Washington: The World Bank has approved a $600 million loan to the Power Grid Corporation of India to strengthen the country's electricity transmission system and increase reliable power exchange between regions and states.

Announcing the loan backed by a government of India guarantee, the bank said Tuesday the Fourth Power System Development Project (PSDP IV) aims to reduce transmission losses and cut the cost of energy through further investments in transmission systems.

It will also contribute to the clean energy initiative through both the ability to transfer surplus hydro energy to power deficit regions in India and relieve some of the pressure to build generation facilities, particularly in and around the major load growth centres.

The project will finance the strengthening of five transmission schemes:

East-West Transmission Corridor, Western Region System Strengthening Scheme II, Eastern Region System Strengthening Scheme I, Balia-Bhiwadi HVDC Bipole System, and North-West Transmission Corridor.

The loan, from the International Bank for Reconstruction and Development (IBRD), has a 20-year maturity, which includes a 5-year grace period.

"India's policy reforms in the power sector are beginning to pay off," said Isabel Guerrero, World Bank Country Director for India. "The sector's financial performance is improving and more and more villages are being electrified."

"At the same time, the need to boost the rural economy where about 30 percent of villages are not electrified and improve the investment climate are placing additional demands on the country's power supply system.

"This project, by strengthening transmission networks within and between regions, will enable more power to reach the people across the country," she said.

Looking forward, the Government of India has established an ambitious mission of "Power for All by 2012," the Bank noted. This will entail increasing country's installed generation capacity to more than 200,000 MW by 2012, up from the current level of 140,000 MW.

India's transmission plan focuses on the consolidation of the national grid by adding over 60,000 circuit km of transmission network by 2012, which will carry 60 percent of the power generated in the country.

The Bank has been actively involved in the reform and development of the transmission sector in India, and specifically in the creation and strengthening of the Power Grid Corporation of India.

The World Bank has made three direct loans to Power Grid since 1993. During this period, the company has nearly tripled its transmission network, its assets have grown more than eight-fold to US$7.3 billion, and revenues have increased more than six times to over US$1 billion.

"The Bank's partnership with Power Grid represents a sound and replicable model for engagement with middle income countries," said Pedro Sanchez, World Bank Senior Energy Specialist and team leader for the project.