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KfW keen to fund more projects

M. Ramesh

FRANKFURT, Dec. 8

THE German financial institution, Kreditanstalt fur Wiederaufbau (better known as KfW), sees for itself an active role in the social and infrastructure sectors in India in the coming years.

Mr Klaus-Peter Pischke, Division Chief, South and Central Asia, who is in-charge of India, told Business Line here that KfW was currently involved in two power projects and one power transmission project, apart from a host

of social infrastructure projects.

At least, one of the two power projects -- the 140-MW integrated solar thermal combined cycle project of the Rajasthan State Electricity Board -- tests a new technology. If the project runs successfully, it would set a good precedent, making financing of similar projects in the future easier.

The technology for solar thermal steam generation has been in use for around 10 years in California. What is innovative in the Rajasthan project is the combination of solar and naphtha-fired units. Here, the steam produced both by the heliostat field (a row of reflectors that capture the sun's heat) and the waste heat boiler of the gas turbine generates electricity in a single steam turbine.

The capital costs are lower than those of a purely solar thermal facility. Power generated from solar energy is consequently cheaper. As much as 35 MW of the plant would come from solar energy and the rest from a naphtha-fired combined cycle plant.

KfW has committed to providing Rs 534 crore (DM 250 million) to RSEB, half of which will be a soft loan. Further, the Global Environment Fund of the World Bank will give the project $45 million more, which again would be routed through KfW.

Mr Pischke and Ms Christa Arent, Project Manager-Export and Project Finance (Energy), said that the other project that would get KfW funds was the 650-MW Vijayawada plant of AP Genco. The funds for this project, would be linked to power sector reforms i n Andhra Pradesh.

``We are trying to convince the AP Government to use super-critical technology for the plant'', Mr Pischke said, referring to the more energy-efficient super-critical boilers, still to be tried in India. The total cost of the project is Rs 3,204 crore (D M 1.5 billion), of which KfW is likely to `make available' Rs 1,174.8 crore (DM 550 million). As much as Rs 320.4 crore (DM 150 million) will again be a soft loan. Usually, a soft loan is for 40 years, at a rate of 0.75 per cent.

Apart from these, KfW will fund also a high voltage transmission project of the Power Grid Corporation, which links the eastern and southern regions.

Mr Pischke and Ms Arent find large projects such as these taking a long time to reach financial close. But, there are many projects in the social sector, which is relatively faster.

For example, there are three water supply projects and three watershed projects, apart from several Primary Health Centre and polio eradication projects that are getting KfW money. Rajasthan will get Rs 288.36 crore (DM 130 million), including a Rs 6.40- crore (DM 30-million) grant for its water supply project. This project, according to Mr Pischke, is ``two-thirds complete''. Another `half complete' project is the water supply project in West Bengal. The Maharashtra water supply project is yet to begin.

There are other social and commercial projects too that are under negotiations for KfW funding, but Mr Pischke said it was too early to discuss them.

How does KfW lend at such low rates and yet survive? Mr Pischke said that the grant and soft loan moneys come directly from the German Federal budget, under the German Government's International Aid programme. KfW's commercial loans also are at very comp etitive rates because the (Government-owned) institution is able to access funds at very low rates (in various currencies) from the market. Last year, KfW raised the equivalent

of Euro 32 billion in various currencies from the market.