MSETCL

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board decision. Board dates are estimates only.

Project number	27519
Company name	Maharashtra State Electricity Transmission Company Limited
Country	India
Sector	Utilities
Environmental category	B
Department	Sub-National Finance
Status	Pending Disbursement

Date SPI disclosed	December 29, 2008
Projected board date	March 5, 2009
Previous Events	Signed: September 4, 2009 Approved: June 15, 2009

View Environmental & Social Review Summary (ESRS), click here

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

Maharashtra State Electricity Transmission Company Limited (“MSETCL”) is a power transmission enterprise 100% owned by the Government of Maharashtra (“GoM”). The project involves an IFC US$100 million equivalent local currency A/B loan package to partially finance MSETCL’s 2008-12 capital expenditure program which is estimated at over $4 billion. IFC’s funding will finance a time slice of critical network rehabilitation and expansion investments. This Project is part of a larger World Bank Group engagement with MSETCL including institutional development efforts through WBG’s technical assistance programs.

The World Bank Group has had a strategic role in supporting the Government of India in reform and commercialization of the power sector through a series of state level IBRD operations. Sufficient progress has been made in some states for some public power utilities to begin to access commercial financing and non-sovereign guaranteed sub-national support from the Bank Group can play a key role in supporting their strategic growth. This project supports investments in essential transmission infrastructure required to attract private investments in generation and to promote power trading and competition.

Anticipated development impact of the project

IFC’s involvement in the project is expected to have a development impact in terms of:

- Reduction of transmission system losses and improving quality of supply;
- Enabling investments in new generation essential for continued economic growth and to provide electricity access to those as yet unserved;;
- Transition of the company to better corporate governance and management;
- Growth and competitiveness impact by improving power supply to industries currently subject to frequent outages and high coping costs of using environmentally unfriendly diesel based generators;

IFC's expected development contribution

IFC’s investment is expected to lead to the following additional outcomes:

- Access to commercial debt - The proposed investments from IFC would help enhance the capacity and commercial orientation of the company. The financial support will allow this well run, commercially oriented transmission company to transition (at least partially) from sovereign guaranteed funding, including IBRD, to commercial funding - thereby introducing it to the discipline of market based financing, including, commercial due diligence, financial covenants and security creation. IFC’s financing will signal to the market that well run energy sector companies can attract commercial financing for long tenors and thereby make the companies more attractive for local funding sources.

- Procurement best practices - The Company will benefit from continued World Bank Group support by way of improved procurement practices. Based on support from various technical assistance programs of the World Bank Group - MSETCL is in the process of developing a strategic alliance model to implement a significant proportion of its investment program.
- Private Sector Development - Support to MSETCL will be part of a WBG strategy to simultaneously support the Indian power sector at the policy level and at the investment level for both private and public projects and provide comprehensive WBG support at the state level.

- Improved Corporate governance – By way of its engagement, IFC intends to benchmark MSETCL to best practices in the areas of corporate governance and sustainability and if useful IFC can provide advisory support in these areas to further improve their practices. In due course, this support and the validation and branding associated with Bank Group support could become strategic inputs if the company moves towards an IPO. The demonstration impact of seeing a few forward-looking State utilities improve their operations and gain access to commercial debt and equity financing would be a powerful motivator for replication in other Indian states.

Environmental and social issues - Category B

This is a category B project according to IFC’s Environmental and Social Review Procedure because a limited number of specific social and environmental impacts may result, which can be avoided or mitigated by adhering to generally recognized performance standards, guidelines or design criteria. The key social and environmental aspects that are/may be associated with IFC’s proposed investment relate to MSETCL’s environment and social assessment, corporate environmental, social, and health and safety management system and their implementation. In the context of the Project, the key social and environmental issues, which will have to be managed under environment and social management system include: impacts on households due to restrictions/constraints in the proposed ROW, crop damage and loss of trees during construction/maintenance; employee and community health and safety impact during construction and operation; community consultation and engagement; labor working conditions including employee and contract labor health and safety; impacts due to emissions to soil, air and water during construction and operation; and potential impacts on biodiversity and cultural heritage.

A summary discussion on the social and environmental aspects of relevance to the project including the company’s plans to address these impacts has been provided in the Environmental and Social Review Summary (ESRS) prepared by IFC and publicly disclosed at IFC’s website.

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