This is a short summary of the Implementation Completion Report (ICR) of a recently-closed World Bank project. The full text of the ICR is available on the Bank’s website. To access this document, go to www.worldbank.org/reference/ and then opt for the Documents & Reports section.

Rajasthan Power Sector Restructuring Project

Approval Date: 18th January 2001 Closing Date: 30th June 2006 Total Project Cost: US$M 225.10 Bank Financing: US$M 166.19 Implementing Agency: Rajasthan Rajya Vidyut Prasaran Nigam Limited (RVPN) and Distribution Companies (Discoms) Outcome: Moderately Satisfactory Risk to Developement Outcome: Moderate Bank Performance: Moderately Satisfactory Borrower Performance: Moderately Satisfactory

Context
In the late 1990s, the Government of India (GOI) had been encouraging states to undertake power sector reforms to operate in a competitive and commercial environment regulated by an independent state commission.

In June 2000, Rajasthan brought in the Rajasthan Power Sector Reform Bill to restructure and rationalize Rajasthan’s power sector, which had been ailing for more than a decade. During that time the estimated shortfall in annual electricity generation in Rajasthan was about 15 percent, while the deficit in peak capacity was estimated to be about 23 percent or about 1000 MW. While 90 percent of villages had a supply line, only 40 percent of the population had an electricity connection. Thus, lack of adequate supply of power, caused by funding constraints, was preventing economic development in the state.

Project Development Objectives
To support the on-going power sector reform process in Rajasthan leading to higher sector efficiency and financial recovery; and improve power supply by removing the critical bottlenecks in the power transmission and distribution system.

Project Components

• Loss Reduction: For the rural areas, where losses were greatest, the Distribution Companies (Discoms) were to utilize part of the loan funds to procure transformers and distribution materials to begin to tackle the problem. The loan-financed materials were, however, only a small fraction of the stock of materials the Discoms would procure and employ during the period of the project.
• Transmission/Distribution – System Reinforcement: Rajasthan expected to connect about 750,000 consumers during the project period. Part of the loan proceeds was intended to finance about a third of the network expansion required to supply these additional consumers.
• System and Consumer Metering: Under the loan, 300,000 modern, tamperproof mechanical meters were to be financed.
• Technical Assistance: The assistance was towards strengthening the transmission company – Rajasthan Rajya Vidyut Prasaran Nigam Limited (RVPN) and the Discoms

Achievements
The project generally achieved its objective of supporting the power sector reform process in Rajasthan, alleviating transmission and distribution bottlenecks and, to a lesser extent, improving the sector’s efficiency, but it was unsuccessful in demonstrably contributing to the sector’s financial recovery.

1. Regulatory Commission
   The Rajasthan Electricity Regulatory Commission (RERC) has been established and is fully staffed and functional.
2. Financial Restructuring Plan
   Following extensive reviews at state level, the Financial Restructuring Plan (FinRP) had been approved and implemented in March 2000, with the government agreeing to provide significant subsidy support to the power sector. However, the financial performance of the power companies did not improve as forecast at appraisal. This was because the targeted improvements brought about by the project were outweighed by two unprecedented factors. First, to save the crops, which were threatened by severe and unexpected droughts, the utilities were obliged to provide agricultural consumers with additional hours of already subsidized supply. Second, the increasing cost of power and concerns about power availability and reliability caused the industry, where distribution losses were minimal, to invest in and run captive generation, leaving the grid.
3. Loss Reduction
   There were marked improvements in the efficiency and financial performance in several aspects of the business. For example, collection efficiency increased; losses on rural feeders and the number of transformer burnouts were reduced; and debt and cash management was improved. Rural villages who achieved loss reductions so that losses were less than 15 percent were promised, and given, 24 hour supply. This was a significant incentive and much appreciated by the villagers.

The Project was to improve Rajasthan’s power supply by removing bottlenecks in its transmission and distribution system

• Tariff subsidy to the consumers must be explicitly defined and transparently delivered without compromising the utility’s finances;
• The subsidy should be adequately budgeted by the government and provided in a timely manner;
• Realistic projections of reduction in losses should be linked to the investments being financed by the loan.
• The promise of 24-hour supply for those villages bringing losses down to 15 percent was a significant incentive and benefit.