India’s NHPC celebrates… Twenty-five years on14 December 2000
I M Sahai traces the fortunes of the National Hydroelectric Power Corporation over the past 25 years
India’s National Hydroelectric Power Corporation (NHPC) celebrated its 25th anniversary last month. Based in Faridabad, near New Delhi, NHPC was set up in November 1975 as one of several hydroelectric utilities, wholly or jointly owned by the federal government, to develop the considerable hydro potential in the country. It was the first utility which was made neither project- nor region-specific.
In 25 years, NHPC has set up or is operating eight projects (2173MW), and is constructing another seven (2240.25MW). Among the latter, Kalpong (5.25MW) and Kurichu (45MW) are due for completion in June and September 2001, while Chamera II is to be commissioned by mid 2004. Uprating and refurbishment schemes for Salal (690MW) and Baira Siul (198MW) were completed during the last fiscal year. Until 1989, the power generated by NHPC was evacuated by transmission lines laid by itself and/or the state electricity boards. However, when the federal government established the Power Grid Corporation of India in 1989, the NHPC lines were transferred to the new company. NHPC now concentrates on the development, execution and operation of hydro generation projects.
Towards the end of the 1980s, new projects for development started falling into NHPC’s lap. When India’s power sector was opened up for private investment in 1991, there were high hopes of IPP participation in new hydro projects. Despite various policy measures and financial concessions by the government in the intervening years, this did not materialise to any significant degree. IPP participation was recognised by the federal government in its new policy on hydro power development, announced in August 1998, which said: ‘involvement of the public sector in hydroelectric projects would not only have to continue but will also have to be enlarged. There are categories of projects such as multi-purpose, projects involving inter-state issues, projects for peaking power and those involving rehabilitation and resettlement which may be taken up and implemented more easily in the public sector’. Similarly, ‘mega’ (above 1000MW) projects in the north and northeastern regions would also be taken up by the public sector, in case a state utility or IPP does not come forward to do so. There have been a few other helpful steps taken recently by the government or its agencies. For mega projects, additional concessions have been accorded, including duty-free import of equipment. Under the new hydro tariff announced by the federal regulator (CERC) in 1999, the tariff for both primary and secondary energy has been made the same, rewarding the generator for improved performances.
Thus, NHPC has taken up a number of projects for development either on its own or in partnership. These include the following:
• Indira Sagar (1000MW) and Omkareshwar (520MW): both of these projects are located on the river Narmada in Madhya Pradesh state, and have been activated by the state government through a joint venture with NHPC. Narmada Hydroelectric Corporation and NHPC holds 51% equity and management control in the company. Of the two projects, while Omkareshwar is still at the planning stage, Indira Sagar was started in 1987 by a state utility but the work was stalled due to lack of funds.
• Dihang (13,400MW) and Subansiri (7300MW): located in the northeastern state of Arunachal Pradesh, these two were entrusted to NHPC by the federal government in 1999. NHPC estimates that the cost of survey and investigation itself of these projects would be around Rs3B (about US$64.5M).
• Parbati (2051MW): located on the river Parbati in the northern state of Himachal Pradesh, it comprises three stages. The project report for the 800MW stage II was ready and only needed revision so this stage will be taken up first, while investigations will proceed on the other two stages (750MW and 551MW respectively).
• Seven projects (2798MW) in J&K state: these were formally entrusted to NHPC in July 1999 by the government of the northern state of Jammu and Kashmir. Estimated to cost about US$5.4B, they will be taken up NHPC on a BOO basis and returned to the state government after it has recovered its investment. Of these, the 330MW Kishenganga is back with NHPC (after the state government signed a deal with a Swedish consortium three years ago). NHPC has now called for global bids for its turnkey execution. Two others, Uri II (280MW) and Sewa II (120MW) were also to be originally taken up by NHPC. The project reports for the two biggest, Bursar (1020MW) and Pakal Dul (1000MW), have to be updated. The remaining two are small hydro schemes.
• Loktak downstream project (90MW): pre-project work including infrastructural activities have commenced. Pre-qualification of contractors for the project has been completed and bids will be called shortly.
Apart from the above, NHPC will also take up small hydro projects on a selected basis. Arunachal state wants to hand over 12 projects, while Bihar state has already provided a number of small hydro schemes. NHPC also intends to take up geothermal projects.
For uprating and refurbishment of existing plants in the country and studies for new projects, NHPC has struck a deal with another federal entity, BBMB, to pool the respective expertise and facilities. For undertaking hydro consultancy at home and abroad, it has signed up with Harza of the US for joint action.
On the whole, this is a pretty impressive score-card for the company, even if the accent is more on the future. According to the chairman and managing director of NHPC, Y Prasad, the installation of a mere 2173MW in the first two and a half decades is attributed to various causes. Many of the earlier projects were being executed by other agencies and suffered from ‘defects, deficiencies and shortcomings’ and it took considerable time and effort to put them right.
Some of them were also in difficult terrain, causing delay in investigations and in execution. In 25 years, NHPC has built on its expertise and skills, particularly in underground works, (despite the uncertain nature of Himalayan geology), and has set a number of ambitious targets for the future.
For much of its operational existence NHPC encountered a set of problems, some of which were common to the entire hydro sector in India. Many of these could impede its progress even in the future, unless adequate rectification is taken in time.
Lack of projects
A problem which NHPC has faced for most of its existence, but which is being slowly overcome, is a lack of projects entrusted to it. State governments preferred to develop sites themselves, than hand them over to NHPC. As NHPC’s chairman Prasad said: ‘Only those projects which are difficult to execute, or are beyond the technical and financial reach of state governments, are entrusted to NHPC often with great trepidation and after long delay.’
Federal utilities, such as the Damodar Valley Corporation or Tehri Hydro Development Corporation, developed new projects themselves. Lately, however, the resource crunch affecting all hydroelectric utilities, particularly the state electricity boards, has made it easier for NHPC to get new projects to develop and execute.
Delays in approval
It is a well-known fact that the project approval process in India has been cumbersome and time-consuming, especially for hydro. A major hurdle is ecological clearance which encompasses the environment and forests and involves a two-stage process by the state and federal governments. In order to shorten approval time the federal government has delegated approval authority to the state government for certain categories of thermal projects, but this has not been done for hydro projects in view of their wider ramifications.
Another hurdle is the preparation, approval and execution of a plan to rehabilitate and resettle project oustees. To shorten the process, the federal government suggested in its 1998 hydro policy that state governments set up special authorities to tackle this issue. However, to date, none of them have done so.
Delays also take place in getting permission for water-use, a situation which is worsened if the river is subject to an inter-state dispute.
Activism by non governmental organisations (NGOs), both local and international ones, can also have an impact on project approval. However, of late even other issues such as project cost and tariff have also been raised. An extreme example is the case of the multi-purpose Sardar Sarovar project where, despite the recent verdict of India’s Supreme Court opposing the activists, NGOs have decided to continue their protest.
NHPC itself has faced opposition from NGOs for its 710MW Koel-Karo project, already delayed for various other reasons. NHPC is now taking up two projects on the river Narmada in Madhya Pradesh through a joint venture with the state government. But the green activists of the Save Narmada Movement (NBA) are against all dams on that river and have fought a running battle with the promoters of the 400MW Maheshwar project. NBA could turn the heat on NHPC too. Looking at the extreme positions taken by either side in a hydro project, it is apprehended that even the WCD report and any guidelines suggested therein may not be considered relevant or given due importance by the activists.
From the present 2173MW, NHPC is aiming to reach a capacity of around 34,000MW by the year 2017. But funding will be a problem. Earlier NHPC projects were funded on a debt-equity ratio of 50:50. The federal government has increased its overall equity in the company, which now stands at over Rs43B (about US$0.92B). In its 1998 policy, the government also committed to provide full budgetary support to complete federal hydro projects.
The authorised equity of NHPC, which in November 1975 began with a modest Rs2B, was progressively increased over the years to Rs50B (US$1.17B) by 1999. In August 2000, it was further increased to Rs70B (about US$1.5B). In turn, the government expects NHPC to continue a 70:30 debt-equity ratio, borrowing from both domestic and overseas markets. But domestic markets, especially public financial institutions, are already under pressure from other sectors of the economy, which are hoping to grow at an annual rate of above 6%. For hydro projects, which in India take even longer to gestate, financial instruments of long term maturity have yet to be evolved.
Interest rates also continue to escalate. The federal Power Finance Corporation, a leading financier of government hydro projects, charges 14% interest (plus interest tax) which only adds up to 50% of project cost. For all these reasons, NHPC has to go in for bonds issue from time to time, again at matching interest rates. Regarding overseas sources, a notable success for NHPC was obtaining a C$175M loan from EDC of Canada for the 300MW Chamera II project (presently under execution) which helped its financial closure. However, in recent years, the multilaterals have stayed clear of hydro financing in India (except small hydro), undoubtedly put off by project delays and ecological activism.
Private participation has been forthcoming in various other energy areas, but it is still to take off in a significant way in the hydro sector, despite all incentives and concessions announced by the government. The few IPP plants under development or execution in India are mainly promoted by domestic industrial groups diversifying into that sector. Looking for private partnership in its new projects, NHPC asked for global bids in January 1999, and got a satisfactory response from companies such as ABB, Voith and others. However, despite presentations by the latter, NHPC did not help its cause by taking a long time to consider the various bids, and the interest in the matter dwindled.
A problem that NHPC shares with various other federal generators in India is that its customers do not pay on time and in full for the power that it supplies. During the last fiscal year, NHPC collected about Rs8B from energy sales. However Rs22.8B, plus a surcharge of Rs15.2B was still due. The federal government helped by deducting some of this from the annual federal devolution to the offending states and passing on those funds to NHPC.
Looking to the future
With a proposed capacity addition of over 31GW, NHPC has set itself an ambitious target for the future. In the next 25 years, it could become a 50GW company, from the 2.17GW that it is at present. It certainly would be driven in that direction by its sole shareholder, the federal government.
The federal government wants the estimated 84GW of hydro potential in the country to be fulfilled more effectively and at greater speed. Looking at the current indifference of IPPs to the country’s hydro sector and the financial condition of state power utilities, the government has no choice but to set an ambitious agenda of action for India’s federal-owned hydro utilities, of which NHPC is the leading one. However, to succeed in its objectives, the approval process for NHPC’s projects will have to be quicker, maybe through a special mechanism which eliminates it from having to obtain clearances to a number of federal, state and local agencies. The projects themselves would need to be devised with a greater concern for ecological and human problems, and have greater transparency.
A knee-jerk, adversarial relationship with NGOs does not work in the long run, and such groups are not always wrong.
If the activists show a lack of reason, it has to be met by the government with a strong political will, rather than wishing that the problem would go away with time, or letting the project company fend for itself.
NHPC will also need to be aided by regular and considerable mobilisation of funds. Certain steps like increases in its authorised and paid-up equity have already been taken by the government. Finances needed to add 32GW of capacity would be around Rs1600B (about US$34.4B), for putting up each megawatt of hydro capacity.
While announcing NHPC's audited annual accounts on 30 October, Prasad said that the company has requested the federal government for an overall budgetary support of Rs450B (US$9.67B) over the next 15 years. It has also asked the Central Electricity Regulatory Commission for a Re 0.10 (about 0.21 US cents)/KWh surcharge on all federal generators to fund hydro development in the country. This is expected to yield Rs7.5 B (US$161.3M) annually. Realistically, much of these funds would have to come from abroad.
NHPC will also need to actively encourage private participation for equity funding, getting overseas credit and for access to new technology. As the leading hydro generator in a country where major hydro projects are still being developed and executed, NHPC is in a good position to do so. Finally, a certain degree of restructuring of NHPC, both internally and extern-ally, would be needed to make it fitter to take up future tasks. Chairman Prasad feels that merging all federal hydro utilities with NHPC to form a giant hydroelectric entity may materialise in time.