WASHINGTON, D.C. April 25, 2006—
The International Finance Corporation—the private sector arm of the World Bank Group—will work in partnership with NRECA International, Ltd. a non-profit subsidiary of the National Rural Electric Cooperative Association (NRECA), to develop rural electrification pilot programs in selected Indian states.
A memorandum of understanding will be signed April 25 at IFC’s headquarters in Washington, D.C. with Power Finance Corporation, India’s public financial institution dedicated to developing the power sector. At present, more than half a billion people in India do not have access to electricity.
The Indian Minister of Power, the Hon. Sushil Kumar Shinde, will preside at the signing of the memorandum.
IFC Vice President Farida Khambata said, “IFC is very pleased to welcome Minister Shinde to IFC and to participate in these pilot programs which are expected to have a major impact on rural electrification in India. The objective is to be a catalyst by promoting replicable projects in a number of states that will help advance the Indian government’s goal of universal electrification by the year 2012.”
The pilot projects will include long-term technical and franchising support and will be based on NRECA's highly successful experience with rural electrification in the U.S. The NRECA model was developed during the New Deal and exported to several developing countries over the last forty-plus years.
NRECA is a not-for-profit association of cooperatives that provides power to rural areas of the U.S. It also has world-class knowledge in designing and operating rural electrification programs in emerging markets such as Bangladesh, Philippines, Guatemala, Bolivia, and other countries. NRECA’s members provide power to about 12 percent of the U.S. population covering 85 percent of the U.S. land mass.
Bernard Sheahan, IFC director for advisory services, noted, “IFC and NRECA will offer advisory services to the Indian government to design, implement, and scale-up public-private participation in rural electrification. IFC has considerable experience in designing and tendering public-private partnerships for infrastructure in emerging markets. India will also benefit from NRECA’s international experience and best practices developed and documented in the numerous countries that have undertaken such programs.”
Through the design and implementation of new, more commercially sustainable rural electrification markets and intermediaries, these best practices can render the rural electrification sector in the various states increasingly viable and credit-worthy, Sheahan noted.
The American rural electrification program was set up by the U.S. Department of Agriculture as part of the New Deal. In the early 1960s, President John F. Kennedy asked NRECA to take its successful program international.
According to Vivek Talvadkar, Senior Vice President of NRECA International, India’s push for universal electrification by 2012 provides a timely opportunity to address sustainability issues in the sector. “Farmers, businesses, and households in India are not that different from their U.S. counterparts when it comes to electricity. They want reliable service to help them prosper, not a handout.” Noting that India’s non-urban distribution losses cost about $5 billion annually, he added, “without addressing rural subsidies and distribution losses, the Indian economy will suffer needlessly.” He added that the IFC/NRECA partnership with Power Finance Corporation and the states is aimed at establishing business models that reduce economic inefficiencies by focusing on the consumer’s role as the ultimate guarantor of power sector investment.
The Indian program will focus on the creation of specialized rural area electric service enterprises in selected states. The new rural entities will be demand-driven and commercially sound, serving as models for addressing the electricity service needs of rural populations in currently unserved or underserved regions. The project format is highly flexible and can be adapted to brownfield or greenfield areas, grid extensions or distributed generation, and conventional or alternative energy sources.
The program will be developed under a collaborative, joint decision-making process between the Power Finance Corporation, the Indian states involved, NRECA, and IFC. Some of the features will include:
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The ability to obtain affordable capital financing as well as to set tariffs sufficient to meet their operational and financial obligations,
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Legal and regulatory enabling environments established at the state and local levels to accommodate the recommended institutional model,
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The availability of reliable and affordably-priced power supply for target project areas,
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Key role ownership and operational roles for local communities , and
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Allocation of financial and other resources needed for enterprise and project implementation according to need and merit under generally accepted and transparent procurement processes.
The initial priority states will be selected from: West Bengal, Bihar, Orissa, Madhya Pradesh, Gujarat, Punjab, and Rajasthan. After projects are implemented in the initial states, other states will be approached.
IFC promotes sustainable private sector investment in developing and transition countries, helping to reduce poverty and improve people’s lives. IFC finances private sector investments, mobilizes capital in the international financial markets, helps clients improve social and environmental sustainability, and provides technical assistance and advice to governments and businesses. Its 178 member countries provide its share capital and collectively determine its policies. From its founding in 1956 through FY05, IFC has committed more than $49 billion of its own funds and arranged $24 billion in syndications for 3,319 companies in 140 developing countries. IFC’s worldwide committed portfolio as of FY05 was $19.3 billion for its own account and $5.3 billion held for participants in loan syndications.
IFC’s Advisory Services Department (
http://www.ifc.org/Advisory
) provides advisory assistance, primarily to governments, on private sector participation in the provision of infrastructure services.
