The World Bank will fund coal only in rare cases: Ashish Khanna

Interview with Lead energy specialist, World Bank

The World Bank recently grabbed headlines globally over an announcement that many believed signalled a halt to the global lender's coal funding in future. Ashish Khanna, the bank's lead energy specialist, clarifies its stand on the issue in an interview with Sudheer Pal Singh. Edited excerpts:

The World Bank recently announced it would not fund coal-based projects going forward. What was the trigger for the decision and how would it impact India?

Let me clarify while there is no outright ban on financing of coal projects by the World Bank, it will be done only in rare cases. The Energy Directions Paper says each country has to look at its own choices, in terms of demand and availability of resources, and if the bank has to provide funding, it would be based on a cost-benefit analysis of these alternatives.

The idea is to assess whether coal is the only solution for that country. We feel balancing climate change and energy security concerns are complex, where each country would need to find its own balance. In India, the bank has not financed any new greenfield coal-based project in the past 20 years.

We have a portfolio of $3.5 billion in lending for energy sector projects under implementation in the country. An additional $1 billion support is at the planning stage. But our presence in the coal sector is limited to the energy efficiency-related area of coal rehabilitation where the idea is to make old plants more energy efficient. Even this constitutes only $200 million of the overall programme.

The bank’s portfolio was never on financing of greenfield coal-based generation projects. Also, our decisions are not materially relevant for India because our $4 billion programme constitutes only one per cent of the overall $400 billion India has invested in energy over five years. On the broader energy security issue, the World Bank’s view is that for a resource constrained and developing country like India, the debate should not be on whether coal or hydro or solar should be pursued, but to tap all possible resources in an environmentally and socially sustainable way.

What is the main reason for the beleaguered state of the distribution sector and what needs to be done?

The distribution sector has tremendous scope of achieving efficiency gains which requires focus on building robust state-level institutions and improving governance through managerial efficiency. The starting point for these is resolving poor quality of data.

There is no credible estimate of states’ agricultural consumption and line losses. There are states which have not compiled accounts properly over the past six years. Surprisingly, securing finance has never been a problem for discoms despite lack of transparency in operations.

Therefore, non-performers do not face the problem of access to finance. This is because the states’ quasi-guarantee makes it easier for financial institutions to lend. The question is, why were loans being granted to bankrupt discoms even as their accumulated losses reached Rs 2 lakh crore? Metering of feeders and distribution transformers and estimating losses properly is important.

The bank has recently concluded a massive study on rural feeder segregation. What was the basic idea and what are the key takeaways?

Proliferation of more than 25 million agricultural pumpsets across India, which are most often unmetered, is fast eroding ground water levels and leaving distribution utilities bankrupt. We need to know how much power is actually going to the farm sector.

Some states thought of segregating feeders to at least provide 24-hour supply to rural households. The idea is to either have separate wires feeding agricultural and non-agricultural rural loads, or use the same wires to give 8-hour three-phase supply to the farm and 24-hour single phase supply to the non-farm areas.

More than Rs 10,000 crore has already been spent on the scheme across states. And the central government planned to develop a central scheme for implementation and asked the World Bank to do a study.

Our findings confirmed improvement in quality and reliability of supply in rural areas, post feeder segregation. Our first recommendation is that a single scheme common to all the states will not work. We need to have state-specific schemes tailored in line with a state’s power situation, baseline technical system and existing financial health of the utility.

The second recommendation is that where feeder segregation is determined as the right approach, the system should be IT-enabled to allow measurement and analysis of electricity flow and actually being consumed by the agriculture consumer.

We have also recommended that a national-level framework should be laid out by the power ministry to guide the utilities in providing standardised templates to guide their approach to rural power supply improvement. Correspondingly, a Knowledge Hub should be set up to assist utilities to design their rural power supply systems.

How do you assess India’s energy sector growth as an expert?

There is reason to feel positive. Generation, transmission and distribution capacities, both at the centre and the state level, have been doubled in the past decade. India has developed a national grid. Even in the distribution segment, there are many success stories.

Delhi, for example, is a case study on loss reduction and efficiency gains. Similarly, in Gujarat and West Bengal, very efficient distribution utilities under state ownership are making profits. However, at a systemic level, India is yet to unlock efficiency gains both in distribution and on the fuel side. Distribution, especially, remains a neglected sector.