Report and Recommendation of the President to the Board of Directors. Proposed Loan India: Gujarat Solar Power Transmission Project

Transcription

1 Report and Recommendation of the President to the Board of Directors Project Number: August 2011 Proposed Loan India: Gujarat Solar Power Transmission Project

2 CURRENCY EQUIVALENTS (as of 1 July 2011) Currency Unit Indian rupee/s(rs) Rs1.00 = $ $1.00 = Rs43.3 In this report, a rate of $1 = Rs44.2 was used ABBREVIATIONS ADB Asian Development Bank ASEI Asia Solar Energy Initiative EMP environmental management plan GERC Gujarat Electricity Regulatory Commission GETCO Gujarat Energy Transmission Corporation GOG Government of Gujarat GPCL = Gujarat Power Corporation Limited JNNSM Jawaharlal Nehru National Solar Mission TA technical assistance WEIGHTS AND MEASURES km kilometer kv kilovolt kwh kilowatt-hour MVA megavolt-ampere MW megawatt NOTE In this report, "$" refers to US dollars. Vice-President X. Zhao, Operations 1 Director General S. H. Rahman, South Asia Department (SARD) Director Y. Zhai, Energy Division, SARD Team leader Team members Peer reviewers N. Sakai, Senior Climate Change Specialist, SARD J. Acharya, Climate Change Specialist (Clean Energy), Regional and Sustainable Development Department S. Fukushima, Energy Specialist, SARD L. George, Energy Specialist, SARD H. Gunatilake, Principal Energy Economist, SARD V. Karbar, Senior Project Officer (Energy), India Resident Mission, SARD C. Roque, Project Officer, SARD A. Syed, Counsel, Office of the General Counsel P. van Houten-Castillo, Social Development Specialist, SARD P. Perera, Senior Energy Specialist, East Asia Department In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area.

3 CONTENTS Page PROJECT AT A GLANCE I. THE PROPOSAL 1 II. THE PROJECT 1 A. Rationale 1 B. Impact and Outcome 2 C. Outputs 2 D. Investment and Financing Plans 3 E. Implementation Arrangements 4 III. DUE DILIGENCE 5 A. Technical 5 B. Economic and Financial 5 C. Governance 6 D. Poverty, Social, and Gender 7 E. Safeguards 8 F. Risks and Mitigating Measures 9 IV. ASSURANCES AND CONDITIONS 10 V. RECOMMENDATION 10 APPENDIXES 1. Design and Monitoring Framework List of Linked Documents 13

4 PROJECT AT A GLANCE 1. Project Name: Gujarat Solar Power Transmission Project 2. Project Number: Country: India 4. Department/Division: South Asia Department/Energy Division 5. Sector Classification: Sectors Primary Subsectors Energy Renewable energy 6. Thematic Classification: Themes Primary Subthemes Economic growth Widening access to markets and economic opportunities Environmental sustainability Natural resources conservation 6a. Climate Change Impact Adaptation Mitigation 7. Targeting Classification: General Intervention Geographic dimensions of inclusive growth 9. Project Risk Categorization: Complex Private sector development Targeted Intervention Millennium development goals Low High Income poverty at household level Policy reforms 6b. Gender Mainstreaming Effective gender mainstreaming (EGM) Gender equity theme (GEN) No gender elements (NGE) Some gender benefits (SGB) 8. Location Impact: National Rural Urban Medium High Low 10. Safeguards Categorization: 11. ADB Financing: 12. Cofinancing: Environment Involuntary resettlement Indigenous peoples Sovereign/Nonsovereign Modality Source Amount ($ million) Sovereign Project loan Ordinary capital resources Total No cofinancing required. B B C 13. Counterpart Financing: 14. Aid Effectiveness: Source Amount ($ million) Government of Gujarat 33.7 Total 33.7 Parallel project implementation unit Program-based approach No No

5 I. THE PROPOSAL 1. I submit for your approval the following report and recommendation on a proposed loan to India for the Gujarat Solar Power Transmission Project. 2. The project will develop the transmission infrastructure to evacuate power in a reliable manner from solar power generation plants to be located in the Charanka solar park located in Patan district of Gujarat. The solar park will site over 500 megawatts (MW) of solar photovoltaic and concentrated solar power plants. 1 II. THE PROJECT A. Rationale 3. India is bestowed with solar irradiation ranging from 4 to 7 kilowatt-hours (kwh)/square meter/day across the country, with western and southern regions having higher solar incidence. 2 With rapid growing electricity demand, decreasing availability of land, and increasing reliance on imported sources of fossil fuel, India has initiated steps to develop the large potential for solar energy-based power generation. In 2010, the government launched the Jawaharlal Nehru National Solar Mission (JNNSM) to facilitate extensive solar power development. 3 Achieving the ambitious target for 2022 of 20,000 MW will be dependent on lessons identified during implementation of the first two phases, which if successful could lead to conditions of gridcompetitive solar power. The transition to mainstreaming solar energy could be appropriately scaled up through capacity development of all stakeholders related to issues of technology, finance, project management, and policy development. JNNSM envisages setting up utilityscale solar power generation plants through the promotion and establishment of solar parks with dedicated infrastructure by state governments, including the governments of Gujarat and Rajasthan. 4. The Government of Gujarat (GOG), taking advantage of the favorable policy regime and high solar irradiation in the state, launched the Solar Power Policy in 2009 and proposed to establish a number of large-scale solar parks starting with the Charanka solar park in Patan district in the sparsely populated northern part of the state. The development of solar parks will streamline the development timeline for solar power generation projects with government agencies undertaking land acquisition and obtaining necessary permits, as well as providing common infrastructure necessary to set up such power generation projects plants. Common infrastructure for the solar park includes site preparation and leveling, construction power, power evacuation and water infrastructure, access roads, security, and related services. This approach will facilitate the accelerated installation of solar power generation capacity, particularly in the private sector and reduce costs by addressing the issues faced by standalone projects. The Gujarat Electricity Regulatory Commission (GERC) has announced a feed- 1 The design and monitoring framework is for the project is in Appendix 1. 2 In comparison, most of Europe receives kilowatt-hours/square meter/day of solar energy. 3 The major focus of JNNSM is to (i) create an enabling policy framework for deployment of 20,000 MW of solar power by 2022; (ii) increase capacity of grid-connected solar power generation to 1,000 MW within 3 years in the first phase, i.e., by 2013, and an additional 3,000 MW by 2017 in the second phase through the mandatory use of the renewable purchase obligation by utilities backed with a preferential tariff; (iii) deploy 20 million solar lighting systems for rural areas by 2022; and (iv) create favorable conditions to enhance solar manufacturing capability, particularly solar thermal for indigenous production and market leadership.

6 2 in-tariff 4 to mainstream solar power generation. Gujarat Power Corporation Limited (GPCL), the agency responsible for developing the 500 MW solar park, will lease the land to the project developers to generate solar power. Gujarat Energy Transmission Corporation (GETCO), with the mandate to develop transmission infrastructure in Gujarat, is one of the executing agencies for the project and will develop the transmission evacuation from the identified interconnection points with the solar developer. The developer will fund the connection from the solar power plant to the interconnection point. 5. In May 2010, ADB announced the Asia Solar Energy Initiative (ASEI) to catalyze the development of 3,000 MW of solar power generation projects from 2010 to 2013 in ADB developing member countries. Under the ASEI, ADB is taking a holistic approach under the project to catalyze development of an innovative public private partnership model of a 500 MW solar park (17% of the ASEI target) through its public and private sector windows. ADB, through technical assistance (TA) for the Integrated Renewable Energy Development Project, 5 supported the development of commercial agreements between solar power developers and power purchasers under JNNSM. ADB also processed a guarantee facility 6 for commercial banks to lend to private sector solar developers. In India, transmission expansion, and optimization has been an area of focus for ADB operations 7 and through the development of this power evacuation line from the Charanka solar park, ADB will be able to facilitate private sector participation and develop a model that can be replicated to scale up solar power in a significant manner in India. B. Impact and Outcome 6. The project's impact will be large-scale development of reliable solar power projects in a cost-effective manner in India. The project outcome will be the development of reliable solar power transmission infrastructure for the successful operation of the solar park. C. Outputs 7. The physical outputs will be the procurement, installation, and commissioning of (i) one 400/220/66 kilovolt (kv) substation comprising of two 315 megavolt amperes (MVA) transformers and one 125 MVAR bus reactor, (ii) eight 100 MVA transformers at 220/66 kv voltage level, (iii) a 66 kv underground cable grid of about 137 kilometers (km) within the solar park, (iv) about 110 km of 400 kv double circuit transmission line from the solar park to Sankhari, Patan District, Gujarat, (v) about 109 km of 220 kv double circuit transmission line from the solar park to Jangral, Patan District, Gujarat and (vi) two feeder bays at the substations located at Sankhari and Jangral, Patan District, Gujarat. Nonphysical investment outputs include vocational training for skilled employment for up to 300 people with at least 30% women, and energy-based livelihood enhancement training to 100 women. 8 4 Rs15.00/kWh for the first 12 years and Rs5.00/kWh from year 13 to 25, to be applied for solar photovoltaic operation. GERC Determination of tariff for Procurement of Power by the Distribution Licensees and others from Solar Energy Projects. Ahmedabad. 5 ADB Technical Assistance for the Integrated Renewable Energy Development Project. Manila. 6 ADB Report and Recommendation of the President to the Board of Directors: Proposed Guarantee Facility for Solar Power Generation in India. Manila. 7 ADB Sector Assistance Program Evaluation for India Energy Sector. Manila. 8 The TA for the Gujarat Solar Vocational Training and Livelihoods Project, equivalent to a total of $400,000 has been approved in May 2011 to provide vocational and livelihoods training for men and women in 18 primary target villages across Patan district, with the option to expand the geographic coverage of TA activities across the entire district. The TA has a gender mainstreaming focus and is financed by the Department for International Development of the United Kingdom, and administered by ADB.

7 3 D. Investment and Financing Plans 8. The project is estimated to cost $ million. The investment plan for the project is summarized in Table 1. Detailed cost estimates by expenditure category and detailed cost estimates by financier are included in the project administration manual. Table 1: Project Investment Plan ($ million) Item Amount a A. Base Cost b 1. Civil Works Equipment Environment and Social Mitigation Land Acquisition and Development Costs Overhead Subtotal (A) B. Contingencies c C. Financing Charges During Implementation d 2.10 Total (A+B+C) a In 2011 prices. b Base cost includes freight, insurance, and taxes and duties applicable in India. c Physical contingencies estimated at 15.0% of base cost. Price contingencies computed in accordance with ADB Financial Management and Analysis of Projects. Manila. d Includes interest and commitment charges. Interest during construction for ADB loan(s) is computed at the 5-year forward London interbank offered rate plus a spread of 40 basis points. Commitment charges for an ADB loan are 0.15% per year to be charged on the undisbursed loan amount. Source: Gujarat Energy Transmission Corporation Project Proposal, The Government of India has requested a loan of $100 million from ADB s ordinary capital resources to help finance the project. The loan will have a 25-year term, including a grace period of 5 years, an annual interest rate determined in accordance with ADB s London interbank offered rate (LIBOR)-based lending facility, a commitment charge of 0.15% per year, and such other terms and conditions as set forth in the draft loan and project agreements. The government has provided ADB with (i) the reasons for its decision to borrow under ADB s LIBOR-based lending facility based on these terms and conditions, and (ii) an undertaking that these choices were its own independent decision and not made in reliance on any communication or advice from ADB. The government has given assurance that it will provide all the necessary counterpart funds. 10. The financing plan is in Table 2. Physical contingencies are estimated at 15%. Price contingencies are estimated based on guidelines in the Financial Management and Analysis of Projects for local and foreign costs. 9 The loan will cover approximately 75% of project costs and includes, freight, insurance costs, and taxes and duties. Table 2: Financing Plan ($ million) Source Amount Share of Total (%) Asian Development Bank Government of Gujarat Total Source: Asian Development Bank estimates. 9 ADB Financial Management and Analysis of Projects. Manila.

8 4 E. Implementation Arrangements 11. GOG will be the joint executing agency with GETCO, the power transmission utility licensed to operate in Gujarat. GETCO will also act as the implementing agency for the project. GOG will constitute a steering committee, chaired by the principal secretary of Gujarat s Energy and Petrochemicals Department. The committee will meet every quarter to (i) promote and facilitate overall coordination between GETCO and other agencies and stakeholders to ensure smooth implementation of the project; and (ii) review the progress and achievements of the project. GETCO will arrange monthly coordination meetings among developers in the solar park and other stakeholders. GETCO will be responsible for supervising project implementation and monitoring the project s operating performance. It will establish a project management unit headed by a project director and supported by a project manager and specialists in substation implementation; transmission implementation; engineering; procurement and contract management; finance and accounts; and environment, social safeguards, right-of-way, and safety. 12. All procurement to be financed under the loan will be carried out in accordance with ADB s Procurement Guidelines (2010, as amended from time to time). ADB has approved advance procurement action. GOG and GETCO have been advised that approval of advance procurement does not commit ADB to finance the project. The transmission lines, the substation, and the transmission cables within the solar park will be procured following international competitive bidding procedures. The implementation arrangements for the project are summarized in Table 3 and described in detail in the project administration manual. 10 Table 3: Implementation Arrangements Aspects Arrangements Implementation period February 2011 September 2014 Estimated closing date 31 March 2015 Management (i) Oversight body Steering Committee chaired by GOG (Ministry of Power) (ii) Executing agency GETCO and GOG (iii) Key implementing agency GETCO (iv) Implementation unit 20 staff members of GETCO Procurement ICB 6 contracts $100 million Retroactive financing and/or advance contracting All eligible contract packages and eligible expenditures agreed between ADB and the borrower approved for retroactive financing Disbursement and advance contracting The loan proceeds will be disbursed in accordance with ADB's Loan Disbursement Handbook (2007, as amended from time to time) and detailed arrangements agreed upon between the Government of India and ADB. ADB = Asian Development Bank, GETCO = Gujarat Energy Transmission Corporation, GOG = Government of Gujarat, ICB = international competitive bidding. Source: Asian Development Bank. 10 Project Administration Manual (accessible from the list of linked documents in Appendix 2).

9 5 III. DUE DILIGENCE A. Technical 13. As per GOG s Solar Power Policy, 2009, GETCO has the responsibility to construct the evacuation facilities from the switchyards of developers substations. The solar park has been proposed with a mix of photovoltaic (with a range of 5 25 MW) and concentrated solar power (with a range of MW) totaling 500 MW. Technical studies undertaken by GPCL concluded the best option to evacuate power from the interconnection points of the generation projects to the substation in the solar park would be through 66 kv underground cables. As the total output from the solar park will ultimately be 500 MW, GETCO proposes to construct a 220 kv transmission line from the substation in the solar park to the existing Jangral substation and a 400 kv transmission line to the new Sankhari substation. Both transmission lines will be double circuit and the routing is been designed to maintain adequate system reliability. However, the interconnection aspects between the solar power plants and the main electrical grid will need to be carefully assessed. The ADB TA Integrated Renewable Energy Development Project is undertaking this needs assessment (footnote 5). In addition, a TA 11 has been approved for a detailed system study and a joint pilot study is being explored with the International Smart Grid Action Network. GETCO is to install special modular equipment in the ADB-financed substation. In addition, ADB s Carbon Market Program would carry out studies to review potential to secure carbon credits from clean power generation in the solar park. 12 B. Economic and Financial 14. Financial analysis of the project was carried out in accordance with ADB s Financial Management and Analysis of Projects (footnote 8). All financial costs and benefits are expressed at constant 2010 prices. Financial viability was assessed by comparing the project s incremental costs and benefits. The calculation of incremental benefits is based on GETCO s revenue stream and currently applicable GERC regulations. Costs used to determine the financial internal rate of return include capital investments, operation and maintenance costs, and taxes incurred to install and operate the project. 15. The financial internal rate of return is 8.8%, which compares favorably with the estimated cost of capital at 1.4%, indicating that the project will be financially viable. Sensitivity analyses shows that the results are robust to a range of project-related sensitivities covering a 10% increase in capital cost, 10% increase in operation and maintenance costs, and a 1-year delay in project execution The economic analysis was undertaken using the systems approach, taking the solar park and transmission line together. Benefits considered include consumer benefits, prevented climate change benefits, and prevented local air pollution benefits. The local air pollution costs were incorporated using the benefit transfer method. The renewable energy certificate price for solar was used as a proxy for the climate change benefits. Incremental costs and benefits were considered in estimating the economic internal rate of return of 13.4% in the base case. The sensitivity analysis shows that the project s rate of return is stable against changes in relevant parameters, i.e., 10% increase of costs, reduction in renewable energy certificate price and 1- year delay of project implementation. 11 ADB Development of the International Center for Solar Energy Technologies. Manila 12 CDM Assessment Report for the Charanka Solar Park, Gujarat, India (accessible from the list of linked documents in Appendix 2). 13 Financial Analysis (accessible from the list of linked documents in Appendix 2).

10 6 C. Governance 17. Consistent with its commitment to good governance, accountability, and transparency, ADB reserves the right to investigate, directly or through its agents, any alleged corrupt, fraudulent, collusive, or coercive practices relating to the project. To support these efforts, relevant provisions of ADB s Anticorruption Policy (1998, as amended to date) are included in the loan regulations and the bidding documents for the project. In particular, all contracts financed by ADB in connection with the project will be subject to prior ADB approval and will include provisions specifying the right of ADB to audit and examine the records and accounts of the executing agencies and all contractors, suppliers, consultants, and other service providers as they relate to the project. GOG will ensure that GETCO and other associated power entities have operating autonomy and no organizational changes are carried out that would affect their ability to perform their obligations under the project. In addition, financial management and procurement capacity assessments were completed. GETCO will maintain separate accounts for the project and its operations. Table 4 summarizes the specific governance measures. Table 4: Governance Measures Area Procurement Measures (i) A project management unit is in place, headed by a project director reporting directly to the managing director of GETCO. (ii) Bid specifications and packaging were prepared to ensure maximum competition under international competitive bidding procedures. (iii) Information on procurement will be disclosed on the GETCO and ADB websites. (iv) Procurement capacity support will be available at the India Resident Mission to expedite action on procurement issues. Financial management and audit (i) Expenditures, other financial transactions, and safe custody of project-financed assets will be monitored by the accounting and control systems of GETCO. (ii) The internal audit reports will be provided to the audit committee of the GETCO board. (iii) Financial statements will be audited by auditors acceptable to ADB and regularly published and reported to shareholders. Institutional and corporate governance (i) A steering committee chaired by principal secretary, energy and petrochemical department has been setup to facilitate and promote overall coordination (ii) A coordination mechanism has been established among relevant agencies including GPCL. (iii) GETCO will regularly file tariff petitions with the Gujarat Electricity Regulatory Commission. (iv) The solar policy and regulatory framework to support the development of solar power in Gujarat has been setup. Anticorruption Grievance review ADB will review and examine any alleged corrupt, fraudulent, collusive, or coercive practices relating to the project. A grievance redress mechanism will be established to address issues relating to project implementation. ADB = Asian Development Bank, GETCO = Gujarat Energy Transmission Corporation, MW = megawatt. Source: Asian Development Bank.

11 7 18. ADB s Anticorruption Policy (1998, as amended to date) was explained to and discussed with the government and GETCO. The specific policy requirements and supplementary measures are described in the project administration manual. D. Poverty, Social, and Gender 19. In Gujarat, industry and services sectors constitute over 80% of the state s net domestic product and have maintained high growth rates of over 10% in recent years resulting in a significant growth in electricity demand. The power subsector plays a key role to economic development and social well-being. The project is consistent with the poverty reduction strategy under India s 11th Five Year Plan and ADB s country partnership strategy for India. While Gujarat enjoys high household electrification (more than 95%) and diversified industrial activity making it one of the richest states in India, areas adjacent to the project are prone to poor basic infrastructure, primarily sanitation and water supply systems; and economic activity and growth due to a lack of income-generating opportunities and wider access to markets. A socioeconomic and poverty assessment was carried out in communities along the transmission lines and in the vicinity of the proposed solar park. Overall, villages are characterized by their remoteness, subsistence-based economies, and often by inhospitable living conditions due to extreme weather conditions and generalized scarcity of water. Host communities are primarily rural, agriculture-based (irrigated and non-irrigated) with relatively high incidence of poverty (less than $1 per day), illiteracy, and poor standards of living and well-being (as noted in the socioeconomic analysis 14 ). A gender action plan was prepared for the project. 15 The loan agreement includes a confirmation from the executing agency to implement the gender action plan as designed. 20. To alleviate some of the challenges and constraints that perpetrate poverty and social exclusion in the area, the project incorporates a selected number of value added interventions designed to enhance and meet a range of varied basic but specific needs across targeted populations in the project area. Interventions combine project-specific outcomes (e.g., local jobs) with associated outputs conceived specifically to complement and support the loan. All interventions are gender inclusive and aim to promote gender equality through the empowerment of women in decision-making roles and by enabling them to actively participate in employment, skills training (education), and energy-based alternative livelihoods. 21. Pro-poor, socially inclusive, and gender equitable and enhancing activities associated with the project include (i) the generation of a significant number of local jobs requiring different skill sets; 16 they will have a direct socioeconomic impact on host communities and contribute to improved livelihoods; (ii) provision of skilled vocational training to local people (30% women) to fill the labor demands created from the development of the solar park and transmission project; (iii) provision of livelihood energy-based skills training for up to 100 poor women in target areas in the project area of influence; (iv) as part of GETCO s corporate social responsibility, the executing agency will invest for the provision of basic infrastructure improvements in Charanka village, where sanitation, water supply systems, and street lighting have been identified to be of particular need. The partnership will support and enhance the outputs of the ADB loan, particularly by improving the quality of life of villagers who will also benefit from local jobs, and vocational and livelihood skills training. Though not financed by the loan, the results will be monitored and reported in the project performance monitoring system. Activities listed under (ii) 14 Summary Poverty Reduction and Social Strategy (accessible from the list of linked documents in Appendix 2). 15 Gender Action Plan (accessible from the list of linked documents in Appendix 2). 16 According to feasibility estimates prepared by GPCL for the solar park project, over 1,000 jobs will be created as a result of the solar park project alone.

12 8 and (iii) fall under an approved TA (footnote 7). The TA will offer vocational training and livelihood enhancement opportunities in Patan district with the objective of generating (i) a qualified labor force to meet the employment demands of the proposed solar park development projects, and (ii) empower the roles and increase the incomes of poor local women. The TA will have a gender focus and enhance the project by qualifying it for effective gender mainstreaming status. A summary poverty reduction and social strategy prepared for the project notes that the project will contribute to poverty reduction locally and in the region through (i) the creation of temporary and permanent jobs; (ii) public and private sector economic investment and growth; (iii) improvements to local basic infrastructure, including roads, sanitation, and water supplies; (iv) provision of skilled and unskilled employment; (v) capacity development training; and (vi) gender mainstreaming interventions. 17 E. Safeguards 22. The assessment of potential environmental impacts of the transmission indicates the project is to be classified as category B for environment, in accordance with ADB s Safeguard Policy Statement (2009). A draft initial environmental examination for the transmission subprojects was prepared. 18 Draft environmental management plans (EMPs) were prepared and informal public consultations carried out along the transmission corridor. The results indicate broad support for the project based on perceived economic and social benefits. Most impacts are expected to occur during construction and are deemed as temporary and reversible in nature. The transmission corridor was carefully selected after undergoing an options assessment. This enabled the right-of-way alignment to bypass nearby sensitive ecological areas, villages, and important water supplies and resources. The main environmental impacts of the project will be the clearing of shrub vegetation, waste management, and excavation and movement of soil. From this perspective, the project is expected to have a small environmental footprint. No endangered or protected species of flora or fauna are reported at any of the subproject sites. The substation sites are located on land owned by GOG, characterized as mostly barren, uninhabited, and unused lands, removed from populated areas. An EMP with specific management, mitigation, and monitoring activities and measures was prepared for the project. Adverse impacts will be mitigated using appropriate design and management measures and through the provision of fair compensation for the loss of physical and/or productive assets. Mitigation measures related to construction, as specified in the EMP, will be incorporated into civil works contracts, the implementation of which will be the primary responsibility of the contractors. GETCO will, however, be responsible for overseeing overall implementation and auditing of the site-specific EMP. The National Environment Engineering Research Institute prepared a rapid environmental impact assessment, as per GOG norms The project is classified as a category B for involuntary resettlement per ADB s Safeguard Policy Statement. The transmission component will not require land acquisition. The land identified for the three substations (Charanka, Jangral, and Sankhari) is governmentowned wasteland, hence no permanent land acquisition or displacement will be required for these facilities. A resettlement plan was prepared for the project with specific provisions and entitlements for compensating affected people, although presently only minimal and temporary 17 Summary Poverty Reduction and Social Strategy (accessible from the list of linked documents in Appendix 2). 18 Initial Environmental Examination (accessible from the list of linked documents in Appendix 2). 19 Development of the solar park will follow the EMP requirements of the environmental impact assessment, per local government environmental laws and regulations acceptable to ADB. ADB assessed the documents and recognized that the proposed action is relevant for additional provisions for development of buffer zones to eliminate any impact on the wild ass in the wildlife sanctuary located in the northern end of the park (10 km from the project boundary).

13 9 impacts, such as temporary loss of crops and/or trees, are expected. According to site surveys, no households headed by women or vulnerable groups such as scheduled tribes will be directly affected by the project. GETCO will review and update the RP based on the finalized detailed design of the transmission lines and in case of any impact on land and structures, the same would be included in the updated RP. In the event of unforeseen adverse impacts on these, assistance will be taken up on a case-by-case basis per the entitlements, eligibility criteria, and compensation identified in the project resettlement plan. Gender considerations, specifically gender equitable consultation, compensation, and the impact on households headed by women, are also considered in the resettlement plan. The plan complies with national laws and ADB s Safeguard Policy Statement. GPCL is preparing a separate resettlement plan for the solar park component; it is consistent with ADB requirements. No indigenous peoples are expected to be affected. This is reflected in the category C classification for indigenous peoples. F. Risks and Mitigating Measures 24. The two major risks are (i) possible uncoordinated development of the solar power generation plants and the associated transmission system; and (ii) possible instability of the grid in terms of frequency, current, and voltage due to large-scale solar generation at a single point. The government will establish a steering committee with senior representatives from GOG, GPCL, and GETCO; and representatives of the project developers 20 to review project implementation and ensure coordinated development of the park, the power plants, and power evacuation system. A coordination committee mechanism will also be set up. Under the ASEI, ADB has been actively facilitating private sector participation in the solar park taking a systematic approach. 21 Recognizing comparative advantages to locate solar power generation plants in the solar park rather than outside, project developers have entered into leasing agreements and power purchase agreements for over 200 MW, 40% of the total expected installed capacity of the solar park while several developers are in final stages of entering into such contracts. The first unit may be commissioned before completion of the transmission line. In such a case, GETCO will be prepared to provide an evacuation solution using the temporary line for construction power to the solar park. Further, possible instability of the grid due to inconsistent voltage and frequency needs to be examined in detail and ways identified to ensure uninterrupted grid management. GETCO recognizes the need to install specialized equipment between the solar power plants and the main electrical grid. A TA has been approved is being prepared for detailed system study and a joint pilot study is being explored with the International Smart Grid Action Network (para. 13). Table 4: Summary of Risks and Mitigating Measures Risks Possible uncoordinated development of the solar power generation plants and the transmission system Mitigating Measures A steering committee to be established comprising representatives of GOG, GPCL, GETCO, and other stakeholders to ensure that the transmission facility is developed. A coordination committee comprising representatives from GETCO and solar plant 20 In view of the substantial investments made, GOG is committed to solar power development in the state. Penalty clauses in the power purchase agreements will require developers to adhere to the agreed schedule. 21 Workshops were jointly held by ADB and GOG in December 2010 in Tokyo, Japan at the second meeting of the Asia Solar Energy Forum and in January 2011 in Gujarat, India inviting financiers and, technology providers to discuss financial, technology, and capacity development aspects.

14 10 Risks Mitigating Measures developers to meet regularly to manage implementation coordination. PPA and land lease agreements already signed for over 200 MW and other applications being processed. Possible instability of the grid in terms of frequency, current, and voltage due to large-scale solar generation at a single point The Asia Solar Energy Forum facilitates communication between government agencies and solar power park developers. GETCO is to conduct technical studies with ADB support. International best practices through the International Smart Grid Action Network. GETCO (with ADB TA) is to undertake suitable countermeasures and/or technical solutions as identified under the ADB-funded TA. These are to be in place well in advance of commissioning of the transmission system with possible development partner support. ADB = Asian Development Bank, GETCO = Gujarat Energy Transmission Corporation, GOG = Government of Gujarat, TA = technical assistance. Source: Asian Development Bank IV. ASSURANCES AND CONDITIONS 25. The Government of India, GOG and GETCO have assured ADB that implementation of the project will conform to all applicable ADB policies, including those concerning anticorruption measures, safeguards, gender, procurement, consulting services, and disbursement as described in detail in the project administration manual and loan documents. 26. The Government of India, GOG and GETCO have agreed with ADB on certain covenants for the project, which are set forth in the loan agreement and project agreement. Effectiveness of the loan agreement is conditional upon the execution and delivery of a subsidiary loan agreement, between GOG and GETCO, satisfactory to ADB, under which the loan proceeds are to be onlent from GOG to GETCO. V. RECOMMENDATION 27. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Asian Development Bank (ADB) and recommend that the Board approve the loan of $100,000,000 to India for the Gujarat Solar Power Transmission Project, from ADB s ordinary capital resources, with interest to be determined in accordance with ADB's London interbank offered rate (LIBOR)-based lending facility; for a term of 25 years, including a grace period of 5 years; and such other terms and conditions as are substantially in accordance with those set forth in the draft loan and project agreements presented to the Board. 22 August 2011 Haruhiko Kuroda President

15 Appendix 1 11 DESIGN AND MONITORING FRAMEWORK Design Summary Impact Large-scale development of reliable solar power projects in a costeffective manner in India Outcome Development of reliable solar power transmission infrastructure for the successful operation of the solar park Performance Targets and Indicators Grid-connected solar power generation capacity to increase to about 1,000 MW by 2013 and 4,000 MW by 2017 (2010 baseline: 6 MW) Grid-connected solar power generation to reach about 500 MW by 2015 in Gujarat (2010 baseline: 0 MW) Up to 500 MW of power could be evacuated from the Charanka solar park over the transmission link to the Gujarat and national grid commencing in 2014 (2010 baseline: 0 MW) Data Sources and Reporting Mechanisms MNRE annual report GPCL annual report GERC tariff order GETCO and GPCL annual reports Assumptions and Risks Assumptions Timely and cost-effective development of the first solar park spurs additional solar power development through solar parks in Gujarat. A combination of support measures, including purchase obligations and attractive feed-in tariffs, support solar power development. Assumptions Up to 500 MW of solar power generation is set up at the solar park in a timely manner. Power transmission infrastructure is successfully completed by Outputs Physical Investment 1. The procurement, installation, and commissioning of the transmission system and associated facilities for the Charanka solar park 1. One 400/220/66kV substation comprising two 315 MVA transformers and one 125 MVAR bus reactor by Eight 100 MVA transformers at 220/66 kv voltage level by A 66 kv underground cable grid of about 137 km within the solar park by 2014 GETCO Progress reports and GETCO annual report GETCO Progress reports and GETCO annual report GETCO Progress reports and GETCO annual report Risks Countermeasures may be required to enhance stability of grid at evacuation point Assumptions Counterpart funds for timely project implementation will be available from GOG and GETCO. Approval of contract awards by the relevant authorities is timely. Environmental and social clearances, and approvals for construction of transmission lines are timely. 4. About 110 km of 400 kv double circuit transmission line from the solar park to Sankhari, Patan District, Gujarat by 2014 GETCO Progress reports and GETCO annual report Risks Increases in the prices of raw materials exceed contingency and inflation forecasts.

16 12 Appendix 1 Design Summary Performance Targets and Indicators Data Sources and Reporting Mechanisms Assumptions and Risks 5. About 109 km of 220 kv double circuit transmission line from the solar park to Jangral, Patan District, Gujarat by 2014 GETCO Progress reports and GETCO annual report 6. Two feeder bays at the substations located at Sankhari and Jangral, Patan District, Gujarat by 2014 GETCO Progress reports and GETCO annual report Nonphysical Investment 2. Vocational training for skilled employment 3. Energy-based livelihood enhancement Activities with Milestones Skills training for up to 300 men and women; target 30% women by 2012 Livelihood enhancement training to 100 poor households headed by women by 2012 Gender action plan monitoring reports and Project performance monitoring system monitoring reports Gender action plan monitoring reports and Project performance monitoring system monitoring reports Assumptions A sufficiently large group of eligible and interested candidates is recruited. Risks Target local men and women are unavailable and/or unwilling to participate in the training offered. Inputs 66 kv cable procurement and laying within the park 1.1 Procurement of major equipment: Issuance of bidding documents by Q and contract awards by Q Construction started by Q Commission by Q ADB: $100.0 million GOG: $33.7 million 220 kv transmission line, pooling substation, and feeder bays 1.1 Procurement of major equipment: Issuance of bidding documents by Q and contract awards by Q Construction started by Q Commission by Q kv transmission line, pooling substation, and feeder bay 2.1 Procurement of major equipment: Issuance of bidding documents by Q and contract awards by Q Construction started by Q Commission lines by Q ADB = Asian Development Bank, GERC = Gujarat Electricity Regulatory Commission, GETCO = Gujarat Energy Transmission Corporation, GPCL = Gujarat Power Company Limited, GOG = Government of Gujarat, kv = kilovolt, km = kilometer, MNRE = Ministry of New and Renewable Energy, MVA = mega volt ampere, MVAR = mega volt ampere reactive, MW = megawatt. Source: Discussions during two ADB consultation missions with the Government of Gujarat.

17 Appendix 2 13 LIST OF LINKED DOCUMENTS 1. Loan Agreement 2. Project Agreement 3. Summary Sector Assessment: Gujarat Power Sector 4. Project Administration Manual 5. Contribution to the ADB Results Framework 6. Development Coordination 7. Financial Analysis 8. Economic Analysis 9. Country Economic Indicators 10. Summary Poverty Reduction and Social Strategy 11. Gender Action Plan 12. Initial Environmental Examination 13. Resettlement Plan 14. Risk Assessment and Risk Management Plan Supplementary Documents 15. CDM Assessment Report for the Charanka Solar Park