Reliance group and Singapore state investment arm Temasek Holdings will jointly launch a $200 million venture capital fund to invest in India's power sector, a source familiar with the plan said on Monday.

The fund is likely to be launched in the next few weeks, but the timing will depend on market conditions, the source said.

Temasek and Reliance will each provide half the money for the fund, whose lifespan is likely to be seven years, the source said.

Its flagship, Reliance Industries, is the country’s largest petrochemicals maker and a leading refiner. Reliance Energy is a leading power utility.

Analysts expect the entire Indian power sector -- generation, distribution and transmission -- to grow rapidly over the next decade following a landmark electricity law passed last year aimed at improving transmission and generation.

The first phase of Indian power reform, initiated in the early 1990s, aimed to boost generation but left transmission and distribution in the hands of loss-making state-run electricity boards, which led to several investors eventually pulling out.

But last year's law opened up this segment, allowing distributors and consumers to choose suppliers and generators to sell power directly to consumers instead of state boards.

About 28,725 megawatts (MW) is now expected to be added between 2002 and 2007, lower than the government's target of 41,000 MW but much higher than the 19,000 MW added in the preceding five-year period.

Some analysts estimate an investment of about Rs 4 crore is required for each megawatt addition, implying a total expenditure of Rs 115,000 crore ($25 billion) for the capacity due to be added in the five-year plan to 2007.