An integrated approach to uprating10 August 1998
Heavy silting means that some of India’s hydro plants needed repair soon after starting up. A countrywide programme of uprating and refurbishment is under way
Two of the world’s oldest working hydro stations are in India: Shivasamudram (6x3MW and 4x6MW) with its first six units commissioned between 1902-25, in Karnataka, and Bhira (6x22MW) with its first five units commissioned in 1927, in Maharashtra.
In fact, these are just two instances of India’s ageing hydro plants: nearly 30% of the total installed hydro capacity in the country, as of March 1996, was over 30 years old, as the table overleaf shows.
Considering that the country is suffering from an overall energy shortage of over 10% (rising at peak-time to around 18%), and that ‘green field’ generation in India costs $1M/MW or more, renovation and uprating (R&U) is vital, and so is modernisation. Without it, peaking power will decrease, and the balance between thermal and hydro generation, which has changed from 50:50 in 1962-63 to 74:26, will continue to alter.
The causes of degradation include erosion, cavitation, vibration and corona discharge. Typically, wear and tear of underwater turbine parts due to silt and cavitation leads to forced outages; it is estimated that 40% of the forced outages in India’s hydro plants between 1989 and 1992 were related to turbine generating equipment. Refurbishment has focused on:
•Replacing obsolete, sluggish and derated equipment.
•Replacing runners with a superior type.
•Replacing stator and rotor winding insulation with better types.
•Modernising excitation and governing systems.
•Installing modern control and instrumentation systems.
The problem of ageing hydro plants in India was first faced squarely in 1987, when the federal government constituted a committee to identify the plants which needed refurbishment, and to work out the details of doing so.
A team from the Central Electricity Authority, manufacturer BHEL and the Power Finance Corporation (PFC) visited the old plants, talked to plant managers and owner-utilities, and recommended that 55 hydro stations (211 units of an installed capacity of 9653MW), be addressed under a national R&U programme. The programme envisaged:
•Improving operation to reach acceptable safety standards.
•Improving availability and reliability.
•Extending plant life.
•Recovering lost capacity.
Under the programme, the owner-utilities were to prepare the detailed project report (DPR) in each case, while PFC was to be the prime financier.
In practice the programme has been financed in a number of ways. Some utilities used their own resources. For example, the National Hydroelectric Power Corporation (NHPC), with six plants in operation in the north and northeast, considered the renovation of its Baira Siul power station (3x60MW) commissioned in 1982.
During 1989-91, in the first phase, NHPC uprated each unit from 60MW to 66MW. The second phase was initiated in 1997 and is scheduled for completion by 2000 (see panel). Refurbishment of NHPC’s Salal (Stage-I) station (3x115MW) also began in 1997. Salal was commissioned in 1987, but suffers from heavy silting. NHPC is using its own funds for these schemes, but as the cost of work increases it is likely to become more economic to use other sources of finance.
The Power Finance Corporation was set up in 1986 to fund power projects. When PFC began lending operations in 1988 it coincided with the new emphasis being given to plant renovation, so refurbishment was a priority category for PFC lending. Loans covered up to 70% of the total cost of a project.
PFC has played a proactive role in refurbishment, sitting together with its borrower-entities, monitoring the preparation of the detailed project report and then offering a quick loan appraisal. One of the difficulties faced by PFC was the poor financial health of some state electricity boards (SEBs): they were ineligible for PFC loans, and could not afford their 16% interest rate.
As a result, from fiscal 1997, the Indian government decided to give budgetary support to PFC to enable it to subsidise plant renovation loans — Rs2B (UK£30M) was granted in 1997 and 1998 to enable PFC to reduce its interest rate to 12%. PFC also decided to waive, for such loans, its eligibility condition of an annual minimum 3% rate of return on net assets deployed by a borrower.
Until the end of March 1998, PFC had given loans for 34 hydro refurbishment schemes, totalling Rs4.3B (£66.15M) for a capacity of 4300MW.
Generally speaking, the progress of these schemes had been slow and only nine had been completed by March 1997, covering a mere 16 units (837MW). The delays were various: DPR prep-aration, approval to the scheme, mob-ilisation of resources by SEB, and inadequate monitoring of progress.
In fiscal 1997, PFC embarked on an accelerated pro-gramme, by helping owner-utilities to take up refurbishment of 29 more stations or 5141.5MW. This is PFC’s current lending programme. An added incentive is that plant renovation schemes no longer require the time-consuming approval of Central Electricity Authority.
Other funds can and have been used by utilities. Suppliers’ Credit is available from suppliers of original and replacement equipment. Domestic financial institutions have generally contributed to the ways and means position of utilities by subscribing to bonds issues and through supply of working capital (which PFC does not give). However, they have shied away from project finance due to poor financial health of the SEBs.
Among off-shore sources, there have been a few instances of R&U financing in India. Among the development banks, KfW of Germany signed a DM47M credit with PFC in 1995 to fund German machinery for Koyna (stages I & II: 560MW) in Maharashtra, and Hirakud-II (2x48MW) in Orissa. Under bilateral country-credits, a UK government (ODA) Energy Grant was earmarked up to £25.1M to undertake R&U of two units (75MW) at the Hirakud-I hydro station.
As India has a number of inter-governmental agreements for concessional credits, specially with countries like UK, Germany, and France, which supplied original machinery for hydro plants, the possibilities in this regard are considerable.
Export-credit agencies could be another source (though temporarily unavailable due to economic sanctions, imposed in May 1998 by USA and Japan on India for is nuclear tests). As regards multilaterals, both the World Bank and Asian Development Bank have been active in funding Indian power projects, through loans given directly to utilities or through the Power Finance Corporation.
Only one Indian hydro R&U project, Sharavathi (8x89.1MW) in Karnataka, has been financed partly by a World Bank loan. But with both World Bank and ADB stressing improvement in power efficiency as an item for their priority lending to India, they could be a good, low-cost source for funds.
Private investment is a newer source of funding, not yet used. The Government of India held consultations with state governments and their power utilities, and on 28 October 28 1995 it published guidelines on introducing private participation into the refurbishment process. The policy suggested three ‘practical and feasible’ options, but made clear that they were only illustrative: the states and owner-utilities could work out other innovative modes. The degree of privatisation would differ with each option, but each would involve temporary or permanent transfer of plant management to the private company. The three suggested options are:
•Lease, rehabilitate, operate and transfer (LROT).
•Sale of plant to private company.
•Joint-venture between the owner-utility and private company.
Certain important implications of these options have been pointed out in the guidelines, which also lay down procedure for implementation:
•The owner-utility has first to determine whether renovation of a particular plant requires private participation.
•Selection of the private party should generally be through competitive bidding.
•Prior to bidding, there should be a fully-developed technical scheme for the plant renovation along with provisional cost estimates. The necessary approvals should be obtained.
•There should be two-part bidding: request for qualification, followed by request for proposal. From the technical/financial bids received, one or more parties should be selected for final round of negotiations. Before that, the preferred mode of privatisation should be firmed up.
•The selected party should be awarded the project and detailed contracts executed after obtaining final approvals.
•While competitive bidding is the preferred mode, there could be instances where negotiation with a single party cannot be ruled out. The Indian government clarified in August 1996 that com-petitive bidding is not necessary for a joint-venture where the owner-utility is to hold the majority equity.
•Based on bids received, detailed operational parameters should be worked out, covering O&M and operational incentives/ disincentives.
The guidelines also cover other related issues such as covenants, tariffs/ prices, technical norms, financing parameters, and employee-related matters.
Separately, through a series of notifications issued since 1991, the Indian government has offered incentives for private participation in the Indian power sector. They include:
•Up to 100% foreign equity-holding in a power project.
•A debt-equity ratio up to 4:1.
•Sourcing Indian public financial institutions up to 40% of the project outlay.
•A two-part tariff to take care of fixed and variable costs of generation (with incentives for above-norm performance.)
•Up to 16% return on foreign equity provided in foreign currency (to guard against exchange-rate fluctuations).
•Imports of plant equipment at concessional customs duty.
•A five-year ‘tax-holiday’ for plants to be commissioned on or before 31 March 2003.
Procedural concessions allow refurbishment schemes involving a capital expenditure up to Rs5Billion (£77M) —covering nearly all such schemes — to be sanctioned at the state level itself and not to require federal clearance.