West Bengal Rejects Rs 360 Crore Loan

Stiff REC terms short-circuit OECF offer to help light up rural areas

Power to the people may be the Lefts leitmotif, but it will take a while in rural parts of West Bengal. Specially now that the state government has turned down a Rs 360-crore loan by the Rural Electrification Corporation (REC), citing unacceptable conditions.

The loan was actually offered by Japans Overseas Economic Cooperation Fund (OECF) for revamping the power distribution network in the states rural areas. However, the credit was to be channelled through REC.

The West Bengal government backed out after discovering that REC had set extremely stiff terms, compared with the repayment terms on the original loan. For example, REC was required to repay the loan to the OECF over 20 years after a 10 year moratorium. But it asked the West Bengal State Electricity Board (WBSEB) to repay the same loan in five years, with a two-year moratorium.

REC also asked WBSEB to pay interest at the rate of 16.5 per cent per annum, while it would itself have paid only 11.25 per cent to OECF. Further, REC insisted that a consultant should be appointed to handle the loan. The consultant would have been required to pay a fee of three per cent of the loan amount.

The West Bengal state electricity board felt that REC was making money by simply channelling the loan. The issue was referred to the state power department, which decided that it would be better to reject the loan as the board would be unable to handle such harsh repayment terms.

The board has estimated that it requires a total of Rs 1,109 crore to revamp the entire states rural distribution network. It is now trying to find out if OECF can be persuaded to grant a loan directly.

However, the rural distribution network needs to be revamped quickly. Apart from benefiting new consumers, the strengthened distribution network is expected to substantially raise the demand for power. There is still vast suppressed demand in so-called power-surplus West Bengal, specially in the rural and semi-urban areas. This suppressed demand has been estimated at between 250 and 400 mega watts.

West Bengal is among the states with a poor record of rural electrification. Power department records claim that 8,780 villages in the state await electrification.

The pace of new connections is extremely slow. For example, only 100 new villages could be electrified in 1995-96. The number in 1996-97 was marginally higher.

REC itself has stopped advancing new loans to WBSEB for the past four years as the board has been defaulting in loan repayments. Altogether, the rural electrification programme in the state has almost come to a standstill.