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US$ 100 Million World Bank Loan to Support Himachal Pradesh (HP) in making its Green Growth Agenda Inclusive and Sustainable

September 6, 2012

The focus of this operation in HP will be towards climate smart development across its key engines of economic growth – energy, watershed management, industry and tourism

WASHINGTON, September 06 2012 - The World Bank today approved a US$ 100 million development policy loan (DPL) to support the government of Himachal Pradesh, a mountain state richly endowed with natural resources, move towards an environmentally sustainable model of economic growth. 

This DPL to Promote Inclusive Green Growth and Sustainable Development will support the Government of Himachal Pradesh (GoHP) as it launches transformative actions across its key engines of economic growth -- energy, watershed management, industry and tourism.  With this Program, HP will make a tangible contribution to the Government of India’s (GoI) objective of reducing the intensity of greenhouse gas emissions.  The DPL loan approved today by the World Bank Board is a culmination of the Bank’s long-standing and multi-sectoral involvement in HP over the last decade.

Today Himachal Pradesh (HP) provides economically valuable environmental services for much of the country. The state is home to three major river basins, and it serves as a watershed that is critical to the livelihoods of more than 200 million people in Haryana, Punjab, Uttar Pradesh and Rajasthan.  It is also one of the country’s main sources of clean energy, generating hydropower that can help alleviate electricity shortages in much of North India. The forests of HP also act as an important carbon sink and are known to be global biodiversity hotspots. 

The Bank’s Program of support is directed at helping HP adapt and mitigate the effects of climate change; bringing in better policies and practices to guide the development of sustainable hydropower; empowering local communities to conserve their watershed better; promote cleaner methods of industrial production; promote environmentally sustainable tourism; integrate GIS in decision making.

“Sustaining HP’s natural resource base is important for both the state as well as for India. The Government of Himachal Pradesh (GoHP) recognizes the need for making sure that fuelling growth does not harm its natural assets and has introduced a range of initiatives designed to make its growth path environmentally sustainable,” said Onno Rϋhl, World Bank Country Director for India.

Helping communities protect their watersheds:

The state government has initiated a program of community-led conservation of local watersheds across the state. Under this Program, villagers will draw up local-level plans and implement them. This is expected to improve the availability of water in the hills, help farmers move to higher-income yielding crops, promote the efficient use of scarce water resources, and help communities set up agri-businesses. The Bank-financed DPL will help the state government pilot this approach in at least one Gram Panchayat in each of the state’s 77 blocks.  It is expected that these watershed management practices will result in higher soil conservation, improved habitats for biodiversity, improved forest cover and reduced sedimentation.

Hydropower has been identified as one of the key drivers of economic growth in the state.  Harnessing the state’s large hydropower potential is a critical low-carbon way to contribute to India’s growing energy demand. The state has ambitious plans for hydropower development of 10 GW over the next ten years.  The DPL will help the GoHP make sure that the state’s hydropower program incorporates policies and practices that are environmentally and socially sustainable. 

“The aim of this operation is not to support an expansion of hydropower, but to support the adoption of better policies and processes that will make sure that HP’s hydropower projects are developed in a manner that is environmentally sustainable and also brings benefits to local communities,” said Charles Cormier, Lead Environmental Specialist and Task Team Leader for the Program. “Success by HP can set examples not only for other Himalayan states in India, but for other countries in the South Asia region.”

Environmentally and socially sustainable hydropower

The Program will help HP adopt a river-basin approach in the assessment and management of the environmental risks associated with large-scale hydropower development. This will include conducting cumulative impact assessment for all key river basins; reviewing and monitoring the release of environmental flows from hydropower projects; and drawing up Basin-Level Catchment Area Treatment Plans. 

Local communities living in the vicinity of hydropower projects often have to bear some negative impacts.  In order to ensure that these villagers also get a share in the benefits from these development projects, GoHP has launched an innovative revenue-sharing scheme supported by this operation.  Under this new policy, 1 percent of power sales from each project will be distributed as annuity payment to households in project-affected areas. “Below Poverty Line” (BPL) families will get additional transfers.

Other components

The GoHP recognizes that tax breaks and fiscal incentives have led to the creation of uncompetitive industries. The Program will focus on seeking incentive-based economic policies to reduce industrial emissions and will promote sustainable tourism practices.

Finally, the second DPL in the series of two is expected to be financed by the Clean Technology Fund (CTF), following the endorsement in November 2011 of India’s Investment Plan by the CTF Trust Fund Committee.  Both IBRD and CTF offer concessional terms of financing.

The loan, from the International Bank for Reconstruction and Development (IBRD), has a maturity of 18 years including a grace period of 5 years.


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Nandita Roy
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In Washington
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