04-12-2012, 04:28 PM
INFORMATION DOCUMENT
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Key development issues and rationale for Bank involvement
The Government of India is targeting high levels of economic expansion, with 8% projected
growth in the current five-year plan period (FY 2002-07), in order to achieve its goals of poverty
alleviation and the advancement of the relatively less developed regions. Infrastructure development,
leading to improved access to reliable electricity supplies, is a strong prerequisite for achieving these
goals. Thus, the Government has adopted universal access to electricity as one of its most important
goals, and is committed to encouraging the construction of additional electricity generation capacity to
meet the ever-growing demand for power.
However, India has for many years faced severe power shortages. Currently, , at the time of peak
demand, power shortages are estimated to be about 12%, while annual energy shortages are nearly 7% of
demand1/. These shortages are likely to continue and increase into the foreseeable future, even with the
planned additions in generation capacity. Analysis shows that the gap in supply (after considering the
impact of price elasticity on demand) can be only marginally reduced by loss reduction and efficiency
gains. The Government estimates that India will require an additional 100,000 MW by 2012, if the
country is to reach its year-on-year growth target of 8% and provide power to all households.
Lessons learnt from similar activities
The Bank has been engaged in hydropower in India since the late 1950s, when it helped finance
the Second Koyna Power Project in 1959. Hydro engagement has often been problematic, with Bank
support for, a number of potential hydropower projects, being cancelled before they were commissioned3/.
However, the two most recent Bank engagements, Nathpa Jhakri and Koyna IV (both approved in 1989)
were successfully completed with the help of Bank financing. Other projects, where engagement was
dissolved, were afflicted with many of the problems, which pervaded the sector through the 1980s and
90s. Several of these projects had problems at the design stage; most of them suffered (or looked likely to
suffer) from implementation problems due to inadequate management capacity and poor decisionmaking;
and some of them also saw significant problems related to resettlement. Experience has shown
that several elements are essential for the successful implementation of these large projects. These
include: a) the careful selection of the site and appropriate engineering design; b) solid initial
investigations, especially regarding geological conditions; c) strong and competent implementing
agencies with the capacity to take quick decisions;
Rationale for Bank involvement
As documented in the Bank’s global review of the private sector in energy generation5, “New,
large, and complex hydropower projects that have strong economic justification will usually require
significant public investment. Compared to thermal generation, hydro projects have very different risk
and benefit profiles and, accordingly, a much greater public financing role. These include the geological
and hydrological risks, the long-lived nature of the assets, and the fact that many hydropower projects are
multipurpose projects providing public goods such as flood control and drought protection. The Bank
should support dams that are economically well justified, and should ensure that all such projects meet the
good environmental and social practices which have been developed by the industry in recent decades.”
There is insufficient private interest in hydropower to finance the required expansion, and the
Government’s capacity to commit public resources falls well short of investment needs. Private investors
see hydropower as a high risk sector. There has been a recent improvement in private sector interest with
such projects as Baspa II (300MW) and Vishnu Prayag (400MW) being developed privately. However,
in comparison to the amount of funds required, relatively little private finance is available. The
Government has requested that, in addition to facilitating a rapid increase in installed capacity through
provision of longer tenure finance, the Bank’s resources assist in strengthening the capacity of the
agencies involved in the sector and in consolidating the major gains made over the last decade by the
present agencies involved in the sector.