The Asian Development Bank (ADB) and the government of India have signed a $350 million loan for selective transmission and distribution system improvements critical for meeting the growing demand of power in the state of Madhya Pradesh.

The loan agreement for the Madhya Pradesh Power Transmission and Distribution System Improvement Project was signed by Nilaya Mitash, Joint Secretary (Multilateral Institutions), Department of Economic Affairs, in the Ministry of Finance and M. Teresa Kho, Country Director of ADB’s India Resident Mission on behalf of ADB. Rajesh Chaurasia, Deputy Secretary, signed the project agreements for the Government of Madhya Pradesh along with senior officials from state distribution and transmission companies.

“Despite impressive network gains in recent years, demand for power in Madhya Pradesh is outstripping supply, and the quality and reliability of electricity – especially in rural areas – needs further improvements,” said Ms. Kho. “The project will help increase capacity and operational efficiency in the electricity transmission and distribution system in Madhya Pradesh.”

The project will carry out physical upgrades to increase capacity and deliver power more efficiently. It will fund about 1,800 circuit kilometers of transmission lines and more than 3,100 circuit kilometers of distribution lines, as well as building or upgrading transmission and distribution substations.

“The loan will help improve reliability of electricity supply in Madhya Pradesh and boost efforts to provide good quality power 24 hours a day,” said Mitash.

Madhya Pradesh, whose economy is growing at a quicker rate than the national average, is expected to see its demand for electricity rise by about 11% a year between fiscal years 2013 and 2017, resulting in a potential transmission and distribution capacity gap of about 20%. The mismatch between supply and demand has caused regular load shedding in the past, and currently only about two-thirds of all households are connected to the system.

Training and other support will be given to staff of the Madhya Pradesh Power Transmission Company, as well as three state distribution companies, to strengthen their management capabilities and to make the companies more financially sustainable and service oriented.

The project will build on previous ADB investments in the state’s power sector ― including transmission and distribution assets ― totaling more than $1.3 billion since 2001. Along with ADB’s loan from ordinary capital resources, the Government of India will provide $150 million for a total investment cost of $500 million. The project will run for about four and a half years with an estimated completion date of December 2018.