PGCIL plans to seek $2 billion loan from ADB, World Bank

State-run transmission utility Power Grid Corp. of India Ltd (PGCIL) plans to seek a $1 billion (Rs.4,510 crore) loan each from the Asian Development Bank (ADB) and the World Bank.This is the first time PGCIL is seeking a loan from an international lender such as ADB without a guarantee from the government.

“We are seeking these loans as we have a huge capital expenditure programme for the 12th Plan period (2012-17). We have been advised by the government to seek non-sovereign loans on the strength of our balance sheet...we are in talks with ADB for availing some part of the loan without sovereign guarantee,” said PGCIL chairman and managing director S.K. Chaturvedi.

Of the $1 billion sought from ADB, around $250 million is expected to be availed as a non-sovereign loan.

PGCIL posted a profit of Rs.2,041 crore on revenue of Rs.7,504 crore in 2009-10. As on 31 March, it had Rs.34,417 crore of debt on its balance sheet.

PGCIL wants to secure loans from lenders such as the ADB and the World Bank because of the low rate of interest they charge and the long repayment tenure they offer.ADB loans typically have a 25-year tenure and a five-year moratorium. World Bank loans are for 30 years and come with a four-year moratorium.

“While we are waiting for the exact terms such as the repayment period, interest rates for the ADB loan, things are at a very premature stage for the World Bank loan,” said J. Sridharan, director of finance at PGCIL.A World Bank spokesperson said in an email there was “no proposal for a loan to Powergrid under discussion”.An ADB spokesperson confirmed the development.

“ADB is in discussion with Power Grid for extending loans. One loan under the sovereign lending program of ADB with a government guarantee, and another non-sovereign loan without a sovereign guarantee, are being discussed...,” the spokesperson said in an email. “The discussions are in a very preliminary stage. No agreements have been reached so far.”PGCIL already has in place approved loans worth $3.67 billion and $1.5 billion from the World Bank and ADB, respectively.PGCIL has estimated capital expenditure requirements of Rs.1 trillion in the 12th Plan period. For PGCIL, 30% of capital expenditure in any Plan period comes from internal accruals and the balance from loans.Of the loan amount, around 40% is borrowed from the domestic market and the rest from international lenders.

“The sovereign loan will be offered at ADB’s standard terms for Libor-based loans, which comprises a fixed spread over the relevant benchmark cost base rate, and a commitment fee of 15 basis points per annum on the undisbursed loan balances, after 60 days of loan signing,” the ADB spokesperson said. “The non-sovereign loan will be priced on a case-to-case basis, depending upon mutual agreement between ADB and Powergrid.”

Libor, or the London inter-bank offer rate, is the rate at which most creditworthy international banks dealing in euro-dollars charge each other for large loans. A basis point is a hundredth of a percentage point.The World Bank has been associated with the Indian power industry for long. Over the past decade, it has provided support to Union government entities for generation, transmission and renewable energy investments, as well as to state electricity boards for investments associated with sectoral reform.

PGCIL operates around 74,000 circuit km of transmission lines and 124 sub-stations. India has an inter-regional power transfer capacity of 20,800MW and PGCIL plans to increase it to 37,000MW by 2012. This will require strengthening regional grids and building more inter-regional links.