World Bank Eases Loan Plan For Haryana Power Reforms

The World Bank is set to launch a new financial instrument with a $600 million adaptable loan to restructure Haryanas power sector.

The loan is designed to lengthen the Banks lending periods and cut the red tape involved in the approval process.

Under the adaptable loan structure, the Bank board will approve the overall project plus the first loan instalment. Subsequent instalments, instead of winding their way back to the board, will be approved by regional vice-presidents, based on some pre-specified benchmarks being met.

The Bank board was scheduled to discuss yesterday the 10-year loan to overhaul Haryanas ailing electricity board.

In the case of the Haryana project, the board will approve the entire loan amount but release only the first tranche of $60 million. The rest will be made available in three or four instalments, depending on projects progress.

According to Bank officials, the new instrument emphasises grassroots implementation, while assuring both clients and other lenders of the multilateral institutions long-term commitment to projects.

Psychologically, the focus is on long-term lending. The adaptable loan allows the board to focus on big, strategic policy issues, and allows the staff to concentrate on implementation instead of doing a lot of internal documentation, Banks new products group chief Dennis Whittle told Business Standard adding that this involves a lot of delegation of power.

The innovative instrument means that clients, while having the Banks backing on projects in areas such as infrastructure development and education reform, will pay commitment fees only on each released instalment.

Projects will be referred back to the board only if they are totally off-track or there is need for a completely new approach. If the board approves, we may then re-set the indicators and start the clock again, the Bank official said.

The Bank, which is trying to make its lending process more flexible, has also developed a new financial instrument to fund small-scale experimental projects.

The instrument, called the learning and innovation loan, will lend up to $5 million for pilot projects to test new developmental approaches or as a quick response to local problems offering no clear solution, such as sudden contamination of ground water.

The small size of the loan allows both the Bank and the client to experiment with possible solutions.

In the past, we could either do nothing or we could come in with a regular big loan, said Whittle adding that the new instrument allows us to explore possibilities for new programmes and to move very fast from concept to implementation.

The two financial instruments were developed under the Banks strategic compact, which aims to make the institution more responsive to developmental needs while maximising efficiency.

The new loans will be made available on the same financial terms as the traditional Bank loans. Both will be re-evaluated at the end of two years to gauge their utility.

Adaptable loan structure is designed to lengthen lending periods and streamline approval process