New Delhi, Aug 11 (IANS) The Indian government Thursday entered into a loan agreement with World Bank for $648 million to build 444 mega-watt Vishnugad Pipalkoti hydro electric project in Uttarakhand.

"The Vishnugad Pipalkoti Project will help supply clean, carbon-friendly power to the northern grid at peak demand time and help reduce shortages in nine states," said Venu Rajamony, joint secretary in the finance ministry's economic affairs department.

The agreement which was signed between World Bank and state-run Tehri Hyrdro Development Corporation (THDC) is expected to generate an estimated 1,665 million kilowatt-hours of electricity each year to help relieve India's chronic power shortage.

"The electricity generated from the project will be supplied to the states of Punjab, Haryana, Rajasthan, Uttar Pradesh, Himachal Pradesh, Uttarakhand, Chandigarh, Delhi and Jammu and Kashmir," an official statement said.

According to the statement, the project will also help India reduce its greenhouse gas emissions by 1.6 million tons each year, when compared to a thermal plant of the same capacity.

"This project incorporates a number of special environmental and social safeguards such as maintenance of a high minimum flow standard in the Alaknanda (river) at all times to sustain the aquatic health of rivers," Rajamony said.

She further said that no houses or field will be lost due to submergence, and that there are robust plans for afforestation.

The project also gives provision of free electricity to affected households for 10 years and an allocation of one percent of revenues for local area development.

It also envisions a royalty of 12 percent of the power generated to Uttarakhand, which is estimated to be around Rs. 90 crore (around US$ 20 million) each year at expected tariffs.

The World Bank on its part said, that the project was cleared only after careful evaluation was conducted on any impact due to construction or operation of the dam.

"The project was cleared for construction only after the ministry of environment and forests studied the cumulative impacts of hydropower development on the Alaknanda basin," said Roberto Zagha, country director, World Bank.

The low-interest loan, from the International Bank for Reconstruction and Development (IBRD) under the World Bank, has a six-year grace period, and a maturity of 29 years