Treasury Position on IFC Investment in Coastal Gujarat Power Limited 

April 8, 2008 

 

The U.S. supports the Coastal Gujarat Power Limited project based on the IFC’s financial 

additionality and the project’s potential development impact, given the size of the 

electricity supply gap in India and the long lead time for projects of this nature. 

 However, we find IFC’s arguments for environmental additionality less compelling. 

India clearly faces an energy deficit. We also note that the regions served by the Coastal 

Gujarat Power project face electricity shortages of up to 19 percent of demand and peak 

power shortages of up to 30 percent. The project, as we understand it, will add 3 percent 

to total generation capacity and will benefit an estimated 16 million customers. The 

project will have a direct impact on job creation, generating an estimated 5,000 jobs 

during construction and another 700 during operation. In addition, the tariff structure 

offers cost competitive electricity to industry and agriculture, supporting potential 

increases in output and further contributing to growth and job creation. 

IFC participation is warranted based on the risks associated with the scale of project 

financing required. We acknowledge that while local banks are willing to participate in 

the project, they cannot provide the full level of required financing. We are pleased to 

see that the Asian Development Bank, Korea EXIM, and Korea Export Insurance 

Corperation will provide additional financing. While we would have liked to have seen 

syndicated B loans serving to “crowd in” other private sector financing, we understand 

that international commercial banks were reluctant to provide sufficient tenors. 

 Nonetheless, we recognize the potential demonstration effect of this investment. With 

appropriate financing and risk structures, subsequent ultra mega power projects may draw 

the interest of private investors even without the participation of the IFC. 

IFC financing may be needed due to the overall capital cost and investment risks 

associated with India’s power sector, but we are not swayed by the arguments in the 

project document that IFC’s involvement will result in reduced GHG emissions relative 

to no IFC involvement. And in terms of technology choice, we understand that the 

Government of India was prepared to adopt supercritical technology even without IFC 

participation. On a lifecycle basis, a 4000 MW supercritical plant would be less 

expensive than a comparably-sized sub-critical plant. The recent run up of international 

coal prices further underscores the advantages of more efficient supercritical technology 

over sub-critical plants. 

With respect to power options with lower emissions than supercritical technology, the 

issue is one of timing. According to the project document, India does not have such 

power supply alternatives that can be deployed on the same scale and in the timeframe 

envisioned for this project. India’s choice to proceed with its Ultra Mega Power Project 

(UMPP) program represented an improvement over prior technology deployed in India, 

although these projects may not employ today’s cleanest technology. 
IFC engagement on this project pre-dated the recently developed World Bank low carbon 

strategy. Looking ahead, however, we encourage World Bank Group management to 

make a greater effort to leverage its support for future power generation projects to 

achieve reductions in carbon emissions relative to the level of emissions that would have 

occurred in the absence of Bank support. 

Finally, we appreciate the disclosure of environmental assessment documents associated 

with this project. We would urge the IFC to work with the project sponsors to ensure 

similar disclosure practices if the expansion of the coal unloading facilities at the port 

turns out to have the potential for significant environmental impacts.