Document o f

The World Bank

FOR OFFICIAL USE ONLY

Report No: 41968 - IN

PROJECT APPRAISAL DOCUMENT

ON A

PROPOSED LOAN

IN THE AMOUNT OF US$600 MILLION

TO THE

POWERGRID CORPORATION OF INDIA LIMITED

WITH THE GUARANTEE OF THE REPUBLIC OF INDIA

FOR A

FOURTH POWER SYSTEM DEVELOPMENT PROJECT

February 8,2008

Sustainable Development Department India Country Management Unit South Asia Region

This document has a restricted distribution and may be used by recipients only in the performance o f their official duties. I t s contents may not otherwise be disclosed without Bank authorization.

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CURRENCY EQUIVALENTS

(Exchange Rate Effective January 3 1,2008)

Currency Unit = Indian Rupees Rs.39.34 = U S $ l

Al3T

A C G ADB APL ARCS C A G CAS

CEA CERC CPM C T U EA EAMP

ERR EMD EMP ESMC ESMD ESPP FIRR FM FMS GIS Go1 GPS H V D C IAD

F I S C A L YEAR April 1 - M a c h 3 1

ABBREVIATIONS AND A C R O N Y M S

Availability Based Tar i f f

World Bank Anti-Corruption Guidelines Asian Development Bank Adaptable Program Lending Audit Reports Compliance System Comptroller and Auditor General Country Strategy

Central Electricity Authority Central Electricity Regulatory Commission Critical Mean Path Central Transmission Utility Electricity Act Environmental Assessment & Management Plan Economic Rate o f Return Environmental Management Department Environment Management Plan Environmental and Social Management Cell Environment and Social Management Division Environment and Social Policy and Procedures Financial Internal Rate o f Return Financial Management Financial Management System Geographical Information System Government o f India Geographical Positioning System High Voltage Direct Current Internal Audit Department

IBRD

I C B IEAR IFR I M S INR IPMCS

LD&C M&E M I S MoF MOP M o U

NTPC PERT PIP POWERGRID PSDP PSU RAP ROE ROW SBD SEBI SIL SLDC TA

International Bank for Reconstruction & Development International Competitive Bidding Init ial Environmental Assessment Report Interim Financial Report Integrated Management System Indian Rupees Integrated Project Management and Control System Load Dispatch and Communication Monitoring and Evaluation Management Information System Ministry o f Finance Ministry o f Power Memorandum o f Understanding

National Thermal Power Corporation Performance Evaluation Review Technique Project Implementation Plan Power Grid Corporation o f India Power System Development Project Public Sector Undertaking Resettlement Action Plan Return on Equity Right o f Way Standard Bidding Documents Securities and Exchange Board o f India Specific Investment Loan State Loan Dispatch Center T e c h c a l Assistance

Vice President: Prafbl Pate1 Country Director: Isabel M. Guerrero Country Manager: Fayez S. Omar

Sector Manager: Salman Zaheer Task Team Leader: Pedro E. Sanchez

INDIA FOURTH POWER SYSTEM DEVELOPMENT PROJECT

CONTENTS

Page

A . STRATEGIC CONTEXT AND RATIONALE ........................................................................ 1

1 . 2 . 3 .

Country and sector issues .................................................................................................... 1

Rationale for Bank involvement ......................................................................................... 2

Higher level objectives to which the project contributes .................................................... 3

PROJECT DESCRIPTION ..................................................................................................... 3

Lending instrument ............................................................................................................. 3

B . 1 . 2 . 3 . 4 . 5 .

Project development objective and key indicators .............................................................. 4 Project components ............................................................................................................. 4

Lessons learned and reflected in the project design ............................................................ 4

Alternatives considered and reasons for rejection .............................................................. 5

C . IMPLEMENTATION ............................................................................................................. 5

Partnership arrangements .................................................................................................... 5 Institutional and implementation arrangements .................................................................. 6

Monitoring and evaluation o f outcomes/results .................................................................. 6

1 . 2 . 3 . 4 . Sustainablllty ....................................................................................................................... 6 5 . Critical r isks and possible controversial aspects ................................................................. 7 6 .

. . .

Loadcredit conditions and covenants ............................................................................... 10

APPRAISAL S U M M A R Y ................................................................................................... 10 D . 1 . 2 . 3 . 4 . 5 . 6 . 7 .

Economic and financial analysis ....................................................................................... 10

Fiduciary ........................................................................................................................... 12

Social ................................................................................................................................. 13

Environment ...................................................................................................................... 14

Safeguard policies ............................................................................................................. 16

Policy Exceptions and Readiness ...................................................................................... 16

Technical ........................................................................................................................... 11

FOR OFFICIAL USE ONLY

This document has a restricted distribution and may be used by recipients only in the performance o f their off icial duties. I t s contents may not be otherwise disclosed without Wor ld Bank authorization.

Annex 1: Country and Sector or Program Background ................................................................ 17

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies .......................... 20

Annex 3: Results Framework and Monitoring .............................................................................. 22

Annex 4: Detailed Project Description ......................................................................................... 24

Annex 5: Project Costs .................................................................................................................. 28

Annex 6: Implementation Arrangements ...................................................................................... 29

Annex 7: Financial Management and Disbursement Arrangements ............................................ 30

Annex 8: Procurement Arrangements ........................................................................................... 39

Annex 9: Economic and Financial Analysis ................................................................................. 48

Annex 10: Safeguard Policy Issues ............................................................................................... 55

Annex 11: Project Preparation and Supervision ........................................................................... 63

Annex 12: Documents in the Project Fi le ..................................................................................... 64

Annex 13: Statement o f Loans and Credits .................................................................................. 65

Annex 14: Country at a Glance ..................................................................................................... 69

INDIA

FOURTH POWER SYSTEM DEVELOPMENT PROJECT

PROJECT APPRAISAL DOCUMENT

SOUTH ASIA

SASDE

Date: February 8,2008 Country Director: Isabel M. Guerrero Sector Manager: Salman Zaheer

Project ID: P101653

Team Leader: Pedro E. Sanchez Sectors: Power (1 00%) Themes: Infrastructure services for private sector development (P) Environmental screening category: Full Assessment

Y Loan

[XI Loan [ ] Credit [ ] Grant [ 3 Guarantee [ 3 Other:

Lending: Instrument: SDecific Investmen

For Loans/Credits/Others: Total Bank financing (US$m.): 600.00 Proposed terms: Variable Spread Loan with a 20 year maturity, including a 5 year Dace period

< I I - Financing Plan (US$m)

Source Local Foreign Total Borrower 602.00 912.00 1,514.00 International Bank for Reconstruction and 0.00 600.00 600.00 Development Total: 602.00 1.5 12.00 2.1 14.00

Borrower: Power Grid Corporation o f India Ltd. B-9, Qutab Institutional Area Katwaria Sarai New Delhi Delhi - 110016 India Fax: 91(11)26560054

Responsible Agency: Power Grid Corporation of India Ltd. India

Estimated disbursements (Bank J?Y/US$m) ’Y 4nnual Jumulative

2008 2009 2010 2011 2012 2013 0 0 0 73.00 274.00 176.00 47.00 30.00 0.00 0.00 0.00 0.00 73.00 347.00 523.00 570.00 600.00 0.00 0.00 0.00 0.00

Which safeguard policies are triggered, if any? Re$ PAD 0.6, Technical Annex 10 The project has been assigned a safeguard category “A”. Following safeguard policies are triggered: Environmental Assessment OP 4.01 Natural Habitats O P B P 4.04 Involuntary Resettlement (OPBP 4.12) Indigenous Peoples (OD 4.20, being revised as OP 4. lo), Forests (OP/BP 4.36) Physical Cultural Resources (OPBP 4.1 1)

Significant, non-standard conditions, if any, for: Re$ PAD C. 7 Board presentation: none

Loadcredit effectiveness: None

Covenants applicable to project implementation:

a) Standard Bank legal requirements (guarantee agreement between India and the Bank in

.. 11

effect, legal opinions from the Government/ POWERGRID regarding legal agreements with the Bank).

POWERGRID shall furnish to the Bank, no later than six months after the end o f each fiscal year, certified copies o f i t s audited financial statements and Special Account Audit, and i ts auditors' reports o f such scope and in such detail being followed under PSDP-I11 loan.

Except as the Bank shall otherwise agree, POWERGRID shall take al l necessary measures to produce, each year, funds from internal cash generation equivalent to not less than 20 percent o f i ts capital expenditures (three-year moving average).

Except as the Bank shall otherwise agree, POWERGRID shall not incur any debt, if after the incurrence o f such debt, the ratio o f debt to equity shall be greater than 4 to 1.

Except as the Bank shall otherwise agree, POWERGRID shall take al l necessary steps to maintain i t s accounts receivable at a level not exceeding an amount equivalent to its billing for transmission and other regulated services for the preceding three months.

The Go1 shall take al l necessary steps to allow POWERGRID to maintain i t s accounts receivable at a level not exceeding an amount equivalent to its billing for transmission and other regulated services for the preceding three months.

POWERGRID shall maintain an appropriate organizational structure for implementing i t s Environmental and Social Pol icy and Procedures, and shall amend, repeal or not enforce these Procedures only with prior Bank approval.

... 111

A. STRATEGIC CONTEXT AND RATIONALE 1. Country and sector issues

1. domestic product (GDP) grew at an impressive rate o f 9.4 percent during fiscal 2007 and i s expected to follow that sustainable growth trajectory with a growth rate o f approximately 10 percent by the end o f the Eleventh Five Year Plan (FY07-FY 12). Inadequacy o f physical infrastructure continues to be a major constraint in achieving faster growth, and above all, power supply infrastructure i s not comparable to the standards prevalent in other competitor countries.

The Indian economy continues to show high economic growth. The country’s real gross

2. to foster competitive markets, encourage private participation and transform the state’s role f rom service provider to regulator. The Act directs the unbundling o f vertically integrated utilities and creates autonomous state electricity regulatory commissions. In addition, i t provides open access to generators and users spread beyond state boundaries and promote power trade. These policies have provided an impetus to enhance governance, commercialize services, expand private participation, introduce competition, and better serve the rural poor.

The Electricity Ac t o f 2003 brought together structural and regulatory reforms designed

3. actions in the power sector. In generation, Go1 has successfully completed the competitive award o f three Ultra Mega Power Projects (UMPP) coal-based plants’4,OOO MW each under competitive tendering. In transmission, the enforcement o f grid discipline and the facilitation o f inter-state and inter-regional power transfers and trading have improved overall power system efficiency. In distribution, incentive-based policies have increased the efficiency, accountability and quality o f electricity distribution services, thereby contributing to notable improvements in several states.

As part o f this process, the Government o f India (GoI) has successfully completed key

4. performance i s showing improvement, with virtually al l payments to central public sector units in the power sector being made on time by state-level entities. Availability-based tar i f fs and tighter performance norms have raised plant load factors. An increasing number o f villages have been electrified under the Tenth Five Year Plan as compared with the Eight and Ninth Five Year Plans combined. System losses in some states have been brought down below 20 percent. Generation capacity additions under the Tenth Five Year Plan are higher than in earlier periods, but have fallen short o f the original, albeit ambitious, targets by about 40 percent.

India’s pol icy reforms in the power sector are beginning to pay off. The sector’s financial

5. The country’s installed generation capacity i s expected to be more than 200 GW by 2012 from the present level o f 140 GW. In order to deliver this power to the entire country, an expansion o f the regional transmission network and inter regional capacity to transmit power is essential. The country’s transmission plan focuses on the consolidation o f the national grid by adding over 60,000 circuit km o f transmission network by 2012, which carry 60% o f the power generated in the country. For creation o f such a grid, an investment o f about US$18 bi l l ion i s envisaged. Out

Looking forward, Go1 has established an ambitious mission o f “Power for All by 2012”.

I/ - Sasan in Madhya Pradesh, Mundra in Gujarat and Krishnapatnam in Andhra Pradesh.

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o f this, about US$14 bi l l ion i s planned to be mobilized by POWERGRID and remaining US$4 bi l l ion through private sector participation.

6. In the context o f its engagements with POWERGRID, the Bank has dialogued actively with Go1 on national-level sector reforms. Key activities supported by the Bank include the establishment and operation o f modern load dispatch centers, the establishment o f the Central Electricity Regulatory Commission (CERC) to regulate the interstate power sector, the implementation o f bulk power tariff reforms to improve grid discipline and encourage efficient use o f generating capacity, steps towards private participation in the transmission sector, and improvement in commercial discipline in the sector.

2. Rationale for Bank involvement

7. 199Os, the Bank shifted its program focus from primarily asset-creation to supporting the GoI’s sector reform program aimed at improving the performance o f state distribution companies and facilitating the creation o f competitive electricity markets. As part o f the latter, the Bank scaled up i ts support to POWERGRID, building on the partnership initiated when the company was established in 1989. Since then, the Bank has assisted POWERGRID to become one o f the largest transmission utilities in the world by financing its investment program, and supporting i t s progress towards achieving world-class operations and management. The Bank has made three direct loans to POWERGRID - PSDP-I loan in 1993, PSDP-I1 loan in 2001, and the ongoing PSDP-I11 loan in 2006. During this period, POWERGRID has:

The Bank has a long history o f supporting power sector development in India. In the

a. Expanded its transmission network from about 22,000 circuit k m s in 1992-93 about 59500 ckt k m s in 2006-07. During the period, the company’s assets have grown more than eight-fold from about US$880 mi l l ion to US$7.3 bi l l ion and revenues have increased more than six times, from about US$158 mi l l ion to US$1.02 billion.

b. Strengthened technical capabilities through implementation o f state-of-the-art technologies such as H V D C transmission systems, U H V A C transmission system, State-of-the-art Unified load dispatch and communication schemes (ULDC), Gas insulated substations and GIS mapping for route planning.

c. Improved corporate governance through continuity o f tenures for board members and senior management. With a recently concluded Init ial Public Offer (PO), POWERGRID has further strengthened i t s governance and accountability frameworks to meet the requirements under the listing agreement o f the stock exchanges.

d. Enhanced institutional capacities in several key areas and adopted sound procedures and systems to satisfy Bank’s fiduciary and safeguard requirements. POWERGRID has adopted a corporate level Environmental and Social Policy and Procedures (ESPP) which i s compliant with the requirement o f a l l major lenders and i s applied to all projects irrespective o f the source o f funding.

e. Diversified into Telecom and International Consulting on Transmission projects, including implementation o f transmission systems in Afghanistan.

2

8. ongoing PSDP-I11 project to scale up the project’s impact and development effectiveness. The schemes to be financed have been selected based on least-cost technical and economic criteria with adequate social and environmental safeguards. The project i s expected to have a positive development impact in terms o f reducing transmission losses and the consequent reduction in cost o f energy. In addition, i t wil l contribute to the clean energy initiative through both the ability to transfer surplus hydro energy to power deficit regions in India and the avoidance o f building generation facilities.

The proposed loan would support additional transmission investments initiated under the

9. 13% in 1993 to 8% today. POWERGRID has developed into a sophisticated borrower and is able to access the capital markets as confirmed by i t s recent successful ini t ial public offering (PO). In this context, POWERGRID i s exploring non-sovereign lending from IFC and the private sector window o f ADB.

I t i s noted that the Bank contribution o f POWERGRID’s financing has decreased from

10. Bank’s support to India’s power sector as envisaged in the CAS. The program includes:

In parallel to the proposed operation, the Go1 and the Bank are working to scale up the

Expansion o f “cleaner” energy production (hydropower, including the Rampur Hydropower Project approved in September 2007; cleaner coal, and renewables); Expansion o f transmission capacity (inter-regional and at the state level) - to facilitate efficient energy markets and link demand centers with resource-rich parts o f the country (particularly hydro resources in the north and northeast); Strengthening governance o f electricity distribution, including improving efficiency and quality o f electricity services in selected states; and Improving electricity access and quality o f services in rural areas.

3. Higher level objectives to which the project contributes

11. 2008, which establishes as one o f i t s priorities the provision o f adequate infrastructure to promote private sector-led growth. According to the CAS, the Bank Group could support investments in POWERGRID to strengthen the national transmission network and raise the inter- regional power transfer capacity. Investments would be aimed at improving the outcomes- orientation and service delivery o f POWERGRID, by: (i) facilitating more economic use o f generation resources; (ii) providing greater grid stability; (iii) establishing the open access regime mandated in the new Electricity Act; and (iv) facilitating development o f a power trading regime within the country and with India’s neighbors.

The proposed project supports the Bank’s Country Assistance Strategy for India 2005-

B. PROJECT DESCRIPTION

1. Lending instrument

12. o f POWERGRID FY07-FY 12 investment program. POWERGRID has chosen a U S dollar-based variable spread loan.

The project i s designed as a specific investment loan (SIL) and wil l finance a time slice

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2. Project development objective and key indicators

13. The objective o f the project is to strengthen India’s electricity transmission system in order to increase reliable power exchange between regions and states. The “Growth in Power Exchange between Regions” wil l be used as the key indicator to measure the performance in achieving the development objectives (see Annex 3).

3. Project component

14. Schemes. The five investment schemes to be financed under this component have been identified following the eligibility criteria for Bank financing established in PSDP-I11 project. These eligibility criteria include: (i) technical and operational justification; (ii) economic and financial justification; (iii) appropriate Go1 clearances, including investment approvals and environmental clearances; (iv) adequate financing procurement and implementation plans; (v) compliance with environmental and social safeguards requirements; and (vi) proposed investments should be for strengthening o f transmission system and inter-regional power exchange for the National Grid. The project implementation plans for each o f the five investment schemes have been approved by the Bank.

The project will consist o f one component, namely Transmission System Strengthening

15. The table below shows the indicative project cost and financing plan. The project wil l partially finance transmission system strengthening schemes 1,2 and 3 and wil l complete the financing o f schemes 4 and 5. Schemes 1’2 and 3 would be completed with a fo l low on operation or other sources o f financing. See Annex 4 for firther details.

Indicative Project Cost and Financing Plan

Total POWER

Cost Funding Component 1 : Transmission system strengthening schemes

1. East-West Transmission Corridor 198 88 2. Western Region System 8 84 294

3. Eastern Region System Strengthening 24 1 109

4. Balia-Bhiwadi H V D C Bipole System 683 275 5. North-West Transmission Comdor 119 45 TOTAL 2,125 81 1

Indicative GRID

Strengthening Scheme-I1

Scheme-I

Allfigures in US$ million

111“ I V on Loans PSDP- PSDP- Follow-

0 56 54 25 174 391

0 65 67

113 295 0 64 10 0

202 600 512

*The total under PSDP III does not match the $400 million loan amount for PSDP III as the above table does not include schemes completed under that loan.

4. Lessons learned and reflected in the project design

16. Key lessons for the present loan f i om these earlier engagements are that:

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a. goodfinancialperformance. With significant institutional capacity enhancements and a consistently robust financial performance, POWERGRID i s today in a position to raise resources from a multitude o f financial institutions. However, POWERGRID continues to value partnership with the Bank for the following reasons: (i) Bank’s continuing role in strengthening POWERGRID’s institutional capacity, including through the Bank’s oversight o f fiduciary and safeguards’ aspects o f project implementation; and (ii) the contribution o f the Bank in introducing innovative concepts and global good practices to support the development o f India’s power sector;

b. steady engagement with POWERGRID since i t s inception in 1993, the Bank has contributed both to the emergence o f a well-managed company and to informing and helping shape key policy and regulatory reforms;

C Importance of Capacity Building for Implementing Agency. A focus on strengthening institutional capacity, achieving financial sustainability, and improving operational practices o f implementing agencies i s critical for tangible and sustainable results on the ground; and

d. Need for Flexibility in Bank Products. Large clients in middle income countries may s t i l l benefit from Bank support. However, Bank products offered to such clients would need to reflect flexibility in approach, keeping in perspective the improved institutional capacities o f such clients. The use o f time-slice approach in the design o f PSDP-I11 and PSDP-IV projects i s in line with the need for such flexibility.

PO WERGRID values Bank support to further enhance its institutional capacity and

Bank’s engagement with PO WERGRID provides leverage on sector policy. Through a

5. Alternatives considered and reasons for rejection

17. Instead o f conventional investment operation or an Adaptable Program Lending operation, a time-slice structure was selected in the previous PSDP-I11 project to respond to GoI’s request to finance POWERGRID’s investment program, as it provided enough flexibility to deal with changes in size and composition o f the investment program.

18. The repeater project i s deemed to be the most appropriate option for attaining development impact given (i) the project design and implementation arrangements wil l be the same as for the ongoing project, (ii) the proposed project will continue to finance a time-slice o f POWERGRID’s investment program, and (iii) the size o f the proposed project could preclude i t from being considered under additional financing procedures.

C. IMPLEMENTATION

1. Partnership arrangements

19. under the Bank project from its own equity and local debt finance. As with previous loans, ADB i s also financing POWERGRID’s investment program, in parallel to parts o f the program to be financed by IBRD under the proposed operation. There is no overlap o f schemes between the two projects, and the investments under each project have been confirmed as being

In addition to Bank loans, POWERGRID would fund part o f the investment schemes

5

complementary. implementation arrangement for these parallel partnerships i s endeavoring to harmonize the monitoring, reporting and evaluation requirements o f the distinct operations. While loans from IBRD and ADB with sovereign guarantees currently finance about 20 percent o f POWERGRID’s investment program, the company is exploring the option o f availing o f sub- sovereign borrowings from both these IFIs, signaling i t s readiness to further reduce i ts dependence on government guarantees while retaining the implementation support provided by the IFIs.

2. Institutional and implementation arrangements

20. POWERGRID has over the last decade acquired and developed the skills required to successfblly plan and implement large transmission schemes (up to 765 kV A C and 500 kV H V D C systems). All the schemes envisaged under this operation are being designed, engineered and implemented by POWERGRID. Local and foreign contractors engaged through international competitive bidding will carry out supply, installation and erection works.

2 1. the previous loans including the use o f dispute review boards for complex schemes and institutional oversight by the Ministry o f Power (MOP) and the Ministry o f Finance (MoF). The Central Electricity Authority (CEA) is responsible, inter alia, for sector planning and the Central Electricity Regulatory Commission (CERC) i s responsible for tariff formulation and notification as wel l as sectoral regulation. Both these agencies wil l fol low their usual procedures with respect to the project investments.

Implementation arrangements will include the use o f the practices institutionalized under

3. Monitoring and evaluation of outcomes/results

22. interim financial reports, information on progress on key entity performance indicators and on billing and collection on quarterly basis, audited financial statements (within six months o f the end o f each financial year), and such other information as the Bank may reasonably require. These arrangements are working in a satisfactory manner under the ongoing operations and wil l continue under the proposed project. POWERGRID wil l carry out a common mid-term review o f PSDP-I11 and PSDP-IV projects around October-December 2009 and report its findings and conclusions to the Bank. Annex 3 sets out the key performance indicators for the project, which are a subset o f a larger set o f indicators prepared by POWERGRID. The Bank wil l continue to field combined supervision missions two to three times per year for PSDP-I11 and PSDP-IV projects, and will continue close monitoring o f POWERGRID’s institutional growth and development and the GoI’s policies for power sector development.

POWERGRID wil l provide the Bank with quarterly physical progress and monthly

4. Sustainability

23. continued commitment to India’s ongoing program o f power sector restructuring, and particularly the implementation o f the mandate o f the Electricity Act 2003. The GoI, CERC and POWERGRID have reaffirmed their commitment to the implementation o f the Act, including following the change o f Government in 2004. POWERGRID’s commitment is also evident in their performance in the implementation o f ongoing Bank-supported projects.

The principal issue o f sustainability for this project i s the GoI’s and POWERGRID’s

6

24. One o f the m o s t s igni f icant threats to POWERGRID'S sustainabil ity has been the h is tor ica l fa i lure o f i t s m a i n customers - the state ut i l i t ies - to pay thei r b i l l s in full and on t ime. T h e securit ization mechanism introduced by Go1 in the 2001, and the general ly improving sector performance and f iscal s i tuat ion in m o s t o f the states over the last f e w years, has done m u c h to resolve th is s i tuat ion and payment discipl ine has substantially improved. W h e n defaul ts have taken place, POWERGRID has enforced supply regulat ion as pe r the terms o f secur i t izat ion mechanism. Cont inued adherence to these strict credi t pol ic ies and enforcement o f co l lect ion mechanisms will require concerted ef for ts by POWERGRID and the GoI. As such the covenant on the l eve l o f accounts receivable used in the PSDP I11 loan wil l b e repeated under th is loan.

Risk factors

5. Critical risks and possible controversial aspects

Description of risk Rating" of Mitigation measures Rating" of risk residual risk

25. Ident i f icat ion Worksheet.

Risks for the proposed pro ject and mi t i ga t i on measures are presented in the attached R i s k

Macroeconomic framework

Country Engagement with Bank

Governance

Macroeconomic outlook for India does not impose any critical r i s k to the project. Development o f a National Transmission Gnd would be imperative even if the rate of economic growth were to slow down from the present 9 percent per annum. Currency exchange rate variation risk i s a pass through i tem in consumer tariffs. Going forward, hedging costs may also be allowed by the regulator. India's engagement with the Bank encompasses over 167 ongoing projects with investments o f over US$2 1.1 bil l ion. The engagement has been stable except for a b r i e f period o f sanctions in 1998, which i s unlikely to occur again.

The appointment o f Independent Directors o n the POWERGRID board and the listing o f POWERGRID shares o n the stock exchange in October 2007 has strengthened POWERGRID'S governance and accountability framework. T h i s poses a new challenge for the independence and competence o f the Board o f Directors in i t s dealings with Go1

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The Bank team would pursue the inclusion o f currency exchange rate hedging costs in transmission tariffs. This i s also mandated by the National Ta r i f f Policy.

India would need continued engagement with the Bank across various sectors, and any disruption o f this relationship i s unlikely. Continued improvement o f governance and appointment o f Independent Directors on the POWERGRID board - an issue which the Bank team had been pursuing with Go1 since long - has been

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Risk factors

Systemic corruption

Other (for example security risks, political/election risks, country engagement with other MDBddonors, social and environmental risks at the country level)

Description of risk

dominant shareholder.

There i s n o evidence o f systemic corruption in POWERGRID.

There i s n o significant security risk in project implementation, though few o f the transmission lines may pass through areas susceptible to instances o f socio-political unrest. In the past POWERGRID projects have not been affected by such situations. POWERGRID'S investment program i s not expected to be influenced by elections or polit ical climate. The project i s not co-financed by other MDBddonors. There are n o expected country level social and environmental r isks which may have a bearing o n the project.

11. Sector Governance, Policies and Institutions

Rating" of risk

Moderate

Moderate

111. Operation-si Technical/design

Implementation capacity and sustainability

Electricity A c t 2003 provides the framework for sector structure, pol icy and regulation. Further to the Act, Go1 has introduced National Electricity Policy and National Tar i f f Policy. The sector has a robust regulatory framework with a strong and fully functional Central Electricity Regulatory Commission (CERC) and an Appellate Tribunal.

cif ic Risks The project does not pose any particular technical risks, gwen POWERGRID'S demonstrated capabilities in transmission system development and the use o f proven technologies and implementation practices.

Moderate

~

POWERGRID has demonstrated i ts ability to plan and implement even complex investments on time and within estimated cost.

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Low

Mitigation measures

fulfil led.

The Bank team would continue to monitor procurement under the project. Security r isk (if any) can be addressed through dialogue with population and adequate security cover f rom the local administration. In the past, POWERGRID has been building transmission l ines across the country regardless o f the security situation.

Continued dialogue with the Ministry o f Power, CERC and POWERGRID for the development o f a more evolved transmission tar i f f regime.

The Bank would continue to monitor the status o f project implementation.

Rating" of residual risk

Low

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Moderate

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continue to monitor

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Risk factors

.~~~~

IV.

1. POWERGRID’s evolved institutional capabilities in areas o f technical design, financial management, procurement, environmental / social safeguards and project implementation.

2. Advance project preparation in areas o f design, procurement and safeguards actions. 3. Relatively evolved sector governance, institutions and policies, and Government focus o n

power sector development. 4. Project Implementation Plans (PIPS) for a l l schemes have been reviewed by the Bank team.

Overall bsk (including. Reoutational Risks) Overall risk for the project (including Reputational Risk) i s rated as “Low” in view of:

Financial management

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Procurement

Social and environmental safeguards

Other

Description of risk

POWERGRID has an adequate financial management system and framework for carrying out the functions assigned to i t under the project, including accounting and reporting for project resources and expenditures. POWERGRID’s financial performance under previous loans has been satisfactory. However, in order to benchmark with i t s international peers, POWERGRID i s implementing an action plan for further improving i t s FM systems.

Advance procurement actions have been taken for investments under the project, in conformity with the Bank procurement guidelines.

POWERGRID has already institutionalized safeguard policies in i t s environmental and social pol icy framework, and takes advance action o n implementing these policies in al l i t s investments.

Rating” of risk

Moderate

Moderate

Moderate

Mitigation measures

f lag implementation issues (if any) with the POWERGRID management and Government o f India.

With the recent P O o f POWERGRID in Indian Stock market, higher level corporate governance requirements have been placed o n the company under the listing agreement Several actions have been completed and further actions will be undertaken during implementation. The Bank team would continue to monitor i t s implementation. The Bank would continue to monitor procurement processes closely.

The Bank would continue to monitor the implementation o f these policies in future investments.

Rating” of residual risk

Moderate

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9

Controversial aspects:

26. major social or environmental issues are anticipated in POWERGRID's operations.

No controversial aspects related to this operation have been identified. In particular, no

6. Loadcredit conditions and covenants

a. Standard Bank legal requirements (guarantee agreement between India and the Bank in effect, legal opinions from the Government/ POWERGRID regarding legal agreements with the Bank).

b. POWERGRID shall hrnish to the Bank, no later than six months after the end o f each fiscal year, certified copies o f i t s audited financial statements and Special Account Audit, and i t s auditors' reports o f such scope and in such detail being followed under PSDP-I11 loan.

c. Except as the Bank shall otherwise agree, POWERGRID shall take al l necessary measures to produce, each year, funds from internal cash generation equivalent to not less than 20 percent o f its capital expenditures (three-year moving average).

d. Except as the Bank shall otherwise agree, POWERGRID shall not incur any debt, i f after the incurrence o f such debt, the ratio o f debt to equity shall be greater than 4 to 1.

e. Except as the Bank shall otherwise agree, POWERGRID shall take al l necessary steps to maintain i t s accounts receivable at a level not exceeding an amount equivalent to its billing for transmission and other regulated services for the preceding three months.

f. The Go1 shall take al l necessary steps to allow POWERGRID to maintain its accounts receivable at a level not exceeding an amount equivalent to its billing for transmission and other regulated services for the preceding three months.

g. POWERGRID shall maintain an appropriate organizational structure for implementing its Environmental and Social Policy and Procedures, and shall amend, repeal or not enforce these Procedures only with prior Bank approval

D. APPRAISAL SUMMARY

1. Economic and financial analysis

27. schemes have been undertaken by POWERGRID as a part o f the respective Project Implementation Plans for each o f the investment schemes, which have been reviewed and accepted by the Bank. The direct economic benefits from the proposed investments in transmission systems include (i) greater availability o f power from exchange o f power across regions, (ii) reduction in system losses through system strengthening, and (iii) increased market

Economic Analysis of Investment Schemes. Economic analysis for a l l the proposed

10

efficiencies from power trading through short-term and long-term open access. The PIPS for the proposed investments calculate the economic benefits based on these direct benefits only. This i s a conservative estimate, as i t does not capture the huge economic benefits from industrial growth, improved public facilities (such as education, health, administrative support etc), improved agricultural productivity, greater commercial activity and the economic benefits accruing at the household level from increased access/availability o f electricity. The economic rates o f return o f the proposed investments are shown below:

East-West Transmission Corridor Strengthening Scheme 17.8% Western Region System Strengthening Scheme 22.4% Eastern Region Strenghtneing Scheme 15.8% Balia-Bhiwadi H V D C Bipole System 14.8% North-West Transmission corridor 22.0%

28. financial appraisal o f schemes. In the prevalent regulatory regime, an annual return on equity o f 14% is provided by the regulator during the years when the scheme i s operational. However, the cost o f debt i s a pass through in tariff. As a result, the financial performance o f the scheme, or that o f POWERGRID, remains unaffected by the cost o f debt. The cost o f equity for POWERGRID has been estimated, based on the Capital Asset Pricing Model (CAPM), to be between 12% and 14%. Based on the cash flows for investors, the return on equity for the schemes in the base case scenario lies between 13.19% and 13.90%, which i s within the estimated range. An internal rate o f return on equity slightly lower than the regulated return on equity o f 14% is expected since the regulated ROE is not provided for the construction period. In a scenario analysis, ROE for the schemes was found to be higher than the benchmark in al l cases except when there is an implementation delay o f 2 years. However, this i s a highly unlikely scenario in view o f POWERGRID’s good record in project implementation.

Financial Analysis of Investment Schemes. Return on Equity (ROE) has been used for

29. Analysis of Corporate Financial Performance. POWERGRID’s main financial risk i s the risk o f non-payment by off-taking state utilities, which was a significant problem for many years, but this risk has been largely addressed through the securitization o f past debts established in the Tripartite Agreement o f 2003. Under this arrangement, satisfactory payment discipline has been maintained over the last few years. Even though this arrangement has come to a close in March 2007, POWERGRID has been able to maintain accounts receivables at less than one month o f sales as on December 2007 and collections currently stand at close to 100%. POWERGRID also draws comfort from adequate Letter o f Credit (LoC) coverage and CERC regulations that provide for curtailment o f supply in case o f non-payment by the beneficiaries.

30. The proposed three financial covenants (accounts receivable, debt to equity, and s e l f financing ratios) are the same as covenants for the PSDP-I11 loan. Annex 9 presents the key financial statements, showing forecast compliance with proposed financial covenants for the next ten years, and the assumptions used in the projections.

2. Technical

31. demonstrated capabilities in transmission system development and the use o f proven

The project does not pose any particular technical risks, given POWERGRID’s

11

technologies. POWERGRID selects and designs schemes in its investment program based on comprehensive planning and system studies, and after obtaining technical clearances from the Standing Committee constituted by the CEA. POWERGRID has demonstrated the capacity to implement Bank-financed schemes within agreed costs and time schedules.

32. POWERGRID has demonstrated its commitment through its successful implementation o f a program o f activities under Bank financing totaling U S D 1,200 mi l l ion over the last 14 years (PSDP I, I1 and 111). The Go1 i s also highly supportive o f the Bank’s support to POWERGRID. The implementation arrangements under this project will be the same as for the ongoing PSDP- I11 in which POWERGRID will be the implementing agency.

3. Fiduciary

33. schemes which already conform to eligibility criteria pertaining to fiduciary requirements specified in the PAD, and the Project Implementation Plans for the schemes have already been reviewed and accepted by the Bank, i t i s not anticipated that there will be any significant fiduciary issues.

34. and framework for carrying out the functions assigned to i t under the project, including accounting and reporting for project resources and expenditures. POWERGRID’s financial management performance under previous loans has been satisfactory.

35. agreed format, that wil l be generated from POWERGRID’s mainstream systems. These would be submitted on a monthly basis within 30 days o f the end o f each month. Disbursement under Bank loan would be made at 100% for the contracts which have followed the Bank guidelines for procurement. These contracts will relate to the identified five schemes, three o f which are being partly financed under PSDP II13. POWERGRID’s systems are well equipped to generate monthly IFRs4 (which will report o n the full project costs) in the agreed formats detailed in the PIP.

To meet the fiduciary requirements, the Bank will receive (i) a project audit report and (ii) the entity audit report o f POWERGRID within 6 months o f the end o f the fiscal year. The project will be audited by an independent firm o f chartered accountants, acceptable to the Bank, under agreed terms o f reference. The audit reports o f PSDP I11 & PSDP IV (as they are funding same schemes) wil l be combined into a single audited financial statement along with audit report and management letter wil l be received by the Bank. The internal audit department o f POWERGRID will continue to carry out an internal audit o f the schemes financed under the project in

There are no major outstanding or unresolved fiduciary issues. Since the loan will finance

Financial Management. POWERGRID has an adequate financial management system

Project funds wil l be disbursed on the basis o f monthly interim financial reports, in an

In addition, i t i s also successfully implementing an action plan prepared under PSDP I11 to build capacity in corporate governance and FM arena to build institutional capabilities which are in l ine with the Organizational objectives. An updated action plan with dates for remaining actions i s currently under preparation.

the extent feasible, no single contract would be financed from both operations to allow for greater robustness in contract monitoring and oversight. Details o f contracts proposed to be funded under PSDP IV are provided in Implementation plan as prepared by the borrower. IFR wi l l also include an additional reconciliation statement, o f the expenditures incurred in the various sub-

projects along with the various sources o f funding including the Bank (PSDP 11, PSDP 111, and PSDP IV) and others to enable robust monitoring on projects costs and i t s correct allocation to the source o f funding.

2

Although these schemes are being financed from both PSDP I11 and PSDP IV, it has been agreed upfiont that, to 3

4

12

accordance with the terms o f reference as shared with the Bank which would examine and evaluate the accounting, payment and physical verification o f the assets. These reports wil l be shared with IBRD.

36. Procurement. A s explained in paras 8, 14 and 15 o f the PAD, PSDP IV is closely linked with activities that are well underway with support provided by the Bank under PSDP 111. A s a result, and consistent with design and progress o f the program supported under PSDP 111, the bidding process for 14 packages that would be financed under PSDP IV worth US$434 mi l l ion was initiated as part o f the procurement process underway for PSDP I11 in late 2005, before the 2006 revisions to the procurement guidelines were adopted by the Bank. These packages were included in this early procurement process under PSDP I11 since they form an integral part o f the activities supported under the earlier project, namely completion o f core projects and implementation o f candidate projects identified in PSDP-111, which are complementary and required to increase the inter-regional power exchange capacity. As a result, the procurement process for these packages was carried out in accordance with the Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits” dated M a y 2004, which was the governing procurement regime at that time. While the bidding process for an additional 11 packages worth US$124 mi l l ion commenced in late 2006, after the adoption o f the October 2006 revisions, the bidding process had to proceed under the 2004 Procurement Guidelines since the relevant clauses for standard bidding documents (SBDs) had not been updated by the Bank at that time to reflect these revisions. The remaining 6 bid packages under the project totaling $42 mi l l ion were initiated in 2007 in accordance with the Bank’s “Guidelines: Procurement under IBRD Loans and IDA Credits” dated M a y 2004, revised October 2006 and subject to the Anti-Corruption Guidelines (ACG).5

4. Social

37. land acquisition. The entitlement framework detailed in the Environment and Social Policy Procedures (ESPP) provides guidance o n procedures to be followed to minimize involuntary resettlement where feasible; explore al l viable alternative project designs; and assist displaced persons in improving their former living standards, income earning capacity, and production levels, or at least in restoring them; encourage community participation in planning and implementing resettlement; and provide assistance to affected people regardless o f the legality o f t it le o f land.

38. people, POWERGRID also undertakes Community Development Programs, which include

Construction o f sub stations and transmission lines under PSDP IV will involve l imited

Apart from paying compensation and rehabilitation assistance to the project affected

Procurement Guidelines 2004 and 2006 are substantially similar in their treatment o f fraud and corruption. The primary difference i s that, in addition to the definit ion o f corrupt, fraudulent, collusive and coercive practices in both the versions, the 2006 Procurement Guidelines include an additional definit ion o f “obstructive practices”, and require reference to the ACG in contracts awarded under the 2006 Guidelines. However, since the ACG apply to the entire project, they wil l also apply to the contracts subject t o the 2004 Guidelines insofar as POWERGRID i s concerned. In this respect, POWERGRID will b e bound under the ACG to take measures to prevent corrupt, fraudulent, collusive, coercive, and obstructive practices, including, t o report allegations o f any such practices and cooperate in Bank investigations, and to take action to address cases involving such practices

13

development o f civic infrastructure (including roads, schools, drinking water facilities, street lights, community halls etc), economic infrastructure (irrigation schemes, milk chilling plants etc), community activities (like health camps) and skills development programs to improve earning potential. POWERGRID i s in the process o f enlarging the scope o f its community development program under the Corporate Social Responsibility (CSR). In this context, a draft CSR pol icy i s being prepared.

39. At the corporate level, POWERGRID has established a strong Environment and Social Management Division (ESMD) headed by a General Manager, and supported by five environment and social specialists under the overall control o f an Executive Director (Corporate Planning). In each o f the nine regions o f POWERGRID, there i s one separate unit headed by a Deputy General Manager /Chief Manager responsible for managing social and environmental activities and ensuring coordination with ESMD in the corporate office. POWERGRID recognizes the need for enhancing current capacity for Environmental and Social Management, and has agreed to strengthen this arrangement by ensuring timely replacement o f outgoing staff and inducting new staff, as needed.

40. POWERGRID will continue monitoring social and environmental issues through a monitoring mechanism established at the corporate, regional and field levels. POWERGRID has initiated organizing a quarterly meeting o f nine regions to discuss performance with respect to environment management and social development in i t s project. Evaluation o f social action plans wil l be undertaken through external agencies. POWERGRID has constituted a committee o f experts, with both national and international experience, to review the planning and implementation o f social and environmental management plans. In addition, the Bank will supervise the social and environmental components o f the project jo int ly with POWERGRID.

5. Environment

41. Procedures (ESPP), which conforms to the safeguards requirements o f the Bank. The ESPP, which is in operation since 1998 (revised in April 2005), provides a framework for identification, assessment and management o f environmental and social concerns at both organizational as wel l as project levels, and i s applied in al l POWERGRID projects, regardless o f funding source. In addition, POWERGRID has also appointed a committee o f independent eminent experts to oversee environmental and social management policies and their implementation. ESPP continues to evolve, reflecting the new opportunities to enhance effectiveness o f environmental and social management. With the full engagement o f POWERGRID management, the Bank i s in the process o f finalizing i t s Safeguard Diagnostic Review (SDR) o f POWERGRID’s ESPP for consideration as a potential pilot project under the Pilot Program for Use o f Country Systems for Environmental and Social Safeguards for future activities to be financed by the Bank, or including optionally, selected components o f PSDP IV.

42. Their impact on the environment i s generally restricted to rights o f way (ROW) and land acquisition for sub-stations. Given the large geographical spread o f the transmission system (voltages above 400 kV and relatively large substations), and given the assumption that some o f the project transmission lines may pass through forest areas, the project has been assigned an environment category “A”. The individual sub projects under PSDP IVY which includes carry

POWERGRID has developed a corporate Environmental and Social Policy and

Transmission schemes are generally environmentally clean and non-polluting in nature.

14

over projects from PSDP 111, are expected to be category “B” based on review o f available EA reports, which are already publicly disclosed by POWERGRID. However, POWERGRID while applying due diligence procedures per ESPP particularly for l ines passing through forest areas has agreed to continue to undertake additional environmental studies by independent expert agencies, covering issues relating to forestry, natural habitats and cultural properties.

43. POWERGRID has adopted a third party certified comprehensive “Integrated Management System” (IMS) as per PAS 99:2006 integrating the requirement o f ISO: 9001 for Quality Management System, ISO: 14001 for Environment Management System and OHSAS: 18001 for Occupational Health & Safety Management System. POWERGRID has also been certified for SA 8000:2001 for Social Accountability standard by Social Accountability International. POWERGRID i s progressively rol l ing out the I M S to regional offices o f which 3 have already been completed. Implementation o f these systems wil l enhance the effectiveness o f implementation o f ESPP in POWERGRID supported investment projects. In recognition o f POWERGRID’s efforts on social and environmental safeguards mainstreaming, they have been awarded the “Annual Green Award” for 2006 by the Environment Sector Board o f the Bank.

44. The following are the key features o f the POWERGRID’s ESPP as regards environmental issues, which i s applicable for al l projects, irrespective o f financing source:

a) Environmental Assessment process for schemes - The environmental assessment process for transmission line schemes includes two stages, particularly where the lines go through forest reserves or may go through sensitive habitats. During the f i rst stage POWERGRID team prepares an initial environment assessment report (IEAR) based on the available GIS survey for f ixing line routes and sensitive areas such as reserved forests, wild l i fe sanctuary, national park, protected areas supported by public consultation and ground survey, particularly with reference to sensitive areas and other sensitive receptors, if any. The IEAR captures al l significant environmental issues and includes an ‘Environmental Management Plan’, including budget provisions for implementation. The second stage produces a Final Environmental Assessment Report, submitted after completion o f detailed survey o f entire route. This report incorporates site specific minor changes before commencing actual scheme implementation and requirements for compliance with conditions o f clearances, including forestry clearances accorded by the Ministry o f Environment and Forests. The Init ial Environmental Assessment reports for each scheme include a set o f indicators and a mitigation plan to be supervised during the implementation stage. The details o f this process are outlined in Annex 10.

b) Route selection: Following the principle and corporate commitment to avoid human rehabilitation and impacts on natural resources such as national parks and biosphere and eco- sensitive zones enshrined in the ESPP, POWERGRID has enhanced the use o f scientific tools such as GIS/GPS for route alignment and finalization o f locations o f substations, supported by ground truthing. ESPP provides guidance to use engineering design interventions to avoidminimize environment and social impacts, such as adopting innovative tower design (e.g. multi-circuit and very tal l towers) to protect wi ldl i fe and trees in ecologically sensitive areas.

c) Environment and Social Sustainability Report. I n order to improve i t s communication with internal and external stakeholders regarding its environmental and social management performance, the POWERGRID i s undertaking to develop an Environmental and Social Sustainability Report annually. Sustainability report to be developed by an independent

15

professional agency, will create a platform for disclosing i t s efforts and outcome in pursuing environmental and social development agenda, and would bring transparency and guide POWERGRID in achieving i t s goal o f corporate social responsibility.

4 Pipeline readiness: Environmental Assessment Reports (IEARs) have been prepared for the al l the proposed schemes proposed under PSDP IV and are noted to have environment safeguard category ‘By. These have been submitted to the Bank for review and disclosed o n the POWERGRID website. These EA reports and the Environmental Management Plan (EMPs) have been prepared using baseline information available concurrently with the preliminary surveys, and include analyses o f alternative routes/alignment and community consultation. The FEAR report includes additional information collected at the time o f detailed surveys; details o f compensatory afforestation and other regulatory approvals; and details o f EMP implementation.

J3 Institutional arrangements: The same as those described for social matters, under the ESMD.

I Projects on International Waterways (OP/BP/GP 7.50)

7. Policy Exceptions and Readiness

45. An exception to OP 6.00 (Bank Financing) has been approved by Bank management to extend the 12 month period within which payments made under the proposed project are eligible for retroactive financing to 14 months. Retroactive financing for eligible expenditures up to an amount o f US$120 mi l l ion will be available under the project.

46. The project i s ready for implementation. Project implementation plans for al l schemes have been reviewed and accepted by the Bank; procurement for a l l contracts to be financed i s well advanced; and init ial environmental assessments (IEARs) for al l schemes have been prepared. Final Environmental Assessment Reports that provide evidence o f compliance with the implementation o f EMP developed in the IEARs, regulatory clearances, and other environmental management initiatives are expected to be available for al l schemes by December 2008.

* By supporting the proposedproject, the Bank does not intend to prejudice thefinal determination of the parties‘ claims on the

disputed areas

16

Annex 1: Country and Sector Background

Introduction

1. percent. The government has announced its intention o f encouraging an even higher economic growth rate o f 10 percent and achieving its goals o f poverty alleviation as quickly as possible. However, India’s growth potential i s constrained by inadequate electricity services and l imited generation and supply infrastructure. The country has l ow connectivity to electricity with 20% villages and 44% o f the population without electricity. The cost o f erratic and insufficient power supply i s high for industry as wel l as households, which causes 60% o f Indian f i r m s and a large percentage o f homes to rely on captive or back-up generation. Although the erstwhile vertically integrated state electricity boards (SEBs) have been unbundled in most states, utility governance remains weak and system losses continue to be high. The sector reforms currently underway need to be strengthened further, particularly with the aim o f improving service delivery and making the sector financial sustainable. Institution o f independent regulators in all states and at the center has resulted in some progress towards rationalization o f tariffs and decline in cross- subsidies. However, the financial performance o f state-level power utilities (and the sector as a whole) needs to be further improved, even as the central-sector power utilities are now in good financial health.

India has in recent years been recording an annual rate o f economic growth o f over 8

2. Emphasis on boosting the rural economy and improving the investment climate has placed new demands on the country’s infrastructure and specifically on the power supply system. Go1 has established an ambitious mission o f “Power for All by 2012”. The country’s installed generation capacity i s expected to be more than 200 GW by 2012 from the present level o f 140 GW. In order to deliver this power to the entire country, an expansion o f the regional transmission network and inter regional capacity to transmit power i s essential. The country’s transmission plan focuses on the consolidation o f the national grid by adding over 60,000 circuit km o f transmission network by 2012, which shall evacuate additional about 100 GW by the year 2012 and carry 60% o f the power generated in the country. The existing inter regional power transfer capacity i s about 17,000 MW will be further enhanced to more than 37,000 MW by 2012 through creation o f “Transmission Super Highways”. For creation o f such a grid, an investment o f about US$18 bi l l ion is envisaged. Out o f this, about US$14 bi l l ion is planned to be mobilized by POWERGRID and remaining US$4 billion through private sector participation.

3. particularly with private finance, mainly because the off-taking uti l i t ies (the State Electricity Utilities) are not creditworthy and the regulatory environment i s perceived as risky. Go1 i s working towards solutions from the regulatory and implementing workable decisions. From the regulatory perspective, the Electricity Act o f 2003 provides a comprehensive framework to develop the power sector including notable reforms such as: (i) the introduction o f an open access system to facilitate a more competitive power sector for large consumers; (ii) the de- licensing o f generation; (iii) actions to simplify the provision o f rural access; and (iv) further unbundling o f the sector to facilitate greater competition, such as the separation o f dispatch from transmission.

Investment in India’s generation and transmission capacity has been slow to materialize,

17

4. several key pol icy documents. O f these, the National Electricity Policy emphasizes the following principles to develop a robust and integrated power system for the country:

The Central Government would facilitate the continued development o f the National Grid for providing adequate infrastructure for inter-state transmission o f power and to ensure that underutilized generation capacity i s facilitated to generate electricity for its transmission from surplus regions to deficit regions. The Central Transmission Utility (CTU) and State Transmission Utility (STU) have the key responsibility o f network planning and development based on the National Electricity Plan in coordination with al l concerned agencies as provided in the Act. The CTU would need to coordinate with the STUs for achievement o f the shared objective o f eliminating transmission constraints in cost effective manner. Network expansion should be planned and implemented keeping in view the anticipated transmission needs that would be incident on the system in the open access regime Structured information dissemination and disclosure procedures should be developed by the C T U and STUs to ensure that al l stakeholders are aware o f the status o f generation and transmission projects and plans. These should form a part o f the overall planning procedures. Payment discipline should be enforced through the creation o f the state and central independent regulatory commissions; improved payment discipline by the states to central sector companies with agreements (“tripartite agreements” o n securitization o f past dues, introduction o f the bulk power tar i f f reforms and facilitation o f increased electricity trading. This improving sector environment provides an opportunity to GOI, the Bank and the other financers to ensure that future expansion o f investment i s based on financial and economic sustainability and the regulatory framework.

Implementing the EA 2003 has involved the formulation and then publication by Go1 o f

0

0

0

5. As part o f the positive results o f applying these policies, investment in generation led by the private sector has started to develop, which will imply the need o f additional investments in transmission. Ultra Mega Power Projects (UMPP) with a capacity o f 4000 megawatts or above are being developed with an aim to develop generation activity in India. The UMPPs are seen as an expansion o f the MPP (Mega Power Projects) projects that the GO1 undertook in the nineties but met with limited success. The Ministry o f Power, in association with Central Electricity Authority and Power Finance Corporation Ltd. has launched this successful program, which has allowed awarding those contracts to developers o n the basis o f competitive bidding. Taking into account the massive increase planned in generation and also for development o f power market, there is need for adequately augmenting transmission capacity.

6. The Bank has, over the last decade, supported investments in the power sector to promote sectoral reforms at the state as wel l at national level. At the national level, the focus i s mainly on generation (renewable and thermal) and inter-state transmission. With the Bank’s support, Go1 and some state governments have made significant progress in reforms in the power sector. Although the overall pace o f reform has been slow, significant achievements have been made such as the establishment o f independent regulatory regimes at the state and national level and functional unbundling which has helped bring greater accountability and focus on commercial operation, especially in the distribution business.

18

7. As part o f POWERGFUD financing plan, US$400 million PSDP-111 loan was approved on January 19,2006 in response to Government o f India’s request for Bank assistance o f U S $ l b i l l ion towards partial hnding o f a time slice o f POWERGFUD’s five-year investment program totaling $12 billion. During the appraisal o f PSDP-I11 loan, i t was expected that by the time the loan was h l ly committed, a follow-up loan would be considered to continue fimding the transmission development program, which could take over disbursements under contracts awarded under this loan following the Bank’s procurement guidelines and procedures. Accordingly, PSDP-IV loan would hnd a part o f the balance requirements for schemes initiated under PSDP-I11 loan.

19

Annex 2: Major Related Projects Financed by the Bank and/or other Agencies

Type

Loan

INTERNATIONAL FINANCE CORPORATION AIDED PROJECTS IN THE ENERGY SECTOR Project Company Objective

Board Date 3 1 Oct 2003 Allain Duhangan Power Company

Ltd. (ADPCL) will be jointly owned by Was than Spinning &L Weaving Mills Ltd., HEG Limited and

To help meet peak and energy shortages through construction o f a 192MW run-of- the-river hydroelectric power plant in Himachal Pradesh

Project

AD Hydro Power Limited

Tala Transmission Company Ltd. and Power Grid

Corporation of India Ltd. to establish the Tala Transmission

IHDC (Dodson- Lindblom Hydropower Private Limited)

transmission project India-Expansion o f inter-regional transmission capacity and evacuation o f Dower from the 1.020 MW

Private Limited (DLHPPL) and Ascent Hydro Projects Limited (Ascent) merged into one company, Indian Hydropower Development Corporation (IHDC)

I Malana Power Company Ltd. I A joint venture between Tata Power I Promotion o f the f i rst public private joint Loan I 3 1 Jul 2003

India 25 July 2005

IN: Rampur Hydropower Project

IN: Power System

Supervision 13 September S S Development of a 412 M W hydropower 2007 plant on Satluj river for the Northern

Electricity Grid o f India SuDervision 19 Jan 2006 S S ImDrovement of outcome-orientation and

project. Dodson-Lindblom Hydropower

I Tala Hydroelekc Project in Bhutan. I To develop Mini Hydro Power Plants in

Developmenf Project - 111 I 1 inskutional development of POWERGRID

BANK AIDED PROJECTS IN THE ENERGY SECTOR

Development Project - I1

IN: Renewable Energy II/ Energy Efficiency

IN: UP Power Sector Restructuring

IN: Rajasthan Power Sector Restructuring Project

cokerc ia l operations. Independent regulation

through private sector investments. Promote Energy Efficiency investments.

losses. Independent regulation, sector reforms.

losses. Independent regulation, sector

Supervision 27 June 2000 S S Development of small hydro resources

Closed 25 April 2000 S U Sector sustainability problems due to high

Closed 18 January 2001 M S M S Sector sustainability problems due to high

IN: Nathpa Jhakri Hydro Power Project

reforms.

operations, and strengthen institutional Closed 2 March 1989 S S Power shortages, strengthen HPSEB

IN: Orissa Power Project capacity development of hydropower.

losses. Independent regulation, sector Closed 14 May 1996 U U Sector sustainability problems due to high

IN: Haryana Power Sector Restructuring Project

reforms

losses. Independent regulation, sector Closed 15 January 1998 U U Sector sustainability problems due to high

Ratings: HS= Highly satisfactory; S=Satisfactory; MS=Moderately Satisfactory; MU=Moderately Unsatisfactory; U=Unsatisfactory; HU=Highly Unsatisfactory; NA=Not Applicable; NR=Not Required

IN: Andhra Power Sector Restructuring Project

20

reforms. Closed 18 February S S Sector sustainability problems due to high

1999 losses. Independent regulation, sector reforms. High untargeted subsidy to agricultural consumers.

ASIAN DEVELOPMENT BANK (mB) AIDED PROJECTS IN THE ENERGY SECTOR

Project Name

Uttaranchal Power Sector Project

Power Grid Transmission (Sector) Project

Assam Power Sector Development Program (Project Loan) Assam Power Sector Development Program

State Power Reform Project

Madhya Pradesh Power SDP (Project Loan)

Madhya Pradesh Power Sector Development Program

Hydropower Development

Uttaranchal Power Sector Development Program

Assam Power Sector Development Project

Energy Efficiency Enhancement

Power Sector Development Program (Kerala)

Loan

Loan

Loan

Loan

Loan

Loan

Loan

PPTA

PPTA

PPTA

PPTA

PPTA

Approval Date

2005

21 December 2004

10 December 2003

10 December 2003

12 December 2002

6 December 2001

6 December 200 1

6 May 2004

23 August 2004

29 October 2002

21 June 2002

4 October 2001

Executing Agency

Uttaranchal Energy & Irrigation Department Power Grid Corporation o f India Ltd.

Assam State Electricity Board

Government o f Assam

Power Finance Corporation Ltd. (PFC) Madhya Pradesh Electricity Board

Government o f Madhya Pradesh

National Thermal Power Corporation Energy & Irrigation Dept., Govt. o f Uttaranchal Assam State Electricity Board

Govt. o f India

Govt. o f Kerala

Sector Issues

Expansion o f the northern grid and increase the pace o f economic development in less-developed regions in Uttaranchal state Strengthen India’s national transmission grid to improve system reliability, facilitate power transfers and reduce losses Strengthening o f transmission and distribution systems

Improvement o f financial viability o f sector, and assistance in development o f legal and regulatory framework for sector growth Line o f credit for power sector financing.

Facilitate the restructuring o f the power sector to improve sector efficiencies. Facilitate the restructuring o f the power sector to improve sector efficiencies Strengthening the feasibility studies o f two hydropower plants in Uttaranchal State. Project preparation for expansion o f transmission; small hydropower development; and institutional strengthening. Facilitate the restructuring o f the power sector to improve sector efficiencies. Study o f the feasibility o f developing an active market for enerev efficiencv. Project preparation for improvement o f sector performance, and policy and legislative reforms.

21

Annex 3: Results Framework and Monitoring

Results Indicators for Each Component

transmission system in order to increase reliable power exchange between regions and states.

Use of Results Monitoring Intermediate Results One per Component

Growth in transmission capacity - Circuit kms

Growth in transformation capacity - MVA

Component One: Transmission System Strengthening Schemes

To determine if component implementation i s being reached

L o w levels m a y flag procurement problems, poor project management, etc.

To determine if the PDO is being reached; Measure increase in power exchange and locus o f supply/demand, Identi fy bottlenecks and revise h t u r e investment p lan accordingly.

Outcome Indicators j Use o f Outcome Information Growth in power exchange between the regions

22

0 0 0 0

00 00

0- 3 00

0 0

N v,

0- m N

0 0

8 v,

0 0 0 0

0- 8 00 9

0 0

\o d 0-

0 0

d :-

0 0 0 0

2- \D

R \o

0 v,

K- m

0 0 0 0 :- vr :- IA

Annex 4: Detailed Project Description

Background

1. POWERGRID has drawn up an ambitious plan to strengthen the inter-regional connectivity with high voltage A C (400 & 765 kV) and H V D C lines by 2012. I t i s envisaged that cumulative inter-regional capacity would be enhanced to about 30,000 MW in next about 6-8 years, depending upon the speed o f implementation o f power generation projects. Currently, the inter-regional transfer capacity has reached 17000 MW (as o f December, 2007) (partially supported by the PSDP-I1 project). PSDP-I11 and PSDP-IV projects would support part o f the investments for the next phase o f enhancements to the national grid.

Scope of the Project

2. The project includes the planning, design, engineering, procurement and implementation o f schemes required to enhance inter-regional power exchange capacity for dispersal o f power and absorption by the state beneficiaries as well as transmission system strengthening within the region. POWERGRID has selected the least cost technical and economic option among the various alternatives studied for each o f the investment schemes. The PSDP-lV has one component: (i) Transmission System Strengthening Schemes.

3. Project Component: Transmission System Strengthening Schemes. The schemes to be financed under this component are: (i) Partial construction o f East-West Transmission Corridor, (ii) Partial construction o f Western Region System Strengthening Scheme-11, (iii) Partial construction o f Eastern Region System Strengthening Scheme-I, (iv) Completion o f Balia-Bhiwadi H V D C Bipole System, and (v) Completion o f North- West Transmission Corridor.

(i) East-West Transmission Corridor: As per the projected load projection scenario o f Western Region in the next 5-6 years, i t i s envisaged that a large quantum o f power will need to be imported from the Eastern to Western region. Proposed 400 kV Rourkela-Raigarh-Raipur double circuit line shall strengthen the existing Rourkela- Raipur inter-regional Transmission Corridor between Eastern and Western regions and would enable increased transfer o f power from Eastern to Western region.

This transmission scheme was evolved after discussion and agreement by constituent states o f Western Region as an inter-regional scheme between Eastern and Western regions. As per the load f low studies carried out for the scheme East-West Inter-regional link, there would be reduction o f losses o f about 100 MW in the grid.

The components included under present project are: (a) construction o f the Ranchi - Rourkela 400 kV double circuit line, the Rourkela - Raigarh 400 kV double circuit line,

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and the Raigarh - Raipur 400 kV double circuit line; and (b) extension o f the Ranchi, Rourkela, Raipur and Raigarh 400 kV substations.

(ii) Seoni, located in the central part o f Madhya Pradesh, i s being developed as a major power pooling station at 765kV level. Seoni shall be directly connected with Sipat generation complex through two (2) nos. 765kV lines between Sipat and Seoni. Further, power from Kahalgaon-I1 generation project as well as other generation projects in Eastern Region would be imported at Sipat generation complex, which would be transferred to Western region beneficiaries mainly through Seoni substation, which shall be connected with Bina through a 765kV l ine as a part o f Barh transmission system. To disperse power from Bina onwards to different load centres towards the northern part o f the Western region, there is necessity to develop a transmission corridor o f adequate capacity to meet the immediate as well as future requirements.

Western Region System Strengthening Scheme-11. In the Western Region,

A high capacity 765kV l ine between Bina and Gwalior is proposed, as a transmission link to supply power towards Gwalior area. In addition, interconnection at Gwalior would be further extended to Agra by a 765kV link for power exchange between the Western and Northern regions. In order to ensure reliability o f power supply as well as security o f the Grid under various operating conditions, strengthening o f this corridor through construction o f 2nd 765kV l ine (initially to be operated at 400kV) between Bina and Gwalior i s proposed. In this way, proposed 765kV Bina - Gwalior l ine would be a part o f 765kV ring interconnecting Eastern, Northern and Western regions.

Further, to transfer power towards Bhopal and Damoh, major load centers in northern part o f Madhya Pradesh, there is a need to develop a transmission corridor connecting Korba complex to Bhopal v ia Damoh. Therefore, to provide a transmission corridor from Korba complex to north o f Madhya Pradesh, a 400kV double circuit l ine between Korba and Bhopal via Damoh i s proposed under the project. Also, M.P. Generation Company is setting up a thermal generating station at Birsinghpur. To facilitate connectivity with the Grid and reliability o f power supply in the upper part o f Western Region, LILO o f Korba - Damoh line at Birsinghpur i s proposed. In this way, an additional transmission corridor would be developed which could disperse power pooled at Korbd Raipur up to Gwaliorl Damoh in Northern part o f Madhya Pradesh.

Raipur substation would become a major pooling station in eastern part o f the Western Region for import o f power from Eastern region. For transfer o f power f rom Raipur to various parts o f the Western region, i t i s proposed to connect Raipur to Wardha through 400kV D/C line. Wardha, located in the eastern part o f the region, i s well connected with the central part, thus, it shall facilitate dispersal o f imported power to various parts o f the region. Further, Raipur - Wardha being a long section, series compensation has been proposed on this l ine to enhance the power transfer capacity o f the link. In this way, a high capacity parallel transmission corridor right from eastern part towards central part o f the Western region would be developed to facilitate long-term power transfer requirement.

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Wardha i s already proposed to be connected with Seoni as a part o f Seoni-Wardha- Akola-Aurangabad Transmission system through a 765 kV l ine (initially to be operated at 400kV level). To strengthen this corridor, an additional high capacity 765kV l ine between Wardha and Seoni (initially to be operated at 400kV) i s proposed, which would also cater to the contingency o f outage o f one circuit in the transmission corridor.

Further, as large quantum o f power wil l be transferred to Wardha after i t s inter- connection with Seoni and Raipur, i t would become a major pooling station in the Central part o f the Region. For hr ther dispersal o f power f rom Wardha, towards the central part, a 400kV D/C line from Wardha to Parli i s proposed. A large number o f transmission lines have been planned beyond Parli to develop transmission corridor towards southern part o f Maharashtra, so that share o f Maharashtra from Central Sector generating stationl import fi-om Eastern Region can be delivered with reliability and security. However, due to the difficulties in termination o f a large number o f l ines at existing Parli (Mahatransco) generation switchyard, a new 400kV switching station at Parli (POWERGRID) with a 400kV interconnection to Parli (Mahatransco) is proposed. Further, to develop a transmission corridor right from Raipur/ Bhadravati in eastern part o f the Region, Parli (POWERGRID) has been proposed to be connected with Bhadravati through a 400kV D/C l ine

As per the load f low studies carried out for Western Region System Strengthening Scheme-11, there would be reduction o f losses o f about 350 MW in the grid.

The components included under this project are: (a) construction o f Korba-Birsinghpur 400kV double circuit line; (b) construction o f Birsinghpur-Damoh 400kV double circuit line; (c) construction o f Damoh-Bhopal 400kV double circuit line; (d) extension o f Bhopal, Madhya Pradesh Electricity Board (MPtransco), Gwalior, Korba, Damoh, and Bina 400 kV substation and switching stations; (e) extension o f 400 kV Aurangabad, Maharashtra State Electricity Transmission Company Ltd. (Mahatransco ), Parli, and Kolhapur, (Mahatransco ) Sub-stations; (0 construction o f 400 kV Pune and Sholapur (new) sub-stations; (g) supply o f conductors and insulators for 765 kV single circuit Bina-Gwalior line; and (h) supply and installation o f Shunt Reactor at Damoh, Gwalior, Korba (NTPC) and Bhopal (MPtransco) substations.

(iii) Eastern Region System Strengthening Scheme-I. There i s a need to strengthen the transmission grid o f the Eastern Region to facilitate transmission o f additional surplus power, which would be available due to the addition o f the generation projects. With this in view, implementation o f the following transmission system has been proposed to facilitate the transfer o f surplus power from Eastern part o f the Eastern region grid to the central areas from where it would be hr ther transmitted through the existing transmission system. After implementation o f Tala transmission system, there would be two nos. o f 400 kV double circuit lines between Siliguri and Purnea, one with a twin Moose conductor and other with a quad Moose conductor. In order to increase the power transmission capacity in Siliguri - Purnea section as well as to cater to the outage o f any circuit on any o f the two lines, i t is considered necessary to change the twin Moose conductor o f the l ine with high capacity conductor.

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The components included under this project are: (a) construction o f Durgapur- Jamshedpur 400 kV double circuit line; (b) construction o f Jamshedpur-Baripada 400 kV double circuit line; (c) construction o f Baripada - Mendhasal400 kV double circuit line; and (d) extension o f Jamshedpur, Durgapur, Baripada and Mendhasal (Grid Corporation o f Orissa -GRIDCO) 400 kV sub-stations and renovation o f Siliguri and Purnea 400 kV substations.

(iv) Balia-Bhiwadi HVDC Bipole System

The objective o f this scheme i s to transfer power to Northern and Western regions from Balia pooling point, which would in turn get power from surplus in the Eastern Region. 2500 MW H V D C bipole between Balia and Bhiwadi i s required to meet with the power demand for the States o f Punjab, Haryana, Rajasthan and Delhi in the western part o f the Northern grid. This H V D C bipole would also be used to supply power to Western Region via Agra-Gwalior 765 kV (initially to be charged at 400 kV level) l ine through 400 kV double circuit Bhiwadi-Agra line being established under the Northern Region System Strengthening scheme. The scheme i s expected to be completed during the year 2010.

The components included under this project are: (a) the H V D C Terminal for 2500 MW at Balia; (b) the H V D C Terminal for 2500 MW at Bhiwadi and (c) supply o f composite long rod insulators for f 500 kV H V D C Balia-Bhiwadi transmission line.

(v) North-West Transmission Corridor

Presently, Eastern, Northern and Western regions are under synchronous operation. A synchronous link from Agra to Gwalior at 765 kV level between Northern and Western regions i s under implementation under transmission system associated with Kahalgaon stage-I1 project. Keeping in view the h t u r e generation projects in Eastern region and increased power demand in the Western region, further strengthening o f the synchronous link through another 765 kV Agra-Gwalior line i s being taken up under this scheme. With the establishment o f all the inter-regional l inks, Eastern, Western and Northern Regions shall operate as a single system o f large capacity with 90,000 MWs. In order to ensure stable operation o f such a large system, both Western and Northern regions would need to be interconnected with high capacity inter-regional l i n k s at two distant locations, which would help in maintaining security and stability o f the interconnected grid under various operating conditions.

The components included under this project are (a) the extension o f 400 kV sub-stations at Agra, Gwalior, Kankrol i and Zerda (Gujarat Electricity Board-GETCO), and (b) supply o f insulators packages for 400 kV double circuit Zerda-Kotra line.

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Annex 5: Project Costs

Installation) Total Base Cost (Civil works)

Project Cost by Component (USD million)

71 0 71

Concept

Physical contingencies (a) Price contingencies (b) Total contingencies (a) + (b) Engineering & Administration Total excl. Interest during Construction (IDC) IDC

I Local I Foreign I Total I

18 140 158 46 72 118 64 212 276 148 0 148 393 1,603 1,996

118 0 118

I Total Base Cost (Equipment + I 110 I I 1,391 I 1,501 I

Total Financing Required Bank Financing under PSDP I V

51 1 1,603 2,114 0 600 600

Note: Data based on estimates provided in respective PIPS.

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Annex 6: Implementation Arrangements

1. under the previous loans including the use o f dispute review boards for complex contracts. POWERGRID has over the last decade acquired skills to successfully plan, design, engineer, procure and implement large transmission schemes (up to 765 kV A C and 500 kV H V D C systems). The recently completed schemes show a better performance in terms o f completing the schemes within the budgeted cost and time schedules. The proposed schemes would be designed, engineered and implemented by POWERGRID. Local and foreign contractors engaged through international competitive bidding would carry out supply, installation and erection works.

Implementation arrangements proposed would use the practices institutionalized

2. POWERGRID takes advance preparatory actions to ensure timely completion o f the schemes, e.g. using modem survey techniques l i ke Geographical Information System (GIS) surveys based on satellite imageries superimposed on Survey o f India topographical sheets to minimize the deviation o n actual routing verses planned length o f the lines. The route o f the transmission lines i s selected such that the impact o n forest and other environmentally sensitive sites i s restricted to a minimum. POWERGRID has also started employing techniques l ike digital tower spotting and digitizing the route and tower locations to minimize time in attending to operational emergencies, if any, when the l ine is in commercial use. This system also helps to produce the detailed bill o f quantities for each transmission line, required for preparing the technical specifications.

3. During the project implementation, a Project Manager at a senior level is deployed with complete responsibility for execution o f the scheme. In addition, the Executive Director (ED) in charge o f the region has the overall responsibility for a l l the projects in his region. The ED is assisted by other senior officers who co-ordinates the activities with the help o f Contracts, Engineering and Project Monitoring Department at Corporate Centre. The tendering and awarding o f the main line and substation packages following I C B procedures are dealt with f i om Corporate Centre and the ancillary infiastructural packages e.g. preliminary survey work, soil investigation, site leveling and other c iv i l packages are being tendered and awarded from respective sitelfield office. Contract packages are designed with due consideration for simplifying project management by optimizing the number o f packages involved.

4. POWERGRID has developed in-house, an advanced and cost effective Integrated Project Management and Control System (IPMCS), using PERT/ C P M technique, as the basic management tool for review o f the project implementation at different levels. The system calls for increasing details o f planning down the levels o f hierarchy o f functions o f engineering, contracts, site and corresponding levels o f monitoring and control, resulting in the management summary report to the top management. The management summary report highlights the project completion trends, actions being takedto be taken for the attention o f the top management on exceptional basis o f critical areas.

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Annex 7: Financial Management and Disbursement Arrangements

Summary of Financial Management Assessment 1. POWERGRID has a financial management (FM) system which i s considered adequate to account and report for the project resources and expenditures accurately.

FM Strengths, Weaknesses and Mitigating Arrangements 2. effective budgeting, accounting and reporting system i s operational for the entity which wil l be used for accounting and generating the required financial reports under the project; (ii) POWERGRID i s a current borrower o f the Bank and has been exposed to THE BANK policies and procedures for almost a decade. I t s FM performance under previous loans has been satisfactory; and (iii) In addition, i t i s also successfully implementing an action plan to build capacity in corporate governance and the FM arena to build institutional capabilities which are in l ine with the organizational objectives. An updated action plan with dates for the remaining actions i s currently under preparation6.

The project has the following strengths in the area o f financial management: (i) an

FM Risk rating

Risk Mitigating Measures

A high level review o f ‘corporate governance and financial accountability’ o f POWERGRID in 200415 indicated that i t s FM arrangements rank adequately amongst its peers with certain areas that require strengthening. Several actions have been taken since, t o bring the actual practice in line with requirements placed by Clause 49 o f the listing agreement. Further actions are being taken in respect o f strengthening internal audit and improving corporate governance by establishing formalized r isk management process.

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Arrangements for oversight and accountability 3. responsible for handling the FM arrangements o f the project. The implementation arrangement for the project, which is well institutionalized at different levels o f hierarchies o f the organization, is discussed in detail at Annex 6. Besides these, POWERGRID shall provide the fiduciary assurance to IBRD over proper and efficient use o f Loan proceeds. The mainstream FM systems o f POWERGRID (housed as a part o f their general accounting and financial systems) wil l be used to generate the financial and other progress reports under the project.

POWERGRID will be the main implementing agency o f the project and wil l be

Funds Flow and Budget 4. by POWERGRID, with a guarantee o f India. Under the project, POWERGRID will open a new bank account (designated special account) in a commercial bank to receive the initial advance under the loan, to the extent required. Funds would be then transferred from the special account to POWERGRID’s main rupee bank account(s) in India on a reimbursement basis. Alternatively POWERGRID could also seek direct reimbursements from IBRD. The designated schemes being financed under the loan could be pre-funded by POWERGRID by transferring requisite funds to the designated accounting units (regions and site offices) responsible for making payments to the contractors and vendors. Annual budgets are prepared on the basis o f departmental/ regional work plans (operational and administrative) that are agreed with each o f the departmental head and the management. Funds, as per approved budgets, are made available to various regions /departments/ divisions on a periodical basis. Mid year budget reviews are conducted where in annual budgets and work plans are revised, if required.

The IBRD h d s from this loan, l ike the earlier loans, will be directly borrowed

Financial Reporting & Monitoring 5. Reports (IFRs) prepared by POWERGRID, in an agreed format (detailed in the Implementation Plan) which would give details on the project expenditure incurred t i l l date along with projections o f funds utilization in the next two months7, distinguishing the requirement in respect o f the schemes, technical assistance and other project components. POWERGRID will provide the Bank with quarterly physical progress and monthly interim financial reports. The quarterly physical progress report will be submitted with the IFR submitted at the end o f every calendar quarter and will allow for comparing the physical progress with financial progress. POWERGRID has adequate FM systems and capacity to prepare these IFRs, which wil l be prepared for the project every month and forwarded to the Bank within 30 days o f the end o f the month. IFRs wil l be prepared from information generated from POWERGRID’s FM and M I S systems. These then would be consolidated and a single report will be prepared for submission to the Project management and IBRD. The annual project financial statements, as described in the PIP, which would be similar to the format o f the quarterly IFRs, would also be submitted under the project. The quarterly (after limited review by auditors) and audited

The reporting framework for the project wil l include a monthly Interim Financial

POWERGRID wi l l have the option to request for advance funds under the project up to next two months requirements. In case, if they want a lower advance or no advance, this could be indicated in the claim application based on Interim Financial Reports (IFRs).

7

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annual financial results o f POWERGRID are f i led with BSE and NSE, published in newspapers and also posted on the website o f POWERGRTD.

6. up in the various guidelines and pol icy documents that govern the regular day to day operations o f the corporation. The company has undertaken a large task o f organizing these various directives, guidelines and operational procedures (after updating them for evolved operational framework o f POWERGRID) into Finance manuals containing various sections. These finance manuals include manuals on bonds, budget, international finance, bills, cash and bank, gratuity fund, provident fund, pension fund, internal audit, commercial and establishment.

Finance Manuals: The operational framework o f POWERGRID has been written

Accounting Policies and Procedures 7. 1956 and hence the financial reporting (balance sheet and the profi t and loss account) i s governed by the provisions o f that Act. In accordance with the Companies Act, POWERGRID follows accrualkommercial system o f accounting and adheres to the national accounting standards, as issued by the Institute o f Chartered Accountants o f India and notified by GoI. POWERGRID recently successfully completed an Init ial Public Offering8 o f its shares and as a result i s also required to adhere to corporate governance, financial disclosure and transparency norms’ as enunciated in clause 49 o f the listing agreement with SEBI. POWERGRID is primarily involved in transmission o f bulk energy and construction o f large transmission and telecom projects. I t has wel l defined accounting policies in place for revenue recognition, construction accounting and treatment o f expenditure under construction, fixed assets, grants-in-aid, booking o f expenditures and valuation o f inventories and investments.

POWERGRID has been incorporated as a company under the Companies Act,

8. which has an overriding effect in case o f any inconsistency with the Companies Act, 1956. Although the Electricity Act (2003) has replaced the earlier Electricity (Supply) Act, 1948, no guidance has been issued for computation o f depreciation which was available under the earlier Act”. This had caused confusion in the power sector” which has now been resolved. As per the tariff policy notified by MOP, Go1 in January 2006 - “The Central Commission may noti fy the rates o f depreciation in respect o f generation and transmission assets, and the rates o f depreciation so notified would be applicable for the purpose o f tariffs as wel l as accounting.” Depreciation rates as notified by CERC are being used by POWERGRID for transmission tariff and also for accounting purposes.

Depreciation: POWERGRID i s also required to fol low the Electricity Act, 2003

* The total no. o f shares offered for sale was 15% o f POWERGRID’ equity (including 5% held by GoI), o f a face value o f Rs. 10 each within the price band o f Rs. 44 - Rs. 52. The shares o f the company were l isted on October 05,2007 o n National Stock Exchange of Ind ia L imi ted (NSE) and Bombay Stock Exchange l imited (BSE).

(Accounting and Auditing) - December 2004”. lo Under section 43 A and 75 o f the Electr ici ty Supply Act, 1948.

using similar type o f assets, applying varied rates o f depreciation in 2003-04.

Details o n these norms can be found in “India: Reports o n Observance o f standards and Codes 9

Confusion was with respect to different central power sector companies engaged in same business and 11

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9. and recorded in the books o f POWERGRID in accordance with its accounting policies and procedures. A trial balance i s usually drawn up for each construction project o f POWERGRID, from which the balance sheet o f the project is prepared. These are then consolidated with the corporate headquarters and other accounting units to produce POWERGRID’S annual accounts. The trial balance for the project i s operated only by the designated accounting units authorized to work on the project. Each o f the projects proposed to be financed under IBRD loan would have a separate balance sheet, which wil l help in distinguishing projects financed by the proposed Bank loan. Disbursement under the IBRD loan (based on IFRs) would be made for contracts procured using Bank guidelines that relate to the identified five sub-projects as l isted earlier in the Table on page 4, o f which three are being partly financed under PSDP 111. The IFR will also include an additional reconciliation statement, o f the expenditures incurred in the various sub-projects along with the various sources o f fimding including Bank (PSDP 11, PSDP 111, PSDP IV) and others to enable robust monitoring o f projects costs and its correct allocation to the various sources o f financing.

Project costs and monitoring: All project costs and expenditures will be paid for

Staffing - Finance function 10. The project’s financial arrangements would be handled by the finance staff working at corporate headquarters, regional offices and the site office along with regular finance work. The International Finance division at the corporate headquarters would coordinate with the various units within POWERGRID for seeking disbursements and servicing the existing debt with the Bank. They would be responsible for meeting the information requirement o f the external agencies and providing the interim financial reports in the agreed formats to the Bank through Corporate Planning Department.

FM & other Information Systems 1 1. networked environment with databases mainly in Oracle. POWERGRID has been developing a modernized financial management and management information system to meet i t s accounting, financial and management needs which are being implemented in phases. A web based accounting system has been developed in-house and i s in operation for past several years. Init ial ly i t was implemented in Corporate Center and thereafter to various regional offices and to the sub-stations. Substantial progress has n o w been made in providing linkage to the various offices across India dealing with accounting function l2 for ensuring timeliness in preparation o f accounts. The accounting system module covers (a) payroll, (b) books o f accounts (c) generation o f ledgers, reports (d) generation o f balance sheets (e) tax deducted at source (TDS) system, (9 employee enquiry system and (g) supplier query system. This system is now in the process o f being integrated with the commercial billing system to allow for seamless entry and consolidation o f financial data.

The IT architecture o f POWERGRID is evolving and i s currently based on a

12. offices. IT Linkages within POWERGRID are going to be strengthened further by usage

Requisite trainings have been provided to the accounting and IT officials at site

The system i s used by almost al l accounting units (1 87 in total) except for three remote substations in North East Region (NER) where the data i s uploaded through batch updating on a fortnightly basis.

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o f their own optical fiber network. In addition, the corporation i s also in the process o f preparing itself for implementing an ERP package across the organization, which would (i) integrate the various application packages into a consolidated single software platform, (ii) help in removing any duplication o f work, data input and redundancies and (iii) augment an IT driven internal control atmosphere. A s POWERGRID’s accounting system i s computerized, the quarterly accounts are finalized by the next fol lowing month. POWERGRID has also implemented Integrated Project Management and Control System (IPMCS) for review o f the schemes under progress to ensure development and implementation o f schemes in a timely and effective manner. More details are provided in Annex 6. Existence o f strong M I S and budgetary control activities enhance the efficiency o f the internal financial reporting activities o f POWERGRID.

Audit Arrangements 13. General o f India (CAG) under Section 619 o f the Companies Act, 1956. Currently three f i rms have been appointed as joint statutory auditors o f POWERGRID for 2007/8 that have also been allocated specific responsibilities for various regions (total 7 in all) o f the company. The auditor i s selected by C A G out o f a data base o f pre-qualified audit f i rms, which i s maintained by the Office o f C A G for auditing the corporatized Public sector undertakings (PSU). An auditor is usually appointed for a period o f three to five years and i s rotated thereafter as per the directives o f CAG. In addition, the C A G also conducts a supplementary/test audit.

14. financial statements, which i s based on existing systems that operate within the entity. I t i s proposed that the project (including al l components) be audited by an independent firm o f chartered accountants, acceptable to the Bank, under agreed terms o f reference. The annual audit report would be accompanied by a project financial statement which would separately identify each component under the project, its progress and the funding sources for each o f the components. The audits reports o f PSDP I11 & PSDP IV (as they are funding time slice o f the same sub-projects) wil l be clubbed and a single audited financial statement along with audit report and management letter, wil l be received by the Bank. This wil l also include an additional reconciliation statement, o f the expenditures incurred in the various sub-projects along with the various sources o f funding including the Bank (PSDP 11, PSDP I11 and PSDP IV) and other sources to enable robust monitoring on projects costs and its correct allocation to the various sources o f financing. Contract level data in terms o f status o f expenditures, h l ly reconciled to the expenditures depicted in the financial statements, wil l also be submitted for audit as a part o f the project audit. Thus the fol lowing audit reports will be monitored in Audit Reports Compliance System (ARCS):

POWERGRID’s statutory auditor i s appointed by the Comptroller & Auditor

POWERGRID has preferred13 to submit the project audit report along with the

l3 The Bank presented the options available to POWERGRID to submit entity audit with adequate disclosures in lieu o f the project audit. However, POWERGRID has expressed its preference in choosing the audit o f the project financial statements, as it has several financiers, both domestic and external and such disclosures in respect o f all fundings will make the entity audit report unwieldy.

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Agency

POWERGRID

POWERGRID

Audit Report

Annual Entity audit report as required under the Companies Act

Project audit including audit of special Account (PSDP 111 + PSDP IV - common audit report for the years that they run concurrently)

15. POWERGRID’s internal control framework has improved considerably over the past years and is in the process o f being upgraded through several measures l ike IT consolidation and integration, finalization o f finance manuals, strengthening o f internal audit and enlarging the scope o f the audit committee.

Audited by

Statutory Auditors appointed by CAG

An independent firm of Chartered Accountants.

16. corporate governance issued as a guideline by Department o f Public Enterprises, Government o f India, five Independent director^'^ have been finally appointed to the POWERGRID’s Board in July 2007, after a delayed and protracted process. Codes o f Conduct in l ine with the clause 49 o f the listing agreement have been established for Board Members and senior management personnel. Similarly, a code for o f conduct for “Prevention o f Insider Trading” has also been put in place for designated employees/ auditors. A Compliance Report on corporate governance i s filed on a quarterly basis with BSE, NSE and the Department o f Public Enterprises, GoI. Further, actions are being taken in respect o f strengthening internal audit and improving corporate governance by establishing formalized risk management process.

A s compliance to the (i) listing agreement with SEBI and (ii) the recent code o f

Due Date

30th September

30th September

17. Board level sub-committees: After appointment o f independent directors POWERGRID has reconstituted i ts Board level sub-committees Audit Sub-Committee: The internal control framework o f POWERGRID includes an audit committee, as required for every company incorporated under the Companies Act, 1956. After recent appointment o f independent directors, this committee has been reconstituted and now includes two independent directors and a Go1 Nominee to enhance the independence and transparency in i t s conduct. It i s chaired by an independent director and has met two times since appointment o f independent directors. The scope o f the audit committee, per the requirement o f the Companies Act, includes discussing and making recommendations on any matter relating to financial management, including the external audit reports and internal audit reports. POWERGRID i s in the process o f further enhancing the scope and

l4 They are: (i) Dr. P.K. Shetty, Fellow and Head of Administration, National Institute of Advanced Studies, Bangalore, (ii) Shri. M. S. Kapur, former CMD, Vijaya Bank, (iii) Prof. A. S. Narag, Dean, Faculty of Management Studies, Delhi University, (iv) Shri Ani1 Agarwal, President, ASSOCHAM, and (v) Shri. F.A Vandrevala, former MD, Tata Power Company. Subsequently, one of the Independent Directors, Shri M.S. Kapur has resigned and DPE i s in the process of appointing a new Independent Director.

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work program o f audit committee and improving i t s functionalities. Shareholder/Investor Grievance committee: This committee includes 2 independent directors (of which one i s the chairman), Director-Finance and a nominee from Government o f India Committee on award of contracts : This committee consists o f six members o f which three are full time directors (Chairman - POWERGRID, Director- Finance, Director - Projects) two are independent directors and one i s a Go1 nominee. The Chairman o f POWERGRID i s the chairman o f the committee. And i t reviews the award o f tenders and contracts on the works, goods and services as executed by POWERGRID. Promotion Committee: This committee reviews promotion and HR related issues in respect o f executives above the level o f Deputy General Managers with in the corporation. The committee comprises o f 3 full time directors (Chairman, Director -personnel and the Director o f the concerned department) .

18. arrangements, POWERGRID has evolved a structure o f Committees o f Independent Eminent persons relating to the following matters: (i) Financial Management (ii) External Agencies - Review o f observations, (iii) Environment & Social Safeguards, and (iv) Research & development. These committees report directly to the Chairman and Managing Director o f the Corporation. The Financial Management committee i s now headed by an independent Director and meets regularly to consider matters involving fund raising, investment priorities and other financial management matters.

In order to further gain from non-executive oversight in the governance

19. A C T 2005 requires that information held by any public authority should be made available to public in general to enhance transparency and accountability. RTI Act applies to POWERGRID and for this purpose a senior Executive o f a level o f General Manager has been made the Chief Public Information Officer (CPIO) for the corporation. Similarly appellate authorities, as required under the Act, have also been established at every RHQ and R L D C to facilitate smooth access to information. Requests for information in the past two years mostly pertain to personnel issues and finances; and most o f the applicants are either employees or ex-employees. POWERGRID has been able to provide the requisite information in l ine with the requirements o f the Act. Six training cum awareness workshops have been conducted last year where various stakeholders were invited to disseminate the Act, its powers and how i t can be used as an effective tool against fraud and corruption.

Transparency through implementation of Right to Information Act, 2005: RTI

20. Internal audit department: POWERGRID has a full fledged Internal Audit Department (IAD) at the Head Office directly reporting to Executive Director (Finance). IAD takes up operational/ financial audit o f head office departments and branch offices and contracts several private firms o f private chartered accountants to fulfill i t s mandate. The mandate o f the IAD includes ensuring that operations are carried out in accordance with the policies and procedures laid down and also making suggestions for streamlining the operations and making suitable modifications in the procedures. Continuous monitoring i s done at various levels to ensure timely completion o f the Internal Audit and compliance thereto. This ensures availability o f the Internal Audit Reports to the external auditors before finalization o f Accounts. External auditors make comments on the

36

adequacy o f Internal Audit and other statutory requirements and in 2006-07, these have been certified “to be commensurate to size and operations o f the company”.

POWERGRID is further strengthening the department by adopting a risk based approach, realigning the structure and revising the scope o f the private firms .Under the corporate governance framework, the audit sub-committee o f the board oversees the functionalities o f the LAD. The internal audit department o f POWERGRID will continue to carry out an internal audit o f the schemes financed under the project in accordance with the terms o f reference as shared with the Bank which would evaluate the accounting payment and physical verification o f the assets. The internal audit department o f POWERGRID will continue to carry out an internal audit o f the schemes financed under the project in accordance with the terms o f reference as shared with the Bank which would examine and evaluate the accounting, payment and physical verification o f the assets. These reports wil l be shared with BRD.

21. required for al l central level public sector undertakings. The department i s headed by a chief vigilance officer (IA&AS Cadre) o f a rank o f Joint Secretary in GoI. The department consists o f around thirty executive officers posted at the various offices o f the corporation, o f which eleven are posted at the corporate headquarters. This department receives complaints on various matters including personnel, code o f conduct, contract management, procurement etc and takes actions on resolving them which may also include investigations. For this purpose, a web based complaint management system has been implemented and a total o f around 350 complaints (most related to office conduct) have been received till now, al l o f which have already been disposed. This complaint management system wil l also be used for the Bank financed projects and schemes. A monthly report o n the status o f complaints and actions taken is submitted to the Chief Vigilance Commissioner. Meetings / de-briefing session with C V C also takes place at least annually to inform the overall situation in respect o f governance environment and status o f vigilance related cases.

VigiZance department: POWERGRID has a full fledged vigilance department, as

Disbursement Arrangements 22. (including aspects o f physical monitoring which wil l be submitted at the end o f every quarter), in an agreed format, that wil l be generated from POWERGRID’s mainstreamed systems. This wil l enable comparison o f the physical progress with financial progress; Disbursement under the Bank loan would be made at 100% for al l the contracts which have followed the Bank guidelines for procurement. These would be largely supply contracts and supply portion o f supply cum erection contracts which enable POWERGRID to avail import / customs/ excise duty related concessions. These contracts wil l relate to the identified five sub-projects as listed earlier in the project cost o f financing table on page 4, o f which three are being partly financed under PSDP 111. POWERGRID’s systems are wel l equipped to generate monthly interim financial reports (which wil l report o n the full project costs) in the agreed formats detailed in the PIP. These reports wil l also include an additional reconciliation statement, o f the expenditures incurred in the various sub-projects along with the various sources o f funding including

Project funds will be disbursed on the basis o f monthly interim financial reports

37

the Bank (PSDP 11, PSDP 111, and PSDP IV) and others to enable robust monitoring on projects costs and i ts correct allocation. Supporting documentation, including completion reports, certificates and other documentation, wil l be retained by POWERGRID and made available to the Bank during project supervision. IBRD project funds wil l f low to POWERGRID, with a guarantee from India.

23. Retroactive Financing: Retroactive financing up to an amount o f US$120 mi l l ion will be available under the project, for financing eligible activities procured under agreed guidelines, for the project, in respect o f expenditures incurred on or after March 1, 2007 and before the loan signing. A waiver from Bank management for this exception (retroactive period o f more than a year prior to expected loan signing date o f March 31 2008) has been obtained.

24. o f US$20 mi l l ion wil l be available to POWERGRID under the proposed loan.

Designated Account: A special account advance facility up to a maximum amount

Impact of Procurement arrangements 25. headquarters and would require the finance department to closely liaise with them.

The procurement under the project would largely be centralized at corporate

Supervision Plan 26. FM performance has been satisfactory. The supervision strategy for PSDP IV project will include field visits, physical inspections and obtaining third party assurance (through external and internal audits). The physical aspects o f the project progress would be compared against financial progress; Besides the fiduciary focus, supervision missions wil l also focus on the actions being implemented by POWERGRID for improving corporate governance and financial management.

POWERGRID has managed Bank-financed projects for almost a decade and its

38

Annex 8: Procurement Arrangements

A. General

1. or consultant selection methods, estimated costs, prior review requirements, and status o f procurement i s indicated in the Procurement Plan. The Procurement Plan wil l be updated at least annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

For each contract to be financed by the Loan, the different procurement methods

Procurement of Works:

2. There are no works to be procured under the project.

Procurement of Goods:

3. East-West Transmission Corridor, (ii) Western Region System Strengthening Scheme-11, (iii) Eastern Region System Strengthening Scheme-I, (iv) Balia-Bhiwadi H V D C Bipole System, and (v) North-West Transmission Corridor. The goods which are being procured under the project based o n "Procurement o f Goods" include conductors and insulators for the above mentioned transmission schemes. The procurement o f these goods i s covered in 12 packages. The value o f contract packages for Goods to be procured o n "Procurement o f Goods" basis range from US$0.5 mi l l ion to US$19 million.

The schemes o f POWERGRID proposed to be funded under this Loan are: (i)

4. Further, goods and equipment are also being procured under "Supply and Installation o f Plant and Equipment" basis for the above mentioned transmission schemes to be constructed under the project. The procurement o f these goods i s covered in 19 packages. The value o f contract packages for goods being procured on "Supply and Installation o f Plant and Equipment" basis range from US$5 mi l l ion to US$294 million.

5. Procurement o f goods under "Supply" contracts and "Supply and Install" contracts following I C B procedures o f the Bank are being done by using the Bank's Standard Bidding Documents (SBD) as a base and as agreed with the Bank. The Bank's SBD for "Procurement o f Goods" and the Bank's SBD for "Supply and Installation o f Plant and Equipment" are being used as a base with changes as agreed with the Bank for al l procurement under the project.

6. National Competitive Bidding: Goods estimated to cost less than $300,000 equivalent per contract may be procured under contracts awarded o n the basis o f National Competitive Bidding procedures as per paragraph 3.3 and 3.4 o f the Procurement Guidelines and the additional provisions agreed between the Borrower and the Bank in writing from time to time.

39

7. o f the Procurement Guidelines may be procured o n the basis o f Direct Contracting in accordance with provisions o f paragraph 3.6 and 3.7 o f the Procurement Guidelines.

Direct Contracting: Goods which meet the requirements set forth in paragraph 3.6

Selection of Consultants:

8. during implementation. Short lists o f consultants for services estimated to cost less than $500,000 equivalent per contract may be composed entirely o f national consultants in accordance with the provisions o f paragraph 2.7 o f the Consultant Guidelines. The Bank‘s Standard Request for Proposal Document wil l be used as a base for a l l procurement o f Consultancy services to be procured under the Project.

Specific consultancy assignment to be funded under the project wil l be developed

Particular Methods of Procurement of Consultant Services

9. contracts awarded on the basis o f Quality- and Cost-based Selection in accordance with the provisions o f Section I1 o f the Consultant Guidelines.

Quality- and Cost-based Selection: Consultant Services may be procured under

Other Procedures

10. requirements set forth in paragraph 3.2 o f the Consultant Guidelines shall be procured under contracts awarded on the basis o f Quality-based Selection in accordance with the provisions o f paragraphs 3.1 through 3.4 o f the Consultant Guidelines.

Quality-based Selection: Services financed under the Project which meet the

1 1. Project estimated to cost less than $100,000 equivalent per contract may be procured under contracts awarded in accordance with the provisions o f paragraphs 3.1,3.7 and 3.8 o f the Consultant Guidelines.

Selection Based on Consultants’ Qualifications: Services financed under the

12. Single Source Selection: Services for tasks in circumstances which meet the requirements o f paragraph 3.9 and 3.10 o f the Consultant Guidelines for Single Source Selection, may, with the Bank’s prior agreement, be procured in accordance with the provisions o f paragraphs 3.9 through 3.13 o f the Consultant Guidelines.

13. forth in paragraph 5.1 o f the Consultant Guidelines may be procured under contracts awarded to individual consultants in accordance with the provisions o f paragraphs 5.2 and 5.3 o f the Consultant Guidelines. Under the circumstances described in paragraph 5.4 o f the Consultant Guidelines, such contracts may be awarded to individual consultants on a sole source basis.

Individual Consultants: Services for assignments that meet the requirements set

B. Assessment of the agency’s capacity to implement procurement

40

14. assessed during preparation o f Power System Development Project-I11 (Ln. 48 13-IN) and no significant implementation issues have been observed during implementation. In fact, in view o f their good capacity to handle procurement, the Bank’s review requirements for this project were once again reviewed for the Proposed PSDP I V loan and prior review thresholds were redefined as under:

The capacity o f POWERGRID to carry out procurement under the project was

15. post review. Further, for post review packages the following has been agreed:

The Procurement Plan identified the packages covered under prior review and

(a) wil l be considered:

For the purpose o f clearance o f the bidding documents, the value o f each slice

0 If the estimated value o f any slice o f a package is more than U S 2 5 million, the bidding document for the entire package wil l be prior reviewed.

0 If the estimated value o f each slice i s less than U S 2 5 million, but the combined value o f a l l the slices i s more than US$25 million, the bidding documents will not be prior reviewed. However, one sample bidding document wil l be agreed with the Bank for each type o f package (towers, sub-station, conductor, insulator, and reactor) and the documents, including those under post review, will be prepared as per this agreed sample. The clauses which wil l need modifications will also be agreed with the Bank

(b) be considered:

For the purpose o f clearance o f the recommendation for award, the fol lowing will

0 If the estimated value o f any o f the slices in the package is U S 2 5 mi l l ion or more, the entire package will be subject to prior review.

0 If the estimated value o f each slice i s less than US$25 mi l l ion but the value o f any recommended contract i s US$25 mi l l ion or more, the award recommendation and the evaluation report for the complete package o f al l the slices wil l be subject to prior review. For this purpose, POWERGRID will forward a set o f complete bidding documents and the evaluation report to the Bank for prior review.

0 If the estimated value o f each slice is less than U S 2 5 mi l l ion and the value o f the recommended contract for each slice i s also less than US$25 million, but the aggregate value o f contracts recommended for award to one bidder i s US$25 mi l l ion or more, the award recommendation and the evaluation report for the complete package o f a l l the slices wil l be subject to prior review. For this purpose, POWERGRID wil l forward a set o f complete bidding documents and the evaluation report to the Bank for prior review.

41

16. monitor procurement processes closely which wil l mitigate the r i s k and the residual risk will be “Low”.

The procurement risk i s considered “Moderate.” The Bank would continue to

C. Procurement Plan

17. equipment to be procured under the project, giving estimated value, method o f procurement and the year o f procurement, which provides the basis for the procurement methods. This plan has been agreed between the Borrower and the Project Team and is available at N e w Delhi office o f the Bank. I t wi l l also be made available in the Project’s database and in the Bank’s external website. N o consultancy services are scheduled to be procured for the f i rst 18 months. The Procurement Plan has been revised, updated and agreed at appraisal. Subsequently it wil l be revised and updated annually or as required to reflect the actual project implementation needs and improvements in institutional capacity.

The Borrower developed a detailed Procurement Plan for a l l the goods and

D. Frequency of Procurement Review Missions

18. In addition to the prior review to be carried out from Bank offices, two review missions annually, including visits to the field to carry out post review o f procurement actions wil l be required.

42

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Annex 9: Economic and Financial Analysis

Total Indicative

cost

POWER PSDP- PSDP-IV Subsequent GRID III* Loans I

Funding Other Sources

1. East-West Transmission Corridor 2. Western Region System Strengthening Scheme41 3. Eastern Region System Strengthening Scheme-I

System 5. North-West Transmission

4. Balia-Bhiwadi HVDC Bipole

include schemes to be completed under PSDP 111 and w i l l not require financing under PSDP IF!

198 88 0 56 54

8 84 294 25 174 391

24 1 109 0 65 67

683 275 113 295 0

119 45 64 10 0

2. implementation arrangements etc, i t is considered appropriate to conduct financial and economic analysis on a scheme-wise basis. Analysis for al l five schemes covered under PSDP-IV loans has already been conducted. A corporate level financial analysis for POWERGRID as a whole follows at the end o f the annex.

Since each scheme i s a stand-alone project with its own technical parameters, financing,

Corridor TOTAL

Economic and Financial Appraisal of Schemes Covered Under the Project 3. the Economic Rate o f Return (ERR) for each o f them and comparing with the opportunity cost o f capital. The opportunity cost o f capital is taken as 12%, as specified in the official memorandum o f the India Country Director on the Exchange Rates and Price Contingencies for Project Analysis, dated February 01,2005.

4. Since al l schemes under the project are system strengthening schemes, benefits f rom them have been calculated as the value o f the reduction in system losses. Based on load f low

Economic Appraisal The economic appraisal o f schemes has been done by calculating

2,125 81 1 202 600 512

48

studies, POWERGRID has estimated the total reduction in transmission losses that would accrue from al l the five schemes to be about 1,138 MW under peak load conditions. To obtain the average loss reduction, a loss load factor15 o f 0.53 is applied to the loss reduction under peak load conditions. Thus the physical benefit from the schemes i s an energy saving o f 5284 mi l l ion kWhs per year.

5. derived based o n the opportunity cost o f energy saved. Two different estimates o f the value o f electricity for the economy are available - the f i rs t i s the cost o f unscheduled power interchanges under the Availability Based Tariff (ABT) regime, and the second i s the average cost o f alternate supply from recent medium sized thermal generation plants. Cost o f unscheduled power interchanges under the ABT regime has been calculated by Central Electricity Regulatory Commission (CERC) as Rs.5.70/ kWh based on cost o f supply from local diesel generation.16 On the other hand, the average cost o f alternate supply from recent thermal generation plants17 was found to be Rs. 3.62 / kWh.

6. The base case i s defined as the scenario wherein the scheme proceeds as per schedule, i t i s completed within the cost estimates and foreign exchange rate varies in accordance with the Bank projection for currency exchange rate. By valuing the energy saved in each scheme at the cost o f thermal generation (the lower o f the two valuations), the ERR in the base case i s found to vary between 14.83% and 22.44% for the schemes, higher than the opportunity cost o f capital o f 12%. In addition to reduction o f losses through transmission system strengthening, Western Region Supply Strengthening Scheme-I1 has an additional objective o f facilitating trading in power. A conservative estimate o f the resulting benefit (calculated as the savings in cost o f generation through such power trading) has been factored in while calculating the ERR for this scheme.

7. Implementation Delay and Changes in Foreign Exchange rate have been varied in the sensitivity analysis. Separate scenarios involving implementation delay o f 2 years, cost escalation o f 10% and change in foreign exchange rate o f 10% yielded ERRS higher than the benchmark opportunity cost o f capital o f 12%. In the extreme scenario where al l these adversities are coincident, the ERR vary between 10.46% and 17.57% for the schemes - falling short o f the 12% benchmark in case o f Balia-Bhiwadi and Eastern Region System Strengthening projects. However, in view o f POWERGRID’s track record in project implementation and the fact that procurement processes for the schemes have already commenced, such an extreme scenario i s highly improbable. Also, the approach for calculation o f ERR i s highly conservative and the actual economic benefits from the schemes may be significantly higher. l8 A summary o f the results o f the scenario analysis i s provided in Table-2.

For valuing these (physical) benefits, an economic price/value o f electricity has been

The key assumptions underlying the economic analysis, pertaining to Cost Escalation,

Loss Load Factor i s defined as the ratio o f actual losses over a period to the losses obtained under peak loading conditions for the entire period. It i s used to convert peak energy losses into average energy losses. It i s calculated using the following empirical formula: Loss Load Factor = 0.2 x Load Factor + 0.8 x (Load Factor)’. l6 In April 2007, CERC h i k e d the cost o f unscheduled power interchanges under AJ3T reg ime to Rs 7.45/kWh, ref lect ing increasing demand-supply imbalance in I n d i a n power sector.

These are - Kawas-I (Rs.3.4036 /unit) and Gandhar-I (Rs.3.8484 /unit). Average Cost o f power generation for two recently commissioned gas based thermal power plants has been considered here.

Refer File Note on “POWERGRID’s Investment Hurdle Rate and Scenario Information” for further details on the scenarios.

49

Table- 2 Summaw o f Scenario Analvsis for ERR

A Base Case

Scheme I Scenario I B C D

Escalation Years Escalation by by 10% 20%, Delay o f

cost Delay o f 2 cost

North-West Transmission Corridor East-West Transmission Corridor

Balia- Bhiwadi H V D C BiDole Svstem I 14.83% I 13.55% I 12.35% I 10.46% I 21.98% 20.01% 18.26% 15.52% 17.83% 16.22% 15.08% 12.77%

Western Region System Strengthening Scheme I1 Eastern Region System Strengthening Scheme I

22.44% 20.63% 20.24% 17.57%

15.82% 14.32% 14.05% 1 1.69%

8. where energy saved would be consumed and should therefore be valued at the marginal cost o f generation. In an alternate scenario, where there i s no excess demand for electricity, the energy savings should be valued at the cost o f fue l saved by being able to back-down generation. Analysis o f such a scenario shows that the benchmark hurdle rate o f 12% ERR i s exceeded even when there is no excess demand in the case o f North-West Interconnector and Western Region System Strengthening-I1 projects. In case o f East-West Interconnector and Eastern Region System Strengthening-I projects, the benchmark hurdle rate i s exceeded if there i s continued excess demand for the next 6 years and 8 years respectively. However, i t i s expected that given the high rate o f economic growth, India would continue to reel under excess o f demand over supply during this period.

9.

The above analysis i s based on the prevailing condition in India that o f “excess demand”,

Further, the no-excess demand scenario i s conservative since it:

0

considers coal-based rather than diesel-based generation as the marginal plant that would be backed-down; ignores the prevailing situation o f excess demand that i s likely to continue for the foreseeable future; and ignores any “carbon benefit” accruing from the reduction in generation.

10. Consequently, while this scenario does need to be considered, the likelihood i s 10w. l~

Financial Appraisal 1 1. Internal Rate o f Return (FIRR) were considered for financial appraisal o f the core schemes. The FIRR is the internal rate o f return for the scheme, benchmarked against a Weighted Average Cost o f Capital (WACC), an average o f the cost o f debt and cost o f equity. On the other hand, ROE o f the scheme i s benchmarked against the cost o f equity for POWERGRID. In the prevalent

The two alternatives indices o f Internal Rate o f Return on Equity (ROE) and Financial

l 9 Further discussion o f the impact o f the alternative scenario i s prov ided in the F i l e N o t e referred above.

50

Scheme Scenario A B C E l E2 D

Base cost Delay Reduced Increased Delay o f 2 Case Escalation o f 2 Regulated Regulated Years,

by 10% Years ROE ROE RoElower

Balia- Bhiwadi HVDC Bipole

13. implementation delays, foreign exchange rate fluctuations and changes in regulated rate o f RoE.*l A summary o f the scenario analysis i s given in Table 3. As expected in a regulated environment, where Cost Escalations and Foreign Exchange Rate Variations are passed through in the tariffs, no impact on the ROE is experienced. The schemes are, unsurprisingly, affected adversely in the case o f a reduction in regulated rate o f return on equity and implementation delays. In the worst case scenario, wherein an implementation delay o f 2 years and cost escalation by 10% are coincident, the ROE is found to be between 10.19% and 11.78%. A s mentioned earlier, this i s a highly unlikely scenario, in view o f POWERGRID’s good record in project implementation.

A scenario analysis was carried out to understand the impact o f cost escalations,

(13%) (15%) by 1% 12.37% 12.37% 10.86% 11.54% 13.17% 10.19%

2o Refer Fi le Note on “POWERGRID’s Investment Hurdle Rate and Scenario Information” for details on h o w this estimate was derived. 21 Refer Fi le Note on“P0WERGRID’s Investment Hurdle Rate and Scenario Information” for a description o f the detailed scenarios.

System North-West Transmission Corridor East-West Transmission Corridor Western Region System Strengthening Scheme I1 Eastern Region System Strengthening Scheme I

51

13.70% 13.70% 12.04% 12.70% 14.68% 11.25%

10.80% 13.31% 13.31% 11.54% 12.37% 14.23%

13.19% 13.19% 11.52% 12.24% 14.12% 10.76%

13.90% 13.90% 12.63% 12.89% 14.90% 11.78%

14. ROE incentive payment for availability. POWERGRID has been receiving this payment on previous schemes and would clearly benefit if the proposed schemes meet their availability targets.

One positive scenario that i s not modeled above i s the provision o f the additional 1%

Entity Level Financial Analysis

15. the Central Electricity Regulatory Commission (CERC). As a result they have consistently been a profit-making entity. Even though the regulated return on equity on schemes allowed to POWERGRID has been reduced from 16% to 14% (since 2004), their financial condition has steadily improved over the last few years, and the current financial performance i s generally satisfactory. Profitability during 2006-07 measured by return on net worth stood at 1 1 %, and was significantly higher than 8.7% in 2004-05. However, i t remains lower than the regulated return o f 14% owing to the massive expansion program being undertaken by POWERGRID and the fact that regulated return on equity i s only earned once the investments become operational. POWERGRID’s profitability is expected to gradually increase to between 14%-16% per annum over the next five years. The increase in ROE beyond the regulated return o f 14% i s mainly on account o f availability incentives and returns from unregulated businesses such as telecom and consultancy services. Financial projections (summary tables at the end o f the Annex) demonstrate that, subject to tariff adjustments in line with CERC’s current regulatory framework, POWERGRID’s financial performance would continue to remain satisfactory.

16. POWERGRID’s main financial risk i s the risk o f non-payment by off-taking state utilities. To mitigate the risk and securitize past debts, Government o f India had signed tripartite agreements (TPAs) with State Governments and Reserve Bank o f India (RBI).22 As a result o f this securitization scheme, payment discipline improved substantially. Even after the closing o f the securitization scheme in March 2007, POWERGRID’s accounts receivable have remained within reasonable limits, and now stand at less than one month o f sales as o f December 2007, and collections are close to 100%. POWERGRID also draws comfort from adequate Letter o f Credit (LoC) coverage and CERC regulations that provide for curtailment o f supply in case o f non-payment by the beneficiaries.

17. The three proposed financial covenants (accounts receivable o f less than three months, debt to equity ratio o f 80:20 and s e l f financing ratio o f at least 20%) are the same as covenants for the PSDP-I11 loan.

POWERGRID operates in a regulated sector with a return o n equity (ROE) provided by

Key Assumptions for Financial Projections 18. Further details are available in the Project Implementation Plan:

The key assumptions on which the financial projections are based are given below.

0

0

0

Operating Revenues taken from audited accounts t i l l 2006-07, and for subsequent years calculated based on commissioning schedule o f schemes. System availability o f 98.5% i s assumed for calculating Incentive. Return on Equity taken as 14%, in accordance with the prevailing Tariff Regulations. (Note that ROE exceeds regulated return in later years as income from unregulated business increases).

22 Bipartite Agreements (BPAs) have been signed between the Government of India and POWERGRID for the Union Territories. The term P A S i s used here to refer to both TPAs and BPAs collectively.

52

e

Other Income includes consultancy income, income from short term open access, lease income from state sector U L D C assets, and interest income from State Electricity Board bonds. Income from Transmission Joint Venture i s calculated based on a 10% dividend o n equity investment, with 49% POWERGRID equity in Tala Joint Venture, and 26% in al l subsequent Joint Ventures. An increase o f 20% in employees remuneration during the year 2007-08 i s considered o n account o f the usual five-yearly wage revision. Transmission Expenses are projected to escalate at the same rate as the Transmission Charges (excluding advance against depreciation). A dividend o f 30 % o f PAT i s considered from 2007-08 onwards. Income tax i s considered at lo%, with a surcharge o f 10% and Cess o f 2%. For future schemes, where loans are not contracted, the financing norms adopted are - Debt-Equity o f 70:30, with loans from different sources in the ratio o f multilateral - 20%, ECB - 10% and domestic loans - 70%. Based on the realization performance o f previous years. 100% revenue realization has been assumed.

53

- -I

Annex 10: Safeguard Policy Issues

Strategic Context

1. goal for sustainable development in i t s business, POWERGRID had developed and agreed with the Bank, a corporate Environmental and Social Policy and Procedures (ESPP) in 1998. The ESPP as o f April 2005 outlines POWERGRID’s approach and commitment to deal with the environmental and social issues relating to i t s transmission schemes and lays out management procedures to address them. The ESPP provides POWERGRID with a framework for identification, assessment and management o f environmental and social concerns at both organizational as well as field levels. The ESPP i s implemented in al l POWERGRID implemented schemes, regardless o f funding source, a step beyond the ‘compliance with the minimum regulatory requirement’. POWERGRID will mainstream i ts ESPP requirements into the integrated management system, the effectiveness o f which will be audited regularly by an independent and internationally accredited third party.

POWERGRID’s scope o f activities have already been described earlier. In order to achieve i t s

2. As part o f PSDP I11 preparation, the modificatiodupdating o f ESPP (98) was undertaken taking into account the experience gained and lessons learnt by POWERGRID during the last six years o f i t s implementation, including the experience o f building seventy five grid substations. The updated ESPP 2005 has taken into account the results o f the desk research on legal and institutional framework, analysis o f priority issues (gap analysis) in the power transmission sector and wide ranging discussions including national and regional consultations. Further, in order to achieve international benchmarking and best practices in managing environmental and social issues, POWERGRID constituted an expert committee comprising o f eminent persons in the field o f environmental and social issues including Bank’s nominated specialist. The committee also reviewed the updated ESPP 05 and will continue to provide strategic guidance and oversee effectiveness o f implementation o f environment and social mitigation measures. POWERGRID wil l ensure implementation o f ESPP 2005 in i t s entirety, through i t s project offices, contractors and others associated with i t s operations and activities for all the schemes implemented by the Corporation.

3 The Bank team i s in the process o f finalizing i t s Safeguard Diagnostic Review (SDR) o f POWERGRID’s ESPP for consideration as a potential pi lot project under the Pilot Program for Use o f Country Systems for Environmental and Social Safeguards as governed by OP 4.00. The SDR will determine the equivalence and acceptability o f the ESPP for use in l ieu o f applicable Bank safeguards for those future activities to be financed by the Bank, or optionally, selected components o f PSDP IV as that have not been fully reviewed by the Bank with respect to environmental and social impacts. POWERGRID has been fully engaged in the SDR process and agrees to have discussions on key findings and recommendations to strengthen ESPP, as required, during the course o f implementing PSDP IV.

4. Schemes proposed under PSDP IV trigger OP4.01 requiring environmental assessment, as per procedures laid out in the ESPP. The EA for PSDP IV schemes have considered environmental issues during the construction phase such as impacts on terrestrial and aquatic habitat and, impacts on humans due to electric and magnetic fields and hazardous materials, and during operation stage. The Policy on Natural Habitats, OP4.04 i s not triggered for these schemes as none o f the T-lines are passing through any designated sensitive habitats. Some o f the PSDP IV lines pass through forests areas, and their impacts are mitigated using the procedures laid out in ESPP. The EA reports reveal that PSDP IV schemes are unlikely to encounter physical cultural properties. However, in case o f a chance find o f a cultural property during construction, appropriate national procedures would be followed to mitigate adverse impacts and protect physical cultural resources discovered during project implementation and operation and monitor progress.

55

4. K e y features o f ESPP

a. Environment and Social Policy Statement - “commitment to the goal of sustainable development through conservation o f natural resources and involvement o f stakeholders, continually improving i ts management system, accessing specialist knowledge for management o f significant environmental and social issues and introducing new state o f the art and internationally proven technologies while strictly following the basic principles o f Avoidance, Minimization and Mitigation”.

b. Route selection: When identifying the transmission system, a preliminary route selection i s done using tools such as the Forest Atlas and Survey o f India maps, which i s now, supplemented using modern techniques l ike aerial photographs, GIS/GPS for finalization o f route. The environment and social criteria used for route selection include - avoiding human rehabilitation; avoiding monument o f cultural or historical importance; avoiding threat to any community with special reference to tribal; avoiding affect on any public utility services l ike playgrounds, schools, other establishments etc.; and avoiding any sanctuaries, national park, biosphere, eco-sensitive zones etc. Also, POWERGRID continues to adopt innovative tower designs l ike multi-circuit and very tall towers to protect wildlife, trees in ecologically sensitive areas, reduce the number o f trees cut down for stringing and impact on flora and fauna and allow cultivation under the towers.

c. Stringing: POWERGRID will continue to use manual stringing in thick forests and on slopes, where ever possible, to minimize damage to the environment. Also, POWERGRID projects do not undertake clear felling in the ROW, which i s traditionally practiced in many other countries. However, some lopping o f canopy and clearing o f ground vegetation i s inevitable while stringing, which i s mitigated either by allowing regeneration or by planting dwarf trees along the ROW, except in one strip o f 3 to7 meters width (as the case may be depending upon the design o f the lines), which i s kept clear for maintenance.

d. Use of technology to minimize environmental impacts: POWERGRID has committed to use best technology practices to deal with environmental issues, such as use o f tower bases and revetments that prevent soil erosion near the tower, in landslide prone areas; use o f special towers for wetlands, coasts and riverbeds etc.

e. Integrated Management System: POWERGRID has adopted a third party certified comprehensive “Integrated Management System” (IMS) as per PAS 99:2006 integrating the requirement o f ISO: 9001 for Quality Management System, ISO: 14001 for Environment Management System and OHSAS: 18001 for Occupational Health & Safety Management System. POWERGRID has also been certified for SA 8000:2001 for Social Accountability standard by Social Accountability International. POWERGRID i s progressively roll ing out the I M S to regional offices o f which 3 have already been completed. Implementation o f these systems will enhance the effectiveness o f implementation o f ESPP in POWERGRID supported investment projects. In recognition o f POWERGRID’s efforts on social and environmental safeguards mainstreaming, they have been awarded the “Annual Green Award” for 2006 by the Environment Sector Board o f the Bank.

f. Resettlement: POWERGRID strictly adheres to the basic principles o f avoiding involuntary resettlement in al l i t s schemes by locating substations on government land as far as possible. In case resettlement i s inevitable, POWERGRID mitigates the adverse impacts

56

arising due to land acquisition through i ts Social Entitlement Framework and ensure complete rehabilitation o f all affected families. This framework takes into account the provisions o f the National Policy on Resettlement and Rehabilitation (February 2004) and will be updated in consultation with the Bank to consider recommendations o f National R&R Policy o f 2007.

g. Entitlement framework: POWERGRID categorizes type and extent o f socioeconomic impacts on the people as a result o f project interventions, provides replacement value for assets lost and establishes eligibilities for support in their resettlement and economic rehabilitation.

h. Land Management: POWERGRID continues to follow the practice o f minimizing the land requirement to the barest minimum and to ensure that, particularly, indigenous (Tribal) people do not suffer adversely. No land i s acquired for footing towers and, to the extent possible, undertakes site construction activity after the harvest to avoid damage to crops. However, there are no restrictions to cultivation under the towers and compensation at market rate i s provided for any loss o f or damage to crops during construction and maintenance. POWERGRID ensures that hazards due to fires are non-existent by adopting high standards o f safety.

i. Tribal development: POWERGRID ensures that the transmission route does not threaten the survival o f any community with particular reference to tribal groups. If init ial preliminary assessment concludes that tribal groups will be affected by the proposed interventions at the scheme level and if there are no alternative routes, a detailed social assessment will be undertaken to identify issues and concerns and prepare a Tribal Development Plan (TDP) using the tribal development strategy included in ESPP.

j. Environmental protection measures at Sub Stations: POWERGRID will continue to implement Rain Water Harvesting and collection system for i t s conservation and recharging o f ground water in al l upcoming buildings and substations; greening o f available land at sub stations; and work towards making al l i t s offices and other installation CFC free.

k. Institutional arrangements: For environment and social matters, at the corporate level, POWERGRID has put in place ESMD under the direct control o f Executive Director (Corporate Planning), while at regional level i t i s supported by an Environmental and Social Management Department (ESMD) to manage Environmental and Social issues and to coordinate between ESMD at the Corporate level and the Site office. Key responsibilities for ESMD include environmental and social screening and scoping for transmission lines and sub stations; obtaining regulatory approvals; EA and SA; monitoring implementation o f Environmental and Social management plans; monitoringheporting; and annual review o f the EMP and S M P M P . In order to improve planning and implementing environmental and social management plans and to meet the international requirementibenchmark the, ESPP will be reviewed regularly by an independent committee o f experts comprising o f eminent persons/renowned environmentalist/ experts o f international repute, including representatives o f funding agencies.

57

4. Environment and Social Management Procedures in transmission lines and sub station projects Environmental and Social Management Procedure

*where required

58

Mainstreaming environmental and social concerns at various stages of project

5 . Project Conceptualization : Environment and Social Management Department (ESMD) undertakes Environmental and Social Screening and Scoping for transmission lines and sub stations in order to identify environmentally and socially sensitive areas, issues, and possible management measures; suggest alternative transmission l ine routes, if necessary; and outline scope o f environmental and social assessment and management planning. The initial maps /GIs survey i s verified in the f ield to check possibilities o f circumventing environmentally and socially sensitive areas and collect information on issues identified, where state forest departments and revenue authorities are consulted for their views on land records. The scope o f an Environmental and Social Assessment and Management Plan (EAMP and RAP/TDP) i s finalized after screening and scoping. E S M D seeks approval subject to environmental and social clearance, wherever applicable, from its internal management based o n the results o f environmental screening and scoping.

6. Project Planning: ESMD o f POWERGRID corporate office has a wel l defined plan for a detailed environmental and social assessment and management planning and the process o f obtaining forest clearance. Regional and site offices, in consultation with ESMD, prepares a proposal to Forest department for transmission l ine going through the forest areas. POWERGRID i s consciously making efforts to improve the effectiveness and results o f compensatory afforestation (CA), particularly on its projects where forest land was required. The recent setting up o f a new Forestry Authority at Center namely the Central Afforestation Management and Planning Authority (CAMPA) has opened up a new avenue to monitor progress o f utilization o f C A money for forest plantation at the State level. As soon as C A M P A becomes functional, POWERGRID would include in its monthly environment and social monitoring report the details o f use o f funds deposited by it under the Forest (Conservation) Act, 1980) to track compensatory afforestation activities.

7. environmental screening and scoping and formulate appropriate management plans (EMP, RAP and TDP) for transmission lines and substations. In the case o f substations, an independent review is undertaken and appropriate management measures are incorporated in the EMP. Where project interventions involve land appropriation, a detailed social impact assessment i s carried out along with census o f affected population and an RAP is prepared. If init ial preliminary assessment concludes that tribal groups will be affected by the proposed interventions at the scheme level, a detailed social assessment i s undertaken to identify issues and concerns o f tribal groups and prepare a TDP using the tribal development strategy included in ESPP. RAP/TDP includes community development activities to be implemented for the benefit o f local people at each o f the scheme areas.

ESMD undertakes an environmental and social review based on the social and

8. Project Implementation: During this phase, execution o f the Environmental Management Plan (EMP) and RAP/TDP i s integrated with project implementation taking

59

into account appropriate ground clearance for transmission line, Right o f Way (ROW), etc. by the contractor. Wherever l ine passes through forested area, Forest authorities carry out compensatory afforestation including other mitigation measures as per agreed plan. No construction activities are initiated unless affected people are fully compensated for their losses. All entitlements for rehabilitation o f the affected people are provided during this phase. Also, E S M D undertakes regular supervision o f EMP, S M A P W implementation including compensatory afforestation through regional officesDHQs responsible for particular site area worWoffice, while at the scheme level patrolling o f ROW and implementation o f other activities is monitored on a daily basis. The implementation i s monitored & reviewed by In-charge o f the regions while the exception report i s reviewed by CEO o f POWERGRID every month. External agencies are also involved to evaluate RAP implementation at its completion.

9. review and reports on social and environmental perfonnance o f the project during construction, operation and maintenance, as part o f its Integrated Management System.

Annual Environmental and Social Review: POWERGRID internally undertakes

10. First Year Management Plans: As part o f the project preparation, POWERGRID has completed initial environmental assessment o f the activities proposed to be implemented during the first year o f the project period. Environment Assessments for a l l projects identified under PSDP IV Loan have been submitted for review by the Bank. These have been disclosed on the website o f POWERGRID. Similarly, social impact assessment o f activities (three grid substations) proposed to be implemented during the first year o f the project period has also been completed. Final Environment Assessment Reports (FEAR) for Seoni - Wardha - Akola-Aurangabad Transmission System has already been submitted to the Bank in January 2008. Final reports for balance projects shall be submitted progressively after obtaining forest clearance from Ministry o f Environment & Forests, GoI. Based o n the social assessment, POWERGRID has prepared RAP for each o f the three grid substations included for implementation in the first year o f the project. Rehabilitation Action Plan (RAP): Revised RAP for sub-stations at Balia, Bhiwadi and Wardha incorporating the comments o f the Bank were already approved and presently under implementation. RAP for sub-stations covered under PSDP-IV loan namely Solapur has already approved by the Bank and i s under implementation. Draft RAP for other sub-stations, i.e. Parli, has been submitted to the Bank for i t s comments.

60

e,

m c .-

h 0

E J 4

e, 0

3 3 G e,

c " ;

c4 .E B

Y

4 a '

Annex 11: Project Preparation and Supervision

Name

Planned Actual Regional Panel review 12/19/07 12/19/2007 Initial PID to PIC 0 1 /04/08 1/15/2008 Initial ISDS to PIC 0 1 /04/08 1/13/2008 Appraisal 0 1 /2 1/08 01/25/08 Negotiations 02/04/08 02/06/08 Board/RVP approval 03/18/08 Planned date o f effectiveness 06/2 5/08 Planned date o f mid-term review 10/15/10 Planned closing date 07/3 1/12

Title Unit

Key institutions responsible for preparation o f the project: Power Grid Corporation o f India Ltd. Responsible Agency: Ministry o f Power, Government o f India

Mikul Bhatia Minerva S. Espinosa-Apurada Julia Fraser

Bank staff and consultants who worked on the project included:

Energy Specialist SASDE Program Assistant SASDE Sr. Financial Analvst SASDE

Surbhi Goyal Mohammed Hasan Fowzia Hassan Manoj Jain Gaurav Joshi

Operations Analyst SASDE Sr. Social Development Specialist SASDS Operations Analyst LCSEG Sr. Financial Management Specialist SARFM Sr. Environmental Suecialist SASDN

Neelima Kapur Gennady Pilch Sanjay Srivastava

ET Temporary SASDE Sr. Counsel LEGES Sr. Environmental Specialist SAROQ

Bank funds expended to date on project preparation: 1. Bank resources: $80,000 2. Trust funds: $0 3. Total: $80,000

Estimated Approval and Supervision costs: 1. Estimated preparation costs to approval: 2. Estimated annual supervision cost:

$ 100,000 $ 120,000

63

Annex 12: Documents in the Project Fi le

1. Clearance on Negotiations Package: INDIA: Fourth Power System Development Project (P101653) - Negotiations February 6-8 -02/01/2008

2. INDIA : Fourth Power System Development Project (P101653) Negotiations Package - Negotiations February 6-8 -01/3 1/2008

3. Proposed INDIA Fourth Power System Development Project (P101653) - Follow up to OC Review Meeting - January 16,2008 -01/31/2008

4. L O A Comments & Clearance - INDIA : Fourth Power System Development Project (P101653) Negotiations Package & Draft Disbursement Letter for Clearance -01/29/2008

5 . Integrated Safeguards Data Sheet (Appraisal Stage) - POWER SYSTEM

6. L O A Comments & Clearance - INDIA : Fourth Power System Development Project (P101653) Negotiations Package - 01/28/2008

7. India: POWERGRID- PSDP-IV - P101653 - PID : APPROVAL-01/15/2008

8. Sector Manager CLEARANCE on the Concept Stage ISDS for INDIA: POWER

9. Statement o f Mission Objectives for a PSDP-I11 (P086414) Supervision Mission and PSDP IV (P101653) Appraisal mission, 21 to 25 January 2008 -01/04/2008

10. INDIA; POWERGRID PSDV-IV - P101653 : OC Review Package -01/03/2008

11. India: POWERGRID- PSDP-IV - P101653 - Concept Memorandum-12/20/2007

12. Integrated Safeguards Data Sheet (Concept Stage) - POWER SYSTEM

13. Project Concept Note - POWER SYSTEM DEVELOPMENT PROJECT IV - P101653 -

14. Project Information Document (Concept Stage) - POWER SYSTEM DEVELOPMENT

15. Manager review -- India: POWERGRID- P101653 - Risk Identification Worksheet - FM

16. POWERGRID- PSDP-IV - P101653 - Regional Review Panel Package -12/19/2007

17. INDIA: Proposed Power System Development Project (P101653) - Proposal for Repeater

18. India: POWERGRID- PSDP-IV - P101653 - Regional Review Panel Package -

DEVELOPMENT PROJECT IV - P101653 -01/28/2008

SYSTEM DEVELOPMENT PROJECT IV - P101653 -01/14/2008

DEVELOPMENT PROJECT IV - P 10 1653 - 12/20/2007

12/20/2007

PROJECT IV - P101653 -12/20/2007

Risk Rating -12/19/2007

Project - Regional Review Panel Meeting -12/13/2007

12/13/2007

64

Annex 13: Statement of Loans and Credits

Difference between expected and actual

disbursements Original Amount in US$ Millions

Project ID FY Purpose IBRD IDA SF GEF Cancel. Undisb. Orig. Frm. Rev'd

P105 124

PO95114

P102737

PO90764

PO90592

PO90585

PO83 187

PO78539

PO78538

PO75174

PO75060

PO90768

PO96019

PO97036

PO99047

P100789

P 102768

PO71160

PO78832

PO79675

PO79708

PO83780

PO86414

PO90163

PO91453

PO92735

PO93720

PO86518

PO84792

PO84790

PO84632

PO94513

PO75058

PO73370

PO73651

PO77856

PO77977

PO50655

PO73776

2008

2008

2008

2007

2007

2007

2007

2007

2007

2007

2007

2007

2007

2007

2007

2007

2007

2007

2006

2006

2006

2006

2006

2006

2006

2006

2006

2005

2005

2005

2005

2005

2005

2005

2005

2005

2005

2004

2004

HP DPL I Rampur Hydropower Project

Bihar DPL

Bihar Rural Livelihoods Project

Punjab Rural Water Supply & Sanitation

Punjab State Roads Project

Uttaranchal RWSS

TE3 I1

Third National HIV/AIDS Control Project AP DPL I11

RCH I1 TNIAM WARM

HP State Roads Project

Orissa Socio-Econ Dev Loan I1

Vocational Training India

AP Community Tank Management Project

Stren India's Rural Credit Coops

Kamataka Health Systems

Kamataka Panchayats Strengthening Proj

Kam Municipal Reform

TN Empwr & Pov Reduction

TN Urban I11

Power System Development Project 111

FALG Brick Project

VSBK Cluster Project

NAIP

Mid-Himalayan (HP) Watersheds

SME Financing & Development

Assam Agric Competitiveness

MAHAR WSIP

Hydrology I1

India Tsunami ERC

TN HEALTH SYSTEMS

Madhya Pradesh Water Sector Restructurin

DISEASE SURVEILLANCE

Lucknow-Muzaffarpur National Highway

Rural Roads Project

RAJASTHAN HEALTH SYSTEMS DEVELOPMENT

ALLAHABAD BYPASS

135.00

400.00

150.00

0.00 0.00

250.00

0.00 0.00

0.00

150.00

0.00

335.00

220.00

150.00

0.00

94.50

300.00

0.00

0.00 216.00

0.00 300.00

400.00

0.00 0.00 0.00 0.00

120.00

0.00

325.00

104.98

0.00 0.00

394.02

0.00

620.00

99.50

0.00

240.00

65.00

0.00

75.00

63.00

154.00

0.00

120.00

170.00

250.00

75.00

360.00

150.00

0.00 75.00

280.00

94.50

300.00

141.83

120.00

0.00

120.00

0.00 0.00

0.00 0.00

200.00

60.00

0.00

154.00

0.00 0.00

465.00

110.83

0.00

68.00

0.00 300.00

89.00

0.00

0.00 0.00 0.00 0.00

0.00 0.00

0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00

0.00 0.00 0.00 0.00

0.00 0.00

0.00 0.00 0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00

0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00 0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00 0.00 0.00

0.00 0.00

0.00 0.00

0.00

0.00 0.00

0.00 0.00 0.00

0.00

0.00 0.00

0.00

0.00 0.00 0.00

0.00

0.00 0.00

0.00 0.00

0.00 0.00

0.00

0.00 0.00 0.00

0.00

0.00

0.00

0.00 0.00 0.00

20.06

0.00

0.00

0.00

0.00 0.00

0.00

201.83

400.00

224.70

62.58

152.79

190.60

116.22

141.33

224.89

75.70

340.30

461.72

218.80

75.54

293.10

190.69

608.36

127.25

95.12

191.69

111.44

235.80

171.57

4.19

2.84

193.69

48.80

5.00 139.51

290.51

91.79

414.38

72.81

352.34

59.92

372.10

182.86

61.79

72.77

0.00 15.00

0.00 -0.35

40.98

-34.85

3.90

-24.84

5.00

-77.33

30.55

15.00

9.20

-150.65

0.00 -2.50

0.00

-13.39

-33.11

16.69

4.91

51.55 -148.43

0.00

0.00

4.03 -1.02

5.00

61.84

57.51

52.98

330.26

35.80

111.87

31.30

-27.90

5.69

43.26

52.37

0.00

0.00 0.00 0.00

0.00 0.00

0.00 0.00 0.00

0.00

0.00 0.00 0.00

0.00 0.00

0.00

0.00 0.00

0.00 0.00

0.00 0.00 0.00

0.00 0.00 0.00 0.00

0.00

0.00

0.00 9.44

0.00

30.43

0.00

0.00 0.00

0.00 0.00

0.00

65

PO82510 2004

PO78550 2004

PO73369 2004

PO67606 2003

PO75056 2003

PO73094 2003

PO50649 2003

PO76467 2003

PO72123 2003

PO71272 2003

PO50653 2002

PO50668 2002

PO50647 2002

PO40610 2002

PO69889 2002

PO71033 2002

PO74018 2002

PO72539 2002

PO67216 2001

PO59242 2001

PO55455 2001

PO55454 2001

PO71244 2001

PO49770 2000

Kamataka U W S Improvement Project

Uttar Wtrshed

MAHAR RWSS

UP ROADS

Food & Drugs Capacity Building Project

AP Comm Forest Mgmt

TN ROADS

Chatt DRPP

TecWEngg Quality Improvement Project

AP RURAL POV REDUCTION

KARNATAKA RWSS I1

MUMBAI URBAN TRANSPORT PROJECT

UP WSRP

RAJ WSRP

MIZORAM ROADS

KARN Tank Mgmt

Gujarat Emergency Earthquake Reconstruct KERALA STATE TRANSPORT

K A R WSHD DEVELOPMENT

MP DPIP

Rajasthan DPEP I1

KERALA RWSS

Grand Trunk Road Improvement Project

REN EGY I1

39.50

0.00

0.00

488.00

0.00

0.00 348.00

0.00 0.00

0.00

0.00 463.00

0.00 0.00

0.00

0.00

0.00

255.00

0.00 0.00

0.00 0.00

589.00

80.00

0.00

69.62

181.00

0.00 54.03

108.00

0.00

112.56

250.00

150.03

151.60

79.00

149.20

140.00

60.00

98.90

442.80

0.00

100.40

110.10

74.40

65.50

0.00 50.00

0.00

0.00

0.00

0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00 0.00

0.00 0.00

0.00

0.00

0.00

0.00 0.00

0.00

0.00 0.00

0.00 0.00

0.00

0.00

0.00

0.00 0.00

0.00 0.00

0.00 0.00 0.00

0.00 0.00

0.00 0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00 0.00

0.00

0.00 0.00

0.00

0.00

0.00 0.00 0.00

20.06

40.11

0.00

15.04

0.00

40.11

15.04

0.00

25.07

115.24

0.00

20.06

20.06

0.00 12.27

12.53

0.00 26.00

10.45

57.89

28.77

215.10

35.85

36.53

195.73

72.26

30.57

72.83

45.61

352.36

98.99

66.34

38.14

119.29

90.90

107.98

34.34

1.13

17.27

7.51

119.70

11.37

8.45

2.52

-17.86

181.46

25.84

4.92

117.93

65.24

-0.37

-13.27

32.75

295.84

108.70

39.81

8.22

54.57

126.01

77.98

35.70

7.63

5.88

10.62

132.23

35.12

0.00

0.00

0.00 0.00 0.00

0.00 0.00

0.00 -67.27

0.00 0.00 0.00

0.00

0.00

0.00

10.64

-21.17

0.00 25.54

-1 1.56

-7.07

-4.11

0.00

-0.53

Total: 7,266.50 6,507.30 0.00 0.00 381.65 9,144.23 1,816.24 - 35.66

INDIA STATEMENT OF IFC’s

Held and Disbursed Portfolio In Millions o f U S Dollars

Committed Disbursed

IFC IFC

FY Approval Company Loan Equity Quasi Partic. Loan Equity Quasi Partic.

2005

2006

2005

2005

2002

2003

2005

2006

2003

2004

2001

ADPCL

AHEL

AP Paper Mills

APIDC Biotech

ATL

ATL

ATL

Atul Ltd

BHF

BILT

BTVL

39.50

0.00 35.00

0.00 13.81

1 .oo 9.39

16.77

10.30

0.00 0.43

7.00

5.08

5.00

4.00

0.00 0.00

0.00 0.00 0.00 0.00 3.98

0.00

0.00

0.00 0.00

0.00 0.00

0.00 0.00

10.30

15.00

0.00

0.00

0.00 0.00 0.00

9.36

0.00

0.00 0.00 0.00 0.00 0.00

0.00 0.00

0.00 5.08

25.00 5.00

0.00 2.01

13.81 0.00 0.68 0.00

0.00 0.00 0.00 0.00

10.30 0.00 0.00 0.00 0.43 3.98

0.00 0.00 0.00 0.00

0.00 0.00

0.00 0.00 0.00 9.36

0.00 0.00 0.00 0.00 0.00 0.00

10.30 0.00 15.00 0.00

0.00 0.00

66

2003

2001

2005

1984

2003

2006

1990

1992

2004

2004

2002

2005

2006

2003

2005

2006

2005

2003

2006

2001

2006

1994

2003

1998

2006

1998

2005

2006

2006

1996

2001

2006

2005

2005

2003

2006

2006

2002

2003

2001

1996

1999

2000

2003

2004

2003

Balrampur

Basix Ltd.

Bharat Biotech

Bihar Sponge

CCIL

CCIL

CESC

CESC

CGL

CMScomputers

COSMO

COSMO

Chennai Water

DQEL DSCL

DSCL

Dabur

Dewan

Federal Bank

GTF Fact

GTF Fact

GVK HDFC

IAAF

IAL IDFC

IDFC

IHDC

IHDC

Indecomm

India Direct Fnd

Indian Seamless

JK Paper

K Mahindra INDIA

KPIT L&T

LGB

Lok Fund

MMFSL

MSSL

MahInfra

Montalvo

Moser Baer

Moser Baer

Moser Baer

Nevis

NewPath

NewPath

Niko Resources

10.52

0.00

0.00

5.70

1.50

7.00

4.61

6.55

14.38

0.00

2.50

0.00

24.78

0.00 30.00

15.00

0.00

8.68

0.00 0.00

0.00

0.00 100.00

0.00 0.00

0.00 50.00

6.94

7.90

0.00 0.00 6.00

15.00

22.00

1 1 .oo 50.00

14.21

0.00

7.89

0.00 0.00

0.00 0.00 0.00 12.75

0.00 0.00

0.00 24.44

0.00

0.98

0.00

0.00 0.00

2.00

0.00

0.00 0.00

10.00

0.00 3.73

0.00

1.50

0.00

0.00

14.09

0.00 28.06

1.20

0.00

4.83

0.00

0.47

9.79

10.82

0.00

0.00

0.00

2.57

1.10

0.00

7.62

0.00 2.50

0.00

4.82

2.00

0.00 2.29

10.00

3.00

0.82

8.74

10.54

4.00

9.31

2.79

0.00

0.00

0.00

4.50

0.00 0.00

0.00 0.00

0.00 0.00

2.50

0.00

0.00

0.00 1.50

0.00

0.00

0.00 0.00 0.00

0.00

0.99

0.00

0.00 0.00

0.00 0.00

0.00 0.00

0.00

0.00 0.00

0.00

0.00 0.00 0.00 0.00

0.00

0.00

7.51

0.00

0.00

0.00 0.00

0.00

0.00 0.00

0.00 0.00

0.00

0.00

0.00

0.00 0.00 0.00

12.40

0.00

14.59

0.00

0.00 0.00

0.00

0.00 0.00

0.00

0.00

0.00 0.00 0.00

0.00

0.00 0.00

100.00

0.00

0.00 0.00

100.00

0.00

0.00

0.00

0.00

0.00 0.00 0.00 0.00 0.00

0.00

0.00 0.00 0.00

0.00 0.00 0.00 0.00

0.00 0.00

0.00 0.00

0.00

10.52

0.00

0.00 5.70

0.59

7.00

4.61

6.55

7.38

0.00 2.50

0.00

0.00 0.00

30.00

0.00

0.00 8.68

0.00

0.00

0.00 0.00

100.00 0.00

0.00 0.00

50.00

0.00

0.00 0.00 0.00

6.00

0.00 22.00

8.00

50.00

0.00

0.00 7.89

0.00

0.00 0.00 0.00 0.00

12.75

0.00

0.00 0.00

24.44

0.00

0.98

0.00 0.00

0.00 2.00

0.00 0.00

0.00

0.00 0.00

3.73

0.00 1.50

0.00

0.00 14.09

0.00

23.99

1.20

0.00

4.83

0.00 0.30

7.70

10.82

0.00

0.00 0.00 2.57

0.66

0.00 7.38

0.00

2.50

0.00 4.82

0.00

0.00

2.20

0.79

1.08

0.82

8.74

10.54

4.00

8.31

2.49

0.00

0.00 0.00

3.30

0.00

0.00 0.00

0.00

0.00 0.00 0.00

0.00 0.00

0.00

1.50

0.00 0.00

0.00

0.00 0.00 0.00

0.99

0.00 0.00

0.00 0.00

0.00 0.00 0.00 0.00

0.00 0.00

0.00

0.00

0.00 0.00 0.00

0.00

0.00

7.51

0.00 0.00

0.00 0.00

0.00 0.00 0.00

0.00 0.00

0.00

0.00 0.00

0.00

0.00 0.00

12.40

0.00

14.59

0.00 0.00

0.00 0.00

0.00

0.00 0.00

0.00

0.00

0.00 0.00

0.00

0.00 0.00

100.00

0.00

0.00 0.00

100.00

0.00

0.00 0.00

0.00

0.00 0.00 0.00

0.00

0.00

0.00

0.00 0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00

0.00

0.00 0.00

67

2001

1997

2006

2004

2004

1995

2004

2005

2005

2001

1997

2000

1995

2004

2001

2003

2004

2000

2002

1998

2005

2004

1996

2005

2002

2001

2005

1997

1997

2006

Orchid

Owens Coming

PSL Limited

Powerlinks

RAK India

Rain Calcining

Rain Calcining

R a w Ruchi Soya

SBI

SREI S E I

Sara Fund

SeaLion

Spryance

Spryance

Sundaram Finance

Sundaram Home

Sundaram Home

TCW/ICICI

TISCO

UPL

United Riceland

United Riceland

Usha Martin

Vysya Bank

Vysya Bank

W N

Walden-Mgt India

i h b s Fund I1

0.00

5.92

15.00

72.98

20.00

0.00 10.00

3.74

0.00

50.00

3.21

6.50

0.00 4.40

0.00

0.00

42.93

0.00

6.71

0.00 100.00

15.45

5.63

8.50

0.00 0.00

0.00 0.00

0.00 0.00

0.73

0.00

4.74

0.00

0.00 2.29

0.00

10.28

9.27

0.00 0.00

0.00 3.43

0.00

1.86

0.93

0.00 2.18

0.00

0.80

0.00

0.00

0.00 0.00

0.72

3.66

3.51

0.37

0.01

20.00

0.00 0.00 0.00

0.00

0.00 0.00

0.00 0.00

0.00

0.00 0.00

0.00 0.00

0.00

0.00 0.00 0.00

0.00

0.00

0.00 0.00

0.00 0.00 0.00 0.00

0.00

0.00

0.00 0.00 0.00

0.00 0.00

0.00

0.00

0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00 0.00

0.00 0.00 0.00 0.00

0.00

0.00 0.00

300.00

0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00

0.00

0.00 5.92

0.00

64.16

20.00

0.00

10.00

0.00

0.00 0.00

3.21

6.50

0.00

4.40

0.00 0.00

42.93

0.00 6.71

0.00 0.00

15.45

5.63

5.00

0.00

0.00 0.00

0.00 0.00

0.00

0.73

0.00

4.54

0.00 0.00

2.29

0.00

0.00 6.77

0.00

0.00 0.00

3.43

0.00 1.86

0.93

0.00

2.18

0.00 0.80

0.00 0.00

0.00

0.00 0.72

3.66

3.51

0.37

0.01

0.00

0.00

0.00

0.00 0.00

0.00 0.00 0.00

0.00 0.00

0.00 0.00

0.00 0.00 0.00

0.00

0.00 0.00 0.00

0.00

0.00 0.00 0.00

0.00 0.00

0.00 0.00 0.00 0.00

0.00 0.00

0.00 0.00

0.00

0.00

0.00 0.00 0.00 0.00 0.00 0.00

0.00 0.00

0.00

0.00 0.00 0.00 0.00

0.00 0.00 0.00

0.00

0.00 0.00

0.00 0.00

0.00

0.00 0.00 0.00

0.00

Total portfolio: 956.52 249.41 42.30 536.35 604.74 175.91 38.60 236.35

Approvals Pending Commitment

FY Approval Company Loan Equity Quasi Partic.

2004

2000

2006

2001

2006

2001

2004

2005

CGL

APCL

Atul Ltd

Vysya Bank

Federal Bank

GI Wind Farms

Ocean Sparkle

Allain Duhanaan

0.01

0.01

0.00 0.00 0.01

0.01

0.00

0.00

0.00

0.00 0.01

0.00

0.00

0.00 0.00 0.00

0.00 0.00 0.00

0.00

0.00 0.00

0.00

0.00

0.00 0.00

0.00

0.00 0.00 0.00 0.00 0.00

Total pending commitment: 0.04 0.01 0.00 0.00

68

Annex 14: Country at a Glance

POVERTY and SOCIAL lndla

2006 109 8

GNlpercapita (Atlas method, US$) 620 9 0 0

Populatio n, mid-year (millions)

GNI (Atlasmethod, US$ billions)

Average annual growth, 2000-06

Population (Yg 15

M o s t recent estimate (latest year available, 2000-06)

Poverty (%o fpopulation belo wnatonalpo vertyline) Urban population (%of total population)

Laborforce(%) 19

29 29

Life expectancyat birth (@am) 84 Infant mortality(per @WOlive births) 56 Child malnutntion (%of children under5) Access to animprovedwtefsource (%ofpopulation) 66 Literacy (%o fpopulation age S+) 61

18 Male P3 Female 16

Gross pnmary enrollment (%of school-age population)

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

I986 1996

GDP (US$ billions) 2464 3663 Gross capital formationIGDP 230 221

Gross domestic savingsIGDP 212 209 Gross national savings1GDP 216 232

Current account balanceIGDP -20 -13 interest paymentslGDP 0 7 10 Total debVGDP 8 5 241 Total debt sewicdexports 325 222 Present value ofdebtlGDP Present value of debtlexports

E ~ p ~ r t s of goods andserviceslGDP 5 3 0 5

1986-96 1996-06 2005 (average annualgmwh) GDP 5 5 6 4 9 2 GDP percapita 3 5 4 7 7 7 E ~ p ~ r t s of goods and services n 8 0 4 5 9

South Low- Asia Income

1493 766 tm

17 2.1

29 e4 62

Ea 58 nl 115 0 5

2005

805.7 33.4 20.3 30.4 32.7

-12 0.6 5,3 P.5 0.7 56.9

2,403 650

1562

19 2.3

30 59 75

75 61

0 2 0 6 96

2006

9116 33.9 23.0 311

33.5

-11

2006 2006-10

9 2 7.7 6.6

Development diamond.

Life expectancy

T

GN I Gross

capita nrollment per primary

1

Access to improvedwatersource

-India Lo wincoma gmup

Economic ratlor.

Trade

savings Domestic I+' formation Capital

Indebtedness

-India -- Lowincomegroup

STRUCTURE of the ECONOMY

(%of GDP) Agriculture Industry

Services

Household final consumption expenditure General gov't final consumption expenditure Imports of goods and services

Manufacturing

(average annual gmbfh) Agriculture lndustty

Services

Household final consumption expenditure General gov't final consumption expenditure Gross capital formation Imports of goods andservices

Manufactunng

I986 1996

30.0 27.4 26.3 27.0 6.4 7.5

43.7 45.6

66.9 66.4

7.1 117 i t9 0.7

1986-96 1996-06

3 7 2 3 6 2 6 4 6 5 5 9 6 6 82

52 47 4 0 5 3 7 0 9 1 0 8 9 9

2005

f83 27 6 6 0 5 4 1

583 113

23 3

2005

6 0 9 6 9 1 98

6 1 96

0 3 m a

2006

I75 27 9 6 3

546

57 6 113

25 8

2006

2 7 0 6 P 3 112

7 5 9 0

114 n 2

Growth o f capltal and GDP (%)

30 T

r o1 02 03 ffi

I -GCF -GDP

Growth o f exports and imports (%)

01 02 03 M 05 1 -Exports -Impom OB I Note: 2006 data are preliminaryestimates. This table was producedfrom the Development Economics LDB database. 'Thediamonds showfourkeyindicatorj in thecountry(in bo1d)comparedwithits income-groupaverage. Ifdataaremissing,thediamondMll

69

BALANCE o f P A Y M E N T S

(US$ millions) 'Eports of goods and services imports of goods and services Resource balance

Net income Net current transfers

1986

73,630 8.951 -6.321

-977 2,327

Current account balance -4,971

Financing items (net) Changes in net resewes

4,397 574

Memo: Reserves including gold (US$ millions) 6,574 Conversion rate (DEC, locai/US$) P.6

EXTERNAL DEBT and RESOURCE FLOWS

(US$ millions) IS86

48,P4 IBRD 3,475 IDA l V 2 9

Total debt outstanding and disbursed

Total debt service IB RD IDA

5,273 469 152

Composition of net resource f l o w Official grants 595

Foreign direct investment (net inflow)

Official creditors 1404 Private creditors 2,793

16 Portfolio equity(net inflows) 0

World Bank program Commitments Dlsbursements Pnncipal repayments Net flows Interest paynents Net transfers

1790 1297 235

1062 386 676

W9S

41607 55,696 -14,089

-3,307 P,367

-5,029

0,847 -5.88

26,423 35.5

1996

93,466 8,768 f f ,66

11981 15% 364

589 184

-146 2,426 3,958

1725 1592 1074

5 8 804

-287

2005 2006

66,556 208,420 84,516 240,598

-27.960 -32.ff8

-5.5x) -4.846 24,732 27,95

-9,368 -9,829

23,582 453% -14214 -35,335

Current account balance to GDP (%)

' T

150,866 88.70 443 45.2

2005 2006

P3.P3 5,557

23.363 24,066

24,335 417 597 809 841

1060 142 1 379

6,598 P ,52

1592 208 2.00 1787

843 942 1288 845 364 496 904 349

:ompori t lon o f 2005 debt (US$ mlll.)

e 8.788 A'5557

\ . iBRD E - Bil&rd I . IDA D - Other rmltilaterd F - Rivate : - iMF G- Short-tern

Note:This tablewas producedfrom the Development Economics LDB database. 9/28/07

70