India-Nepal and India-Bangladesh Cross Border Transmission and Trade Project Region. Bangladesh-India-Nepal Sector

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.: AB6310 (The report # is automatically generated by IDU and should not be changed) Project Name India-Nepal and India-Bangladesh Cross Border Transmission and Trade Project Region South Asia Country Bangladesh-India-Nepal Sector Energy/Power Lending Instrument Specific Investment Loan Project ID P {If Add. Fin.} Parent Project ID {Same as in AUS} Borrower(s) Government of Nepal Implementing Agency Nepal Electricity Authority Environmental Screening []A [ ]B [ ]C [ ]FI [ ]TBD (to be determined) Category Date PID Prepared December 20, 2010 Estimated Date of Appraisal February 28, 2011 Completion Estimated Date of Board March 29, 2011 Approval Concept Review Decision Following the review of the concept, the decision was taken to proceed with the preparation of the operation. I. Introduction and Context The South Asia Region (SAR) has been experiencing rapid economic growth since the 1990s which has led to concomitant increase in the demand for energy, and all countries in the region are experiencing electricity deficits. The resource endowment is such that there are substantial complementarities e.g., Nepal and Bhutan have huge hydropower resources that are much more than their internal needs, and India, Bangladesh and Pakistan offer the markets for such electricity. There are significant hydro as well as gas resources in Central and West Asia, as well as Myanmar, and countries like Afghanistan and Pakistan in western South Asia and Bangladesh in eastern South Asia can be transit countries for these resources to flow to India, while off-taking some amounts for themselves. Accordingly, the energy demand in the region can be met at a lower cost through regional cooperation. However, South Asia Region is one of the least integrated among the world s region the intra-regional trade accounts for only 5% of the region s total trade (compared to 45% in East Asia). But this situation is slowly changing in part due to the positive approach of India, being the dominant and geographically central country in the region. The scope for cooperation is rather high, and cuts across the infrastructure spectrum, but energy sector offers the highest potential and the low-hanging fruits. Regional cooperation in energy is also a way for the South Asia Region to in fact move into a low carbon way of enhancing its energy security. It is also a way for the smaller economies such as Bhutan and Nepal to have a more sustainable electricity export led growth regimes, while also meeting their internal need for electricity, as has been shown in the case of Bhutan. Recognizing these benefits, SAR countries are attempting to enhance regional cooperation and have made energy cooperation a central element of South Asian Association of Regional Cooperation (SAARC).

2 Under SAARC, they have established an SAARC Energy Center in Islamabad, Pakistan to provide research, analysis and policy proposals at the regional level. Importantly, the SAARC countries have agreed to establish the SAARC Electricity Transmission Grid inter-linking all the SAR countries. In addition, most of the SAR countries (except Afghanistan and Pakistan) are also members of BIMSTEC regional organization, together with Myanmar and Thailand, where cooperation in energy is a critical element. Accordingly, the political will to enhance such cooperation is quite stronger now than a decade ago, in part because the global and local drivers are making regional cooperation an imperative. However, progress has been slow under the SAARC or the BIMSTEC umbrellas. It is widely felt that: there is a need for action and to projectize specific opportunities, and the focus should be on smaller ventures and low hanging fruit which would also serve as confidence building measures. the needed appropriate frameworks - legal, institutional, financing/pricing, environment, etc. could be developed in the context of specific projects; the question of bilateral vs. multilateral cooperation, needs to be looked at opportunistically multilateral where necessary (e.g., where transit countries are involved who also need energy supplies); and bilaterally where sufficient. Pursuing these tactical approaches, Bangladesh, India and Nepal have identified specific opportunities to establish specific projects for cross-border electricity trade: Nepal-India electricity transmission links through the proposed Dhalkebar (Nepal) - Muzaffarpur (India) (D-M) Cross Border Transmission Line Project. Initially this D-M transmission link will bring power from India to Nepal to meet the crippling deficits in Nepal; and eventually will be used to export hydropower from Nepal to India; Several export-oriented hydroelectric projects are under various stages of development in Nepal amounting to 3000 MW of export capacity, some of which would use the above mentioned D-M transmission line for exports to India; Bangladesh India transmission connection - an 500 MW asynchronous interconnection would be established between Baharampur (Eastern Region India) and Ishurdi/Bheramara (western region, Bangladesh); and This project could be followed by another interconnection in eastern Bangladesh/Northeastern India a link between Pallatana (India) and Comilla (Bangladesh) for the supply of power from the gas-based 740 MW thermal generation project being developed by ONGC in the northeastern Indian state of Tripura very close to Bangladesh s eastern border. Government to Government Agreements are in place between India and Nepal since the late 1990s (which are being revised to take into account current opportunities); and India and Bangladesh entered into a wide ranging energy cooperation agreement in January 2010 including cross border transmission links and energy trade. Rationale for Bank Involvement The involved Governments have sought the Bank s help in various forms to realize the Cross-Border electricity trade and transmission projects. India s request is for the Bank to play the facilitator role, especially in the smaller countries (Bangladesh and Nepal). Bangladesh and Nepal have formally requested the Bank to provide advisory, technical assistance and financing assistance to realize the identified projects; and the Bank is already providing the advisory and technical assistance.

3 The Bank s involvement in these projects would underpin economic growth by reducing energy deficits; alleviate poverty by enabling provision of conventional energy; diversify fuels for countries such as Bangladesh and Nepal which are dependent on a single source of fuel (gas and hydro respectively); and enhance energy security with lower carbon options. The Bank s involvement in these projects would also enable the Bank to bring financing instruments that have not been used in South Asia. Bangladesh and Nepal being IDA only countries would be able to access funds from the IDA Set Aside Funds for Regional Projects, which would leverage the countries IDA allocation. Going forward, the export oriented projects (in Nepal) would become eligible for IBRD Enclave financing. In addition, the Bank is already working closely with IFC in most of these projects and therefore will be able to leverage private sector and non-sovereign financing to these projects. The Proposed Northeast Regional Electricity Transmission and Trade Project The proposed Northeast Regional Electricity Transmission and Trade Project comprises two (sub-) projects: the India-Nepal Cross Border Transmission and Trade Project; and the Bangladesh-India Cross Border Transmission and Trade Project. The Bangladesh-India Project is being funded by ADB and has already received ADB s Board approval and is in tendering stage. The remainder of the PID describes the India-Nepal Cross Border Electricity Transmission and Trade (sub-) Project in conceptual detail. II. Proposed Development Objective(s) The objective of the Proposed India-Nepal Cross-Border Electricity Transmission and Trade Project is to enable electricity trade to meet deficits in Nepal and export electricity to India along commercial principles. Key Results Indicators: 1. Timely achievement of key project implementation milestones for the Project, including award of contracts and completion of construction; and compliance with Safeguards policies. 2. Supply of at least 100 MW of power from India to meet electricity demand in Nepal. 3. Signature of back-to-back Transmission Service Agreements with IPPs in Nepal to use the lines built under the project to export to India III. Preliminary Description {Same as in Section III A 1of the PCN description of project.} The Proposed Project would comprise, design, construction and operation of: a) In India, a 100 km 400 kv double circuit transmission line between Muzaffarpur and the Nepal border to be owned by a joint venture comprising Power Grid Corporation of India (PGCIL), Sutlej Jal Vidyut Nigam Ltd (SJVNL), IL&FS (all from India) and Nepal Electricity Authority (NEA); b) In Nepal, a 45 km 400 kv double circuit transmission line and concomitant substation at Dhalkebar to be owned a joint venture of NEA, IL&FS and PGCIL; and c) In Nepal, a 300 km 400 kv double circuit Hetauda-Duhabi transmission line to be owned and operated by Nepal Electricity Authority (NEA).

4 UPPER KARNALI RAHUGHAT C H I N A KOHALPUR LAMAHI JHIMRUK SHIVPUR ANANDNAGAR MODI KHOLA KALIGANDAKI BUTWAL POKHARA GANDAK SUNAULI SETI UPPER SETI MIDDLE CHILIME MARSYANGDI TRISULI ANDHI KHOLA DEVIGHAT MARSYANGDI BARDGHAT BHARATPUR BETTIAH UPPER MARSYANGDI RAMNAGAR KULEKHANI-II HETAUDA BIRGUNJ BHOTEKOSHI LOWER BHOTEKOSHI INDRAWATI-III KATHMANDU SUNKOSHI PANAUTI KULEKHANI-I KHIMTI KHIMTI-II LIKHU-IV N E P A L DHALKEBAR UPPER TAMAKOSHI ARUN 3 H-D Line LOWER ARUN KABELI "A" GORAKHPUR MOTIHARI SITAMARHI LAHAN DUHABI KANKAI ANARMANI TO SILIGURI LEGEND 132 kv TRANSMISSION LINE D-M Line I N D I A 132/ 220 kv LINE ANALYZED IN THIS STUDY EISTING HYDRO-POWER STATION MUZAFFARPUR PROPOSED HYDRO-POWER STATION INTERNATIONAL BORDER ZONAL BORDER PURNEA The construction of sections of the Hetauda-Duhabi (H-D) line is part of the Butwal-Dhalkebar-Duhabi 465 km transmission system and would enable the project to deliver the imported electricity to load centers; and bring the exportable electricity to Dhalkebar substation. Part of this additional line, Hetauda- Bharatpur (70 km) section is already under implementation with World Bank financing; and for Bharatpur-Bardghat (70 km) section, World Bank financing has been secured. The construction would be through /14. Commissioning and working out the kinks if any in the synchronization of Nepal s grid with Indian grid would take place though 2014/15. The Project would be utilized for import of 300 MW of power from India to Nepal 150 MW round the year on a long term (25 year) basis; and the remainder on a medium term (5 year) and seasonal basis. After the commissioning of the medium/ large hydro projects in Nepal, the Project would be utilized for export of some 1200 of power which, based on current proposals is likely to be of the order of 3000 MW of power to India from 2016 to 2018 and onwards. PTC India will deliver the 300 MW of power to be imported by Nepal under a Power Purchase Agreement (PPA) under negotiations; and the export power from Nepal could be routed through PTC India, which is currently the Indian nodal agency for power trade with neighboring countries. Evacuation in India beyond the PGCIL interconnection to the beneficiaries in India is proposed through PGCIL lines. Similarly, evacuation beyond the termination point in Nepal would be through the NEA grid.

5 IV. Safeguard Policies that might apply Safeguard Policies Triggered by the Project Yes No TBD Environmental Assessment (OP/BP 4.01) Natural Habitats (OP/BP 4.04) Pest Management (OP 4.09) Physical Cultural Resources (OP/BP 4.11) Involuntary Resettlement (OP/BP 4.12) Indigenous Peoples ( OP/BP 4.10) Forests (OP/BP 4.36) Safety of Dams (OP/BP 4.37) Projects in Disputed Areas (OP/BP 7.60) * Projects on International Waterways (OP/BP 7.50) V. Tentative financing Table 2: Preliminary Financing Plan (US$ Million) India Portion of D-M Line Nepal Portion of D-M Line Hetauda- Duhabi line Total Equity IL&FS PGCIL NEA 2.26* 4.53* Sutlej Jal Vidyut Nigam Ltd (SJVNL) Others-Nepal FIs / Banks Total Equity Financing Debt Financing Other Borrowing * Line of Credit from Government of India World Bank IDA Total Debt Financing (in MM USD) Total Financing (USD Million) *to be confirmed and agreed to by the shareholders of the two SPVs VI. Contact point World Bank {Same as TTL information in AUS} Contact: Raghuveer Sharma Title: Team Leader, Cross Border Energy Program Tel: rsharma@worldbank.org Borrower/Client/Recipient Contact: Mr. Rameshore Khanal * By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties claims on the disputed areas

6 Title: Secretary, Ministry of Finance, Government of Nepal Tel: Implementing Agencies Contact: Mr. Ramachandra Pandey Title: Director, Cross Border Transmission Lines and Construction Tel: rcpandey@mos.com.np VII. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C Telephone: (202) Fax: (202) Web: