India: Innovative Financial Instruments for Power Grid

Sovereign Project | 44406-012

Summary

India has been experiencing an annual economic growth exceeding 8% per annum for the last several years, and the government is working to create an enabling environment for this growth rate to be maintained at this level and accelerated further over the medium term. To expand power supply network is a key infrastructural input to sustain such a growth rate. Power Grid Corporation of India Limited (Powergrid) is the public sector corporation that is responsible for construction, expansion, operations and maintenance of the inter-state and inter-regional power transmission network of India. Over the next 7 years, up to the end of the 12th Plan period, Powergrid proposes to invest about $22 billion to double the size of its network to cater to the demand from additional generation units and strengthen its inter-regional and inter-state transmission capacity.

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Project Name Innovative Financial Instruments for Power Grid
Project Number 44406-012
Country India
Project Status Closed
Project Type / Modality of Assistance Technical Assistance
Source of Funding / Amount
TA 7688-IND: Innovative Financial Instruments for Power Grid
Technical Assistance Special Fund US$ 225,000.00
Strategic Agendas Inclusive economic growth
Drivers of Change Governance and capacity development
Sector / Subsector Energy - Electricity transmission and distribution
Gender Equity and Mainstreaming No gender elements
Description India has been experiencing an annual economic growth exceeding 8% per annum for the last several years, and the government is working to create an enabling environment for this growth rate to be maintained at this level and accelerated further over the medium term. To expand power supply network is a key infrastructural input to sustain such a growth rate. Power Grid Corporation of India Limited (Powergrid) is the public sector corporation that is responsible for construction, expansion, operations and maintenance of the inter-state and inter-regional power transmission network of India. Over the next 7 years, up to the end of the 12th Plan period, Powergrid proposes to invest about $22 billion to double the size of its network to cater to the demand from additional generation units and strengthen its inter-regional and inter-state transmission capacity.
Project Rationale and Linkage to Country/Regional Strategy

To increase the capital required for the planned network expansion, it will be crucial to diversify its debt financing sources and strengthen its financial leverage effects. Compared to the rather stagnant level of multilateral banks' funding available to India, the Powergrid's investment requirements continue to grow at a rapid pace; therefore the funding quantum gap will continue to widen. To tackle this reality, the Government of India has sought ADB assistance to help the Powergrid leverage its financing capacity through various non-sovereign financial products including loans and credit enhancement.

To finance its substantial investment plans over the next 7 years, Powergrid needs to raise resources of about $22 billion. Assuming a debt component of 65%, this translates to about $14 billion or $2 billion per annum. With the gradual reduction in availability of sovereign-backed funds, Powergrid will be compelled to expand its borrowing from commercial sources. It may no longer be able to rely exclusively on the rupee bond issue route to finance its long-term capital requirements. It needs to urgently diversify its sources of financing to include other options like global bond issues, borrowings in foreign currency from international institutions, and also resort to off-balance sheet financing like project finance, joint ventures, securitized facilities etc.

Impact Continued financial ability of Powergrid to provide adequate national power transmission capacity to sustain economic growth.
Project Outcome
Description of Outcome Powergrid s financial closures with commercial lenders on nonsovereign basis increased.
Progress Toward Outcome Powergrid's Corporate financing plan and roadmap for nonsovereign operations developed. Powergrid has since concluded another ECA agreement with external commercial lenders.
Implementation Progress
Description of Project Outputs

1. Powergrid s Institituonal financial risk management system established and recasting of financial statements based on International Financial Reporting Standards (IFRS).

2. Powergrid s Corporate financing plan and roadmap for nonsovereign operations developed.

3. Comprehensive project appraisal system established including legal, financial and safeguard assessments.

Status of Implementation Progress (Outputs, Activities, and Issues)

A draft paper has been developed outlining Powergrid's funding strategy.

Powergrid intends to pursue its options to borrow funds from international markets, including obtaining an international credit rating, over the next 2 years.

Powergrid has further strengthened its internal project appraisal systems which are substantially in conformity with ADB's Safeguards Policy Statement, 2009. Rigorous financial assessment of projects is made before taking any investment decisions.

Geographical Location
Summary of Environmental and Social Aspects
Environmental Aspects
Involuntary Resettlement
Indigenous Peoples
Stakeholder Communication, Participation, and Consultation
During Project Design
During Project Implementation
Business Opportunities
Consulting Services

The SSTA will recruit 2 international consultants including (i) a financial specialist and (ii) a legal specialist. They will be supported by two national consultants in the same fields to carry out detailed data gathering and analysis. In addition, to ensure that safeguards requirements will be incorporated into the design of the demonstration projects selected for financing, the work will be supported by national environment and resettlement specialists. To assess the project's economic aspect, one national economist will be included in the SSTA. These seven consultants will work on an intermittent basis during the TA implementation period from November 2010 to October 2011.

The consultants would be recruited as individual consultants, separately. They will be engaged in accordance with ADB's Guidelines on the Use of Consultants (2010, as amended from time to time). The SSTA is expected to be implemented from November 2010 to October 2011.

Responsible ADB Officer Srinivasan Janardanam
Responsible ADB Department South Asia Department
Responsible ADB Division Energy Division, SARD
Executing Agencies
Power Grid Corporation of India LimitedSAUDAMINI
Plot No. 2, Sector - 29
Gurgaon - 122 001 Haryana, India
Timetable
Concept Clearance 28 Feb 2010
Fact Finding 28 Feb 2010 to 13 Mar 2010
MRM -
Approval 26 Nov 2010
Last Review Mission -
Last PDS Update 30 Mar 2012

TA 7688-IND

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
26 Nov 2010 - 26 Nov 2010 31 Oct 2011 - -
Financing Plan/TA Utilization Cumulative Disbursements
ADB Cofinancing Counterpart Total Date Amount
Gov Beneficiaries Project Sponsor Others
225,000.00 0.00 0.00 60,000.00 0.00 0.00 285,000.00 26 Nov 2010 131,126.39
Title Document Type Document Date
Innovative Financial Instruments for Power Grid TA Completion Reports Jun 2012

Safeguard Documents

See also: Safeguards

No documents found.

Evaluation Documents

See also: Independent Evaluation

No documents found.


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