ADB has approved a US$400 million loan to help finance a project to upgrade India’s national power transmission grid.

The project will strengthen the capacity of the national transmission grid that comprises 765-kilovolt (kV) and 400kV transmission lines as well as sub-stations operated by the Power Grid Corporation of India Limited (Powergrid), according to an ADB release.

The project is expected to improve system reliability, facilitate inter-state power transfers by removing transmission bottlenecks, reduce transmission losses, facilitate efficient utilisation of existing and planned power plants, facilitate the development of a national power trading market and promote increased private sector participation through open access to the national transmission grid.

Powergrid’s National Transmission Development Plan entails an investment of about US$12.6 billion up to the year 2012.

“The huge investment programme will not materialise without long-term finance, for which ADB’s loan will act as a contribution and a catalyst,” the release quoted ADB senior energy specialist Chong Chi Nai as saying.

The ADB loan will also help finance sub-projects under Powergrid’s investment programme. The core sub-projects identified include the construction of new extra-high-voltage transmission lines and sub-stations that cover the Andhra Pradesh and Tamil Nadu states and the Union Territory of Pondicherry.

India is facing a power shortage problem. As of March 2004, the peak power deficit was about 11%, or 9,510 MW, while the country’s energy deficit was about 7%, or 39,870 gigawatt-hours. Only around 31% of rural households have access to electricity, the ADB release said.

As electricity is one of the key drivers for economic growth and poverty reduction, New Delhi has set a target of installing an additional 100,000 megawatts of generation capacity to provide electricity access to all households by 2012.

“To ensure reliable and secure delivery of power from generation projects to end-users, the development of an adequate transmission system is vital to India’s sustained economic growth,” Mr Chong said.

Powergrid, which is both the borrower and the executing agency for the loan, will fund US$168 million of the total project cost of $568 million.

The loan, the third from ADB to Powergrid, covers 70% of the total project cost and comes from Manila-based lender’s ordinary capital resources, the release said. The loan carries a 20-year term, including a grace period of five years, and the rate of interest is based on ADB’s lending facility based on the London Interbank Offer Rate (Libor).

The project is expected to be completed by June 2009.

As of December 2003, ADB has approved 14 loans totalling about US$3 billion to India’s power sector Ð about 23% of its total public sector loans to India.

At the national level, ADB has provided assistance to national power companies such as Powergrid and Power Finance Corporation Limited to support nationwide power-sector reforms and enhance private-sector participation. ADB has supported state level power sector reforms in Gujarat, Madhya Pradesh, and Assam also, the release added.