AIIB to Co-finance ADB backed Clean Energy and Transmission Projects in India

For the India transmission project, ADB and AIIB will administer each of their loans in parallel, and collaborate on the basis of the co-financing arrangement.

By IndraStra Global News Team

Image Attribute: Windmills at Mundra Beach, Kutch, Gujarat, India / Photo by Rahul Guhathakurta / Creative Commons 2.0 CC-BY

Manila-headquartered Asian Development Bank (ADB) has agreed to finance additional power transmission network components with co-financing from the Asian Infrastructure Investment Bank (AIIB) that will connect with an ADB-financed Green Energy Corridor and Grid Strengthening Project in India, the multilateral agency said in a statement issued on September 28, 2017. In 2016, ADB assistance totaled $31.7 billion, including $14 billion in co-financing.

A day earlier, through a press release, ADB has issued a statement about its upcoming plan to raise annual lending to India to a maximum of USD 4 billion per year during 2018-22 to accelerate inclusive economic transformation. ADB’s program in India will focus on three main pillars of activity during the 5-year period—boosting economic competitiveness to create more and well-paid jobs, improved access to infrastructure and services, and addressing climate change and improving climate resilience. About 85% of lending will be focused on transport, energy, and urban infrastructure and services. Other finance will be aimed at public sector management, agriculture, natural resources and rural development, as well as skills development and urban health.

In support of the Indian government’s Green Energy Corridor initiative, ADB’s Board of Directors approved in December 2015 two loans to build and upgrade inter-regional grid systems between the western and southern regions, and high voltage transmission lines and substations in the northern region. The system will mainly deliver solar and wind energy to wider locations in India. The ADB financing for this comprised a $500 million government-backed loan and a further $500 million in nonsovereign lending to India’s national transmission company, Power Grid Corporation of India Limited (POWERGRID).

To increase energy delivery to more provinces in India, the project will now be expanded to include 400-kilovolt transmission components in Tamil Nadu to connect at Pugalur with the long-distance grid systems financed by ADB. ADB will provide $50 million from savings from the earlier loans while AIIB’s Board of Directors yesterday approved cofinancing of $100 million for this component, which has a total cost of $303.5 million. POWERGRID will finance the remainder.

“We are pleased that this first AIIB cofinanced project in India will bring clean energy to more people and help the country achieve its ambitious renewable energy targets,” Director of ADB's energy division in its South Asia department Priyantha Wijayatunga said. “We look forward to broadening our partnership with AIIB in the coming years.”

Since 2016, ADB has cofinanced four projects with AIIB, beginning with the M4 expressway development in Pakistan approved in June 2016 for which ADB and AIIB are each providing $100 million. Second is a project to improve natural gas production and transmission in Bangladesh, financed by $167 million from ADB approved in November 2006 and $60 million from AIIB. The third is a project to build a bypass road skirting the port city of Batumi, Georgia’s second largest city, financed by $114 million from ADB approved in March 2017 with the same amount coming from AIIB. In these three co-financed projects, ADB administers wholly or partially the assistance provided by AIIB. For the India transmission project, ADB and AIIB will administer each of their loans in parallel, and collaborate on the basis of the co-financing arrangement.

India has been growing at an average rate of more than 7% since FY2012, putting it among the world’s fastest-growing large economies. The country has also more than halved its poverty rate since FY2004 to 21.9% and has achieved most of the Millennium Development Goals.

To accelerate such positive trends requires that the country create more high-quality jobs since half of India’s workforce is based around agriculture, which is still marked by low productivity and incomes. Infrastructure continues to be a major bottleneck, in which ADB has identified an investment shortfall of $230 billion a year. Other critical challenges include how to close the persistent gap between advanced and lagging regions where most of the poor are concentrated, environmental degradation exacerbated by the impacts of climate change, and building capacity within the country’s institutions.