World Bank keen to lend more to Andhra

Irrespective of its stand on free power, bank volunteers to loosen its purse strings

Contrary to the general perception that the World Bank's reservations on free power may impact its lending to the state, the multi-lateral lending agency has in fact volunteered to loosen its purse strings.

What is more, the World Bank has indicated its willingness to bring down interest rates which are presently in force.

According to government sources, the World Bank has recently expressed keen interest on funding the HVDS (high voltage distribution system) project proposed to be taken up by the state government.

The project, which is estimated to cost about Rs 5,000 crore, is aimed at reducing transmission and distribution losses, including theft of energy in the state. It is estimated that by replacing the present low voltage distribution system with the HVDS, the power utility can save up to Rs 1,290 crore per annum.

Even as the state government has been looking at the Union government's accelerated power development programme (APDP) for the necessary financial support, the World Bank officials are said to have indicated to the state government officials that the bank would like to give funds for the execution of the project.

The Life Insurance Corporation (LIC) has already come forward to partly finance the HVDS project.

While, Indian financial institutions have been offering an interest rate of around seven per cent to the state government, World Bank loans come at a higher rate of interest of about 10.5 per cent.

The effective rate of interest, however, can be much lower than 10.5 per cent, if the 30 per cent interest free grant from the Centre which comes along with the loan is taken into consideration.

Even after this the offer of domestic financial institutions is sweeter, when compared to the loan from the World Bank. It may be recalled that citing the very reason of higher rates of interest, APTransco "� the state's power utility "� had discontinued the $1 billion loan from the World Bank, by fully repaying the first and only tranche of the loan which it had received.

Faced with such a scenario where its funds are being rejected because of the high interest rates, the World Bank is expected to come forward to negotiate interest rates and become the front-runner in funding big ticket projects like the HVDS project, government sources said.

The talk of a backlash from international lending agencies on account of the state government's decision to dole out free power to farmers now seems to hold little water.

A senior government official said: "At one level, the World Bank is like any other banking institution which looks for business to fund. Earlier there was some drama being created, while the reality is somewhat different."

Earlier, the World Bank had positively responded to a $300-million dollar urban poverty alleviation project announced by the chief minister Y S Rajasekhara Reddy.

A team from the bank is expected to come to the state sometime next month to study the government's proposal, while another team is already camping in the state capital to review the implementation of existing schemes.

With no history of any kind of default on repayment of loans, Andhra Pradesh has now become a hunting ground for the domestic financial institutions.

When the state finance department officials recently convened a bankers meeting on funding a drinking water scheme proposed to be taken up at a cost of around Rs 110 crore in the flouride-hit Nalgonda district, all 20 banks who participated in the meeting expressed their readiness to fully fund the project.