The loan will help the state government retire costly old debt, which will reduce the annual interest burden by Rs 700 crore.
Official sources said the objective of the loan was to retire the old high-cost National Small Saving Fund loan, which amounted to about Rs 15,250 crore by the end of March 2008. This will enable the UP government to swap the costly debt with the cheaper loan.
The UP government will annually save up to Rs 700 crore on account of debt servicing or interest. It is paying interest at 10 per cent on the small saving fund loan while the World Bank loan is likely to cost around 6 per cent.
The annual interest burden on the UP government is over Rs 12,000 crore and the total loan burden on the state government till March 31, 2008, stood at over Rs 1,25,000 crore.
The Centre has approved the proposal and the negotiations between the UP government and the World Bank are in an advanced stage.
"The World Bank team was here on May 14 and the loan proposal is likely to be placed before the board of the Bank in Washington by the end of September.
The team examined the reform measures introduced by the UP government in various sectors because the loan is linked to reforms," an official source said.
The reform areas are fiscal policy reforms, which include fiscal consolidation, fiscal discipline and transparency, and strengthening and improvement in public financial management.
Governance and civil service reforms include implementing effectively the Right to Information (RTI) Act, fixed tenures of IAS and IPS officers in districts, and anti-corruption measures by the government.
Reforms in the power sector are a major concern of the Bank. The state government has chalked out a business plan aimed at improving cost recovery, reducing the T&D losses and appointing internal auditors.
Improvement in the investment climate is also included in the reforms matrix. The state government has showcased the measures taken by it for promoting investment via public-private partnership.
So far UP has identified PPP projects worth Rs 1,25,000 crore, which include the 1,047-km-long Ganga Expressway (Rs 3,000 crore), the network of six other expressways (Rs 47,000 crore), power projects (Rs 25,000 crore) and urban development projects (Rs 12,000 crore), and Taj international airport (Rs 4,000 crore).
