UPDATE: US Export-Import Bank Clears India Power-Plant Loan

The U.S. Export-Import Bank has decided to make a $900 million loan to Reliance Power Ltd. (532939.BY) to build a coal-fired power plant in India, reversing an earlier decision to reject the financing.

The power plant has been widely criticized by environmental groups, which say the Export-Import Bank shouldn't be financing a project that will produce carbon-dioxide emissions and contribute to global warming.

By a vote of 3-0 Wednesday, the bank's board of directors approved financing for Reliance Power's "Sasan" power plant, which will produce about 4,000 megawatts of power in a country where hundreds of millions of people live without electricity.

The Sasan project involves both a power plant and a mine and is expected to cost a total of $4 billion, including the $900 million loan.

In approving the loan, the board reversed an earlier decision in June to deny the funding.

Environmental groups say the Export-Import Bank succumbed to political pressure from certain U.S. lawmakers who want to see the project move forward so businesses in their states can benefit from it.

By accepting the loan, Reliance Power has to buy goods and services from U.S. companies. Roughly half of the $900 million will be used to buy equipment from Bucyrus International Inc. (BUCY), a Wisconsin-based company that makes mining equipment.

Environmentalists also accuse the Export-Import Bank of ignoring its own newly adopted carbon policy, which requires the bank either to conduct additional due diligence on, or altogether deny, projects that emit more than a certain amount of carbon dioxide.

"They're supposed to be setting up investment decisions that follow a low-carbon policy," said Justin Guay, an India program officer with Sierra Club. "They made the right decision initially. But due to political pressure, they reversed that decision."

In the weeks since it initially denied funding for the Sasan plant, the Export-Import Bank did get Reliance Power to agree to produce 250 megawatts of power, or about 6% of total generation, from renewable sources.

Members of the U.S. Congress will have 30 days to comment on the financing, Sierra Club said.

In coming weeks, the Export-Import Bank will also consider financing for the "Kusile" plant in South Africa, a 4,800-megawatt facility being constructed by Eskom Holdings Ltd.

The Export-Import Bank is expected to look at financing for that plant in September.

Environmental groups also oppose the Kusile project, saying the combined annual carbon emissions of the Sasan and Kusile plants would be triple the annual emissions of all fossil-fuel projects supported by the bank in 2009.

-By Tennille Tracy, Dow Jones Newswires; 202-862-6619; tennille.tracy@dowjones.com

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