The Asian Development Bank (ADB) has approved a loan of up to US$300mn to India’s NTPC to finance its power generation capacity expansion programme and to reduce the country’s power shortfall.

The loan will be ADB’s first time to lend to a majority state-owned enterprise without a government guarantee under the bank’s Innovation and Efficiency Initiative (IEI) through pilot financing instruments.

The loan will help fund capital expenditure for two projects – the Sipat Super Thermal Power Plant in Bilaspur, Chhattisgarh state, and the Kahalgaon Super Thermal Power Plant Stage II Project in Bhagalpur, Bihar state.

Together these two projects will add 4,480 MW of electricity to the national grid between 2006 and 2009.

Although India’s power sector has expanded rapidly in the past few years, the country has a large power supply deficit that is constraining economic growth. The government has set an ambitious target of providing power for all by 2012, which would require additional capacity of nearly 100,000MW by 2012.

Formerly known as National Thermal Power Corporation Limited, NTPC is owned 89.5% by the government of India, having listed 10.5% of its shares on Indian stock exchanges in 2004.

It is classified by the government as a navratna company, meaning it may run its operations independently and raise commercial financing without explicit government approvals.

With a total installed capacity of 24,249MW at the end of last year, it runs 14 coal-fired and seven gas-fired power stations, and three joint venture projects, accounting for more than a quarter of the country’s power generation.

“As the largest power generator in India, NTPC’s ability to increase power capacity is critical to reducing peak power and energy deficits, which may soon constrain the country’s economic growth targets,” says Don Purka, an ADB structured finance specialist in the Private Sector Operations Department. “NTPC is a technically and financially sound enterprise with strong cash flows, a model corporate governance reform programme and experienced management.”

For the first time in India, NTPC will implement supercritical steam technology at the Sipat plant that will operate at higher pressures and temperatures, improving efficiency and reducing fuel consumption and greenhouse gas emissions such as carbon dioxide. In addition, the two projects will adhere to air emission and effluent standards as contained in ADB’s environment policy.

ADB’s loan will be provided in two parts. The first is a loan of US$75mn from ADB’s own resources and the second is a loan through ADB’s Complementary Financing Scheme of US$225mn to be underwritten and syndicated to commercial lenders. This will be the first time ADB’s CFS product is being used in India.

“ADB’s ability to leverage three times its own loan from international commercial banks shows our commitment to crowd in private lenders. By deepening the relationship between NTPC and the international bank market, we hope to create confidence in the banks and encourage them to increase their lending to the Indian power sector, as substantial amounts of investments are needed over the next ten years.”