Washington: The World Bank has approved a US $400 million loan to the world's third largest transmission utility Power Grid Corporation of India (PGCIL), designed to increase reliable power exchange between regions and states.

The loan, from the International Bank for Reconstruction and Development (IBRD), approved on Tuesday is backed by a Republic of India guarantee, the Bank said. It has a 30 year maturity which includes a four-year grace period, reports IANS.

The additional financing to the Fourth Power System Development Project (PSDP IV), which was approved by the World Bank on March 18 this year, will finance the completion of selected transmission schemes intended to expand transmission system and capacity.

"The power sector has improved significantly in recent years, but demand for electricity continues to outstrip supply," World Bank Senior Financial Analyst Julia Fraser said.

"This project will help the government achieve its goal of expanding power generation capacity to more than 200 gigawatts (two lakh megawatts) by 2012 through enhancing the country's power transmission capacity and enabling power to be transmitted across regions and states. It will also help reduce transmission losses and, subsequently, cut the cost of energy," Fraser said.

This is the fifth direct loan the Bank has made to Power Grid since 1993. During this period, the company has nearly tripled its transmission network, its assets have grown more than ten-fold to US $8.9 billion, and revenues have increased more than eight times to US $1.3 billion.