceeded supply in recent years, with a peak power deficit of over 12 percent in 2010. The generating capacity has been increasing over the years in India but expansion of the transmission network has not kept pace. Some states have the capacity to generate more power than they need, and creating interregional transmission “corridors” will allow them to move surplus electricity to areas short of supply.

To develop the national grid, POWERGRID plans to invest about USD22 billion to more than double the size of its transmission network between now and 2017, thus expanding its funding base from the present sources of domestic bonds and government-guaranteed loans to new foreign commercial borrowing.

Himachal Pradesh wants to scale up hydropower generation but its transmission facilities in certain locations are currently unable to handle large amounts of additional power. With funding in place the recently formed stand alone transmission utility, HP Power Transmission Corporation, will construct new high voltage lines and other transmission infrastructure to allow the state to increase output to meet growing local and national demand for electricity. The program is expected to be completed in December 2017.

For the POWERGRID project ADB is providing both sovereign and non-sovereign loans, bundled together in a single package to help leverage interest from foreign commercial lenders and reduce POWERGRID's reliance on sovereign funding to more market-based capital raising. The non-sovereign loan of up to 15 years will be POWERGRID's first large-scale foreign commercial term borrowing without government credit support.

ADB's funding consists of a USD500 million sovereign-guaranteed loan and a USD250 million non-sovereign corporate loan. This novel financial structure will provide an anchor transaction in the total project cost of USD2.25 billion and serve as a catalyst for further engagement from commercial financiers in POWERGRID's transactions.