Funding the power sector

THE power sector appears to be the flavour of the season for the multilateral financing agency, the World Bank, despite the failure of its efforts at restructuring the Orissa power sector. All that the $350 million reform loan - the World Bank's most am bitious project anywhere then - has achieved is to leave GRIDCO, the transmission company, with huge accumulated losses that threaten its viability, even as the more profitable operations such as generation and distribution have been delinked and privati sed successfully in accordance with the milestones set by the Bank's experts. Wolfensohn conceded that the Bank's experience in Orissa had not been an unqualified success and that it had learnt certain lessons from the experience, which will be applied t o similar restructuring programmes undertaken in other States. "You cannot wish away past losses. But our experience in Orissa will be useful when we put together a financial restructuring programme for other States where we're funding the power sector," he said.

Union Power Minister Suresh Prabhu told Frontline that the Bank was likely to make available substantial International Development Agency (IDA) funding for the power sector. The IDA lends at low rates of interest. He said: "The Bank's lending to t he power sector used to be around 28 per cent of its total lending to India a few years ago, but now it has come down to just 8 per cent. We need Rs.8,00,000 crores in the next 10 years to put up a capacity of 100,000 megawatts (mW). What we installed i n 100 years, we will now have to do in 10 years. The investments will come only if we reform the State Electricity Boards (SEBs). Therefore I impressed upon the World Bank President the need to give structural adjustment loans at concessional rates. The Centre has been using only the stick with regard to the State governments. I intend to offer them carrots in the form of standby structural adjustment credit. Wolfensohn has agreed to consider my request."

In addition to the IDA loan, the Minister has also sought assistance for generation projects, which the Bank has stopped funding ever since it converted its loan to the controversial Upper Indravati project into a reform loan. Suresh Prabhu hopes to per suade the Bank to lend for the renovation and modernisation of existing power plants as well as for transmission and distribution. The total quantum of Bank loan sought for the power sector is around $4 billion. The funds, if approved, are to be disburse d to the various beneficiaries through the Power Finance Corporation. No doubt the Bank will endeavour to ensure that the subsidies are phased out and Indian consumers are forced to pay international prices for the electricity that the Independent Power Producers (IPPs) provide.

One of the suggestions made by Suresh Prabhu was to set aside a percentage of the outlay for each power project expressly for mitigating environmental damage - a separate Special Purpose Vehicle, into which a percentage, say 1 per cent, of the outlays w ill be transferred. This is to be used specifically for the relief and rehabilitation of persons displaced by dams or thermal projects. Having been in charge of the Union Environment Ministry as well, Suresh Prabhu believes that unless the environmenta l and rehabilitation aspects are adequately taken care of, projects cannot be successfully executed.

Currently the Bank funds reform and restructuring programmes in Orissa, Haryana, Uttar Pradesh and Andhra Pradesh. Its revised lending instrument, called the Adaptable Program Loan, not only envisages consultancy and implementation loans for power sector reforms, but has a component for building public support for the programme. The Bank is carrying out a $150 million restructuring programme in Uttar Pradesh, funding investments in the transmission and distribution system. In Haryana, it will provide $6 00 million over the next eight to 10 years, while in Andhra Pradesh, the approved amount is $1 billion, to be disbursed over the next eight years.