India’s Assam state is to expand its electricity transmission and distribution capacity, and increase access in remote communities in a bid to meet growing demand and cut poverty.

To support the state’s goals, the Asian Development Bank’s (ADB) Board of Directors has approved a multitranche financing facility (MFF) of up to $200 million for the Assam Power Sector Enhancement Investment Program. It will be used to partially fund Assam’s $764 million power sector investment plan to 2014. The new facility follows an earlier ADB program loan to reform Assam’s state electricity agency, which was unbundled into new companies to improve service delivery and cut the state’s financial burden.

Assam is one of India’s poorest states with a large rural population, many of whom lack access to power. Demand for electricity in the state has grown rapidly over the past decade but getting it to businesses and households has been hindered by weaknesses in the transmission and distribution networks. A lack of electrification in poor rural areas holds back poverty reduction.

“The lack of sufficient and reliable power is eroding the competitiveness of the manufacturing and agriculture industries, impacting food security and preventing Assam from accessing badly needed investment, so improving power supply at a reasonable cost is essential to boost the state economy and to reduce poverty,” said Naoki Sakai, senior climate change specialist in ADB’s South Asia Department.

The facility will provide funds to improve transmission and distribution infrastructure, including reducing system losses. A successful distribution franchise scheme, using a public-private partnership model, will be expanded to double consumer coverage. Technical assistance will be given to lay the groundwork for the development of off-grid renewable power pilot projects, targeted at remote rural communities, and to strengthen the management capacity of the state power companies.

The financing facility is expected to benefit around 1 million households, businesses, hospitals and schools. The expansion of the distribution franchise scheme should result in about 1,500 new jobs, while the renewable energy component will provide off-grid power to around 2,100 villages in the long term.

The loan, from ADB's ordinary capital resources, is slated for release in three tranches of $60.3 million, $89.7 million and $50 million spread out over five years, with interest determined in accordance with ADB’s LIBOR-based lending facility. A financing request for the first tranche has been received. Other contributors to the state’s investment program include the World Bank with $360 million, the government of Assam with $154 million, and the private sector with $50 million.

A technical assistance grant of up to $1 million from ADB’s Technical Assistance Special Fund will be provided, with the government supplying an additional $300,000. The government of Assam and Assam State Electricity Board will be the executing agencies for MFF-financed projects, with the funding availability period ending in June 2015.