FINANCE: World Bank OK’s Power Loan for India

By IPS Correspondents Reprint | | Print |

Abid Aslam

WASHINGTON, Feb 18 1999 (IPS) - The World Bank, with a tacit nod from the United States, has approved its first energy loan to India since that country and neighbouring Pakistan conducted nuclear weapons tests last May.

The Bank’s executive board cleared the 210-million-dollar loan Thursday, after the United States said it would neither support nor oppose it. U.S. officials described the decision not to block the loan as a further easing of sanctions imposed after the test explosions.

Washington’s go-ahead followed assurances that India would satisfy a key U.S. demand and sign the Comprehensive Test Ban Treaty (CTBT) by the United Nations deadline of September. It also came as President Bill Clinton weighed a possible trip to South Asia later this year.

Last May, the U.S. administration invoked the 1994 Nuclear Proliferation Prevention Act against New Delhi requiring its executive directors at the World Bank, International Monetary Fund (IMF) and Asian Development Bank to oppose loans for India.

Two weeks later, the World Bank announced the indefinite suspension of loan approvals. Restrictions on health, education and other social projects were subsequently eased.

Thursday’s loan would be the first in a series of ‘adaptable programme loans’ totalling up to one billion dollars that the Bank plans to provide over the next eight years to transform Andhra Pradesh state’s power sector. The loan was aimed at improving power transmission and privatising the state’s public-sector electricity board.

“Reform of the power sector is the single most important element of structural and fiscal reform in Andhra Pradesh,” said Mohinder Gulati, senior financial analyst in the Bank’s South Asia Energy Unit.

An agency spokeswoman denied the loan had been held up by the U.S. sanctions but officials last year identified it as among proposals put on hold.

Environmentalists, who would rather the Bank shifted its support to eco-friendly technologies including wind and solar power, opposed the loan. But they also opposed the manner in which it was postponed, then cleared, in apparent response to Washington’s sanctions stance.

“My views on the World Bank are an entirely separate matter, but they are a multilateral institution and their loans should be considered on merit and not on the basis of the unilateral sanctions policies of individual member states, however powerful they may be,” said Arjun Makhijani, president of the US-based Institute for Energy and Environmental Research.

Andhra Pradesh’s programme was modeled on efforts in Orissa and Haryana states, which received World Bank loans in 1996 and last year, respectively. Similar deals could be made in Uttar Pradesh, Delhi, and Rajasthan, according to Gulati. That worried some analysts.

“They’re eager to privatise the power sector but they would be wise to examine all of the lessons from the so-called model of privatisation in Orissa,” where its results include clampdowns against dissenters, pollution of waterways, and the unequal distribution of electricity, said Daphne Wysham, research fellow at the Washington-based Institute for Policy Studies.

“Energy for human needs is rapidly being displaced by energy for power-hungry wealthy corporations, many of them from the Group of Seven industrial countries,” added Wysham, who has visited the region and is in close contact with Indian counterparts.

The veteran analyst of World Bank energy lending told IPS that the Andhra Pradesh project also would “deregulate the industry so that toxic Venezuelan oil refinery sludge would become one of the energy resources.”

The burning of sludge, known as ‘orimulsion’, has been rejected by communities in North America and Europe because of its toxicity. Its use in the Indian state would compound pollution problems caused by coal-fired power plants, according to environmental experts.

Bank officials, however, argued that privatisation would boost revenues in a traditionally loss-making sector. Nationwide, the Bank estimated, India’s public power companies lose some three billion dollars per year – or one percent of Gross Domestic Product (GDP).

Clinton has been in touch with Prime Ministers Atal Bihari Vajpayee of India and Nawaz Sharif of Pakistan, about the possibility of visiting their countries later this year, according to administration officials. The U.S. leader reportedly is seeking assurances that any such trip would not be dominated by the neighbours’ nuclear tensions.

U.S. Deputy Secretary of State Strobe Talbott has met senior Indian and Pakistani officials eight times since last May. Those talks, coupled with pressure from domestic U.S. constituencies faced with a loss of business in South Asia, led Washington last July to begin relaxing its restrictions on agricultural trade and social programmes.

That enabled U.S. farmers to bid for winter wheat sales to Pakistan, for example, and made it possible for the World Bank to lend India more than one billion dollars for six projects in health, education, nutrition and rural development.

Sharif announced at the United Nations last September that Pakistan would sign the CTBT. In November, amid signs Pakistan’s economy was on the brink of disaster, Washington allowed Sharif’s government renewed access to IMF loans. The World Bank last month approved a 350-million-dollar, market-rate ‘Structural Adjustment Loan’ to boost banking and tax reforms as well as privatisation.

The Bank agreed to lend the full amount in one instalment because of Pakistan’s “balance of payments needs”, which one official described as “desperate”. With foreign reserves barely sufficient to cover a few weeks’ imports, one Pakistani official here said at the time: “This will help keep us going.”

The World Bank and other multilateral lenders account for some 70 percent of India’s borrowing from overseas and New Delhi is especially dependent on these loans to finance power and transportation infrastructure – considered key to attracting foreign investment.