The Asian Development Bank (ADB) will provide up to US$300mn to help meet investment needs to strengthen and expand the power sector in Uttaranchal, India.

The amount will be in the form of an innovative new seven-year financing facility, from which individual loans will be taken out for specific projects under the government of Uttaranchal’s comprehensive power sector roadmap. Uttaranchal, one of India’s poorest states, has undeveloped hydropower potential estimated at 20,000MW.

Harnessing this capacity will meet the state’s needs for clean and efficient energy and allow it to export power to surrounding states, generating funds to support investment in rural areas and other productive sectors.

To realise its potential, the state’s energy sector requires about US$12bn over the next 12 years. About US$5bn would be needed over the next six years to fund projects to increase power generation and improve transmission and distribution, as well as for policy reform and efforts to improve financial management.

“While ADB’s support represents a relatively small share of the total funding needs, ADB’s presence as a partner brings down the total cost of funds and helps attract other long-term financiers to the sector,” says Dan Millison, an ADB senior energy specialist. ADB will finance part of the investment programme from 2006 to 2012, covering the construction of small hydropower plants, expansion of the transmission system, and support to enable government agencies to carry out the program’s activities cost-effectively.

The investments to be supported by ADB will increase power supplies significantly, with enough surplus to supply power to 12 million residential customers. “The resulting expansion will improve electricity service and reliability, ultimately benefiting the customers,” Millison adds. ADB’s financing will come from its ordinary capital resources, with currency and interest rate charges to be determined at the time individual loans are taken out.

The Uttaranchal Energy Department will serve as the programme’s executing agency.