ADB gives $ 346 mn loan for power sector in rural Maharashtra

The Asian Development Bank (ADB) on Wednesday said it has approved a USD 346 million (around Rs 2,616 crore) loan to Indian government to provide reliable power connection in rural areas of Maharashtra.

Maharashtra is the second-most populous state in India, and about half of the state's labour force is engaged in agriculture and related activities in the rural areas, ADB said in a release.

Agriculture output, however, has been impacted by lack of irrigation, less-than-efficient use of electricity and water, as well as inadequate storage and connectivity to markets.

The loan will support the state government's high voltage distribution system (HVDS) program for new grid-connected rural agricultural customers across the state, said the Manila-headquartered multi-lateral funding agency.

Providing efficient, reliable, and good quality power to rural agriculture customers in Maharashtra will improve agricultural productivity and efficiency in the electricity value chain, said ADB Senior Energy Specialist Len George.

Wider adoption of HVDS with metering and usage-based tariffs sets the stage for investments in energy efficient pumps, drip irrigation and could support improvements in subsidy management.

The loan will be under ADB's results-based lending (RBL) modality, where fund disbursements are linked to the achievement of agreed programme results rather than to upfront expenditures, as is the case with traditional investment lending, ADB said.

This first ADB-financed RBL program in South Asia's energy sector will help in the early construction and installation of metered HVDS through the installation of about 46,800 kilometers of 11 kilovolt (kV) grid extension lines, construction and upgrading of 121 33/11 kV distribution substations.

The programme will also build institutional capacity in the Maharashtra State Electricity Distribution Company Limited (MSEDCL) on HVDS, it added.

The Maharashtra government and MSEDCL will arrange for counterpart funding of USD 357.1 million equivalent toward the USD 703.1 million total cost of the project.

The project will be implemented by the Maharashtra Energy Department and MSEDCL.

ADB said this loan supports the first phase of the state's HVDS programme.

This program complements ADB's Maharashtra Rural Connectivity Improvement Project and Maharashtra Agribusiness Network Project to promote economic growth and private sector development in rural Maharashtra.

This loan will be accompanied by a USD 1 million technical assistance from ADB to demonstrate energy and water conservation efforts, the funding agency said.