India: Bengaluru Smart Energy Efficient Power Distribution Project

Energy / Electricity transmission and distribution

The project will (i) convert overhead distribution lines to underground cables, with parallel installation of optical fiber cables; and (ii) install automated ring main units adapted with a distribution automation system (DAS) in six divisions, spanning 52 subdivisions, in urban Bengaluru city in the state of Karnataka. The Asian Development Bank (ADB)-funded component of the project will cover 17 out of these 52 subdivisions. As a result of this project, the efficiency, reliability, and safety of the power distribution system in urban areas of Bengaluru will be enhanced. The project will also strengthen the institutional capacity of BESCOM in operation and maintenance (O&M), environment and social safeguards, financial management, and corporate gender equality and social inclusion.

The project demonstrates an innovative project financing structure. The combination of sovereign and nonsovereign loans from ADB will significantly reduce the sovereign exposure and help BESCOM move towards a market-based approach for raising financial resources for capital expenditure. The project will introduce BESCOM to practices and procedures for accessing commercial financing from an international lender and instill financial management discipline during monitoring.

Building an energy-efficient distribution network is one of the climate mitigation strategies identified under India's Nationally Determined Contributions. The Ministry of Power promotes the conversion of overhead distribution lines to underground lines, and the integration of information technology in the power distribution system of urban areas to reduce system losses under the Integrated Power Development Scheme. In addition, under the proposed DISCOM sector reform, it targets reducing the aggregate technical and commercial loss to 12% 15% by 2025. Building efficient urban infrastructure is a key provision, including the development of underground distribution networks in the Bengaluru urban area, under the Revised Master Plan 2031 for Bengaluru, aimed at developing a livable city.

In more general terms, modernizing power distribution networks in the Bengaluru urban area will (i) reduce distribution losses, thereby reducing the additional consumption of fossil fuels and associated greenhouse gas emissions and pollutants; (ii) improve the reliability and quality of the electricity service for more than 10 million people and high-technology industries; and (iii) contribute to developing a livable and disaster-resilient city.

The Government of Karnataka sets guidelines for access to sovereign borrowing from international financial institutions for revenue-generating sectors such as the energy sector. The aim is to maximize the allocation of sovereign borrowing space for nonrevenue-generating, poverty reduction-focused projects, and/or emergency responses to national crises caused by events such as the coronavirus disease 2019 (COVID-19). BESCOM falls in between revenue-generating and nonrevenue-generating segments, as a large part of the power sold by BESCOM is priced commercially while a portion is sold to the low-income households and the agriculture sector, priced below cost and requiring a GOK subsidy. For such entities falling between revenue-generating and nonrevenue-generating segments, the objective of using sovereign loans is to leverage to the maximum extent possible commercial nonsovereign borrowing. Consistent with this objective, the Government of India and the GOK seek ADB assistance to pilot test a combination of sovereign and nonsovereign financing for investment in Karnataka's power distribution segment. The provision of a nonsovereign loan by ADB without a sovereign guarantee from India, in combination with a sovereign loan, will act as a transition measure towards moving BESCOM towards full market-based financing - by (i) enhancing financial discipline; (ii) strengthening its financial performance through regular monitoring; and (iii) eventually enabling BESCOM to access borrowing from commercial banks both locally and internationally, without seeking credit enhancement from the GOK and/or the central government, thereby freeing up fiscal space. This pilot collaboration will provide lessons to structure similar initiatives in the future and open opportunities for large-scale lending on a combined basis to sub-sovereign entities, particularly in power distribution.

Smart, and climate- and disaster-resilient power distribution system established in 6 districts in urban areas of Bengaluru

Institutional capacity of implementing agency improved