Sri Lanka will receive a $120 million Asian Development Bank (ADB) loan to help expand and improve its power network to deal with rising customer demand and gaps in coverage which are hindering growth.

ADB's Board of Directors approved the loan, along with a technical assistance grant for the Sustainable Power Sector Support Project which will be used to build hundreds of kilometers of new transmission lines, to strengthen distribution systems in rural areas, and to electrify about 12,000 households in remote villages. The project will target regions such as Eastern and Uva Provinces where electrification is below the national average and the power supply unreliable.

"This project will help expand coverage, and improve the efficiency and reliability of electricity supplies in areas that require them most urgently, thus supporting the government's goal of providing nearly 100% of households in the country with electricity by 2016," said Mukhtor Khamudkhanov, Senior Energy Specialist at ADB.

The project will also help the government reduce imports of expensive, polluting fossil fuels by providing a credit line of nearly $1.3 million to private developers for about 19 targeted small hydropower facilities and by financing the detailed engineering design of a 30 megawatt hydropower plant. The technical assistance will help create a national energy efficiency strategy and implement urgent energy efficiency policy initiatives.

The loan funds will include a 25-year $110 million loan from ordinary capital resources and a 32-year $10 million equivalent loan from ADB's concessional Asian Development Fund. The Government of Sri Lanka will provide just over $42 million, for a total project cost of about $162 million. The technical assistance will include a $1.85 million grant from the Asian Clean Energy Fund, established by the Government of Japan, under the Clean Energy Financing Partnership Facility administered by ADB, and nearly $400,000 from the Government of Sri Lanka.

The Ministry of Power and Energy is the executing agency for the project which will run for three years with an expected completion date of April 2014.