Uttaranchal forging ahead in hydro development

Uttaranchal was created in November 2000, by carving out the hilly districts of India’s most populous state, Uttar Pradesh. The new state borders China and Nepal on its eastern side, and has an area of around 53,500km3. Most of its 10M population is very poor, living in small villages deep in the hills – for this reason, the federal government has labelled it a ‘Special Category’ state. Under this provision, 90% of the US$600M annual fund devolutions from the federal government to the state are given as grants and the remaining 10% as loans.

Hydro power has twin roles to perform in the state. Firstly, it serves as an engine to push the future socio-economic development of Uttaranchal. Secondly, looking at the state’s low demand for electricity currently and in the immediate future, sale of power to the neighbouring states would be an important source of revenue to the cash-strapped state.

Uttaranchal’s hydro potential

When the state came into being in late-2000, only about 1000MW of its total hydro potential had been harnessed. In the next four years, another 380MW was added, mostly through projects of medium and small capacity (under 100MW). This should be more than doubled during the current fiscal year, especially with Tehri-I and Maneri Bhali-Stage II projects being commissioned. At the end of the current fiscal year 2006-07, the total installed capacity in the state is targeted to cross the 3000MW mark. This, however, would still be a mere 15% of the assessed potential.

From the hydro sites already identified, over 15,000MW could be developed through 157 projects. The current progress is given in Table 1. The immediate attention is on the eight major projects (4134MW) under execution (Table 2). Of these, the 280MW Dhauliganga has since been commissioned by India’s National Hydroelectric Power Corporation (NHPC). The 304MW Maneri Bhali Stage-II (from UttaranchaI Jal Vidyut Nigam Ltd [UJVNL]) and Jaiprakash Group’s 400MW Vishnuprayag – the biggest independent power producer (IPP) project in the state – are also due to be commissioned this fiscal year.

Tehri-I project

Two problem projects in the state at the time of its creation were Tehri Dam and Hydro Power project Stage-I and the Shrinagar plant. Tehri-I had been mooted for the first time over four decades back and was to have been taken up as a public-sector project by the then Uttar Pradesh State Electricity Board (UPSEB). However, looking at the engineering and the financial effort involved, it was decided in 1988 to take it up as a joint-venture project with the federal government. A new entity, Tehri Hydro Development Corporation (THDC), was set up in July 1988 to take over the scheme, with funding for the project given by the then USSR government.

The project was beset with external problems. With the break-up of the USSR, the Soviet financial aid ceased. More significantly, groups of domestic environmentalists and NGOs kept pressure on successive federal governments in India, along with petitions to the Courts to halt, modify or give up the project altogether. Expert panels were set up which looked respectively into the aspects of dam safety, seismological data, environmental issues and resettlement.

Finally, after approval from India’s Courts last year, the task of filling up the Tehri reservoir (behind its 260.5m high earth and rock-fill dam) was initiated. The 1000MW (4 x 250MW) installed capacity of stage-I of the project is now scheduled to be fully commissioned during the current fiscal year 2006-07. The total cost of Stage-I is likely to exceed the revised estimate of US$1.5B.

In the meantime, THDC is executing the other two parts of the Tehri complex: the 400MW Koteshwar and 1000MW Tehri pumped storage projects. The US$300M Koteshwar scheme is scheduled for commissioning in the fiscal year 2007-08.

Shrinagar project

The 330MW Shrinagar project was also met with problems. A dam-based 4 x 82.5MW scheme on the river Alaknanda in Pauri Garhwal district, it too was originally to be developed by UPSEB and was given a World Bank loan as part-funding. However, due to delays and default by the developer, the World Bank withdrew its aid in the early 1990s. By that time, the Indian power sector had been opened to private participation. Shrinagar project was thus allotted to domestic industrial group Duncans, who in the mid 1990s chose US-based Synergics Energy Development (SED) as its equity and technical partner for the project, later transferring nearly all equity to the UScompany.

However SED could not obtain federal approvals, and ultimately pulled out in the late 1990s. Another large Indian company, Tata power, bought Shrinagar’s equity but it too decided to pull out and sold it’s equity to domestic IPP GVK power, who eventually signed an agreement with the state government in February 2006 to develop the project. The state government now expects to be given a time-table for development of Shrinagar by its latest owner.

Future hydro power development in Uttaranchal would also need to give preference to the sites located and prioritised under the ‘Hydro Power Initiative’, the country-wide programme started by the Indian government in 2003 to add 50,000MW of installed hydro capacity within two decades. In Uttaranchal, 64 sites with a potential of around 11,330MW were identified. Based on the reports of consultants deputed to undertake further studies, 28 of these sites (4559MW) could be developed on a priority basis, as their respective power tariff would be less than Rs.2.50 (around 5.6 US cents) per MW, which is the benchmark laid down by the Federal Ministry of Power.

Government policy

The state government of Uttaranchal has adopted a multi-pronged strategy for speedy development of its hydro power potential. Its main elements are as follows:

• To involve ‘proven developers’ for the larger projects.

• To the various IPPs, the state government would like to offer projects with a pre-feasibility and/or detailed project report (DPR) already in place. This would cut down on time and costs and would make for a ‘time-bound and committed development’ by the bidder.

• It is planned to facilitate development of six to eight projects simultaneously at any given location by the various developers.

• Under such an approach, benefits of time and cost-reduction could be achieved by the state through ‘competitive bench-marking’ amongst the various developers operating at the same time.

• As per the nationwide studies undertaken by CEA, various potential sites in the state have already been ranked to determine priority in their development. Preliminary and pre-project actions such as detailed surveys and investigation and preparation of DPR for the various sites would be undertaken in order of priority.

• Steps would be taken by the state government to enhance human resources in the area of hydro power. A number of prestigious technical institutions are already located in the state, like the Indian Institute of Technology at Roorkee, Forest Research Institute and Survey of India office, both at Dehra Dun, and GB Pant University of Agriculture and Technology at Pant Nagar.

The state policy on hydro power aims at what it calls a ‘harmonious blend’ of public-sector and private participation. The respective roles played by these until now, and most likely into the future, are examined below.

State-owned utilities

At the time of the creation of Uttaranchal state, the federal programme of power-sector reforms and restructuring was already being implemented in India. This involved unbundling the existing state electricity boards (SEBs) into separate state-owned utilities for generation, transmission and distribution. Thus Uttaranchal (which did not have a SEB) proceeded immediately with creating its own state utilities on the new pattern.

UJVNL was set up in February 2001 for constructing, operating and maintaining hydro power plants in the state. Power Transmission Corp of Uttaranchal Limited (PTCUL) was created for transmission and distribution projects, while Uttaranchal Power Corporation (UPCL) was also set up for distribution.

The Uttaranchal Renewable Energy Development Agency (UREDA) was created by the state government for the development of renewable energy projects, including micro-hydro schemes.

To regulate the power sector in the state, an independent and autonomous entity – Uttaranchal Electricity Regulatory Commission (UERC) – came into being, initially with a single member and lately expanded to three members. UERC has been setting wholesale and retail tariffs in the state.

UJVNL, the state-owned hydro generation company, was allocated the hydro power plants that Uttaranchal had inherited at the time of its separation from the state of Uttar Pradesh in November 2000. UJVNL currently owns and operates four large (>100MW), four medium (25-100MW) and 32 small (<25MW) plants in the state. Furthermore, UJVNL has been allotted 12 new projects of an aggregate 2168MW capacity. Major projects among these include the 416MW Pala Maneri and 132MW Bowala Nandprayag.

Ten old power plants which UJVNL inherited and are over 20 years old need uprating, renovation and modernisation. The company is considering its various options. Apart from funding from federal-owned Power Finance Corporation, it intends to tap overseas sources as well. Six of these plants are to be renovated through funds to be obtained from Germany’s KfW, two from the Asian Development Bank and one from Canada’s EDC. The remaining project is being renovated with private help, on an engineer-finance-execute-share basis.

UJVNG is also executing one major project, Maneri Bhali - Stage II. The 304MW (4x 76MW) project had been languishing for over a decade and was revived after the formation of the new state. It is due for commissioning this fiscal year.

Private participation

Uttaranchal’s state government has elicited private investment and participation both in medium and small hydro projects. Until the end of the fiscal year 2005-06 (ending March ‘06), five medium-sized projects having an aggregate capacity of 895MW had been allocated to IPPs.

For small hydro, nine schemes (200MW) have been allocated. With this, Uttaranchal had been lagging behind its immediate neighbour, Himachal Pradesh. That state, also having a high hydro potential, had been active in small hydro development for over a decade and taken a lead in India’s northern region in attracting private participation in the industry.

In Uttaranchal, the basis of allocation to IPPs is based on the premium which the prospective developer offers to pay for the project. It is a unique process, as yet untried in the other hydro states. In the first stage of that process, requests for qualification (RFQ) are invited from the bidders through a well-publicised notice. The requests received are then evaluated on the basis of a ‘composite index’ of technical, financial and project implementation criteria. A short list of the bidders is drawn up and they are called for a pre-bid conference, where they are asked to make competitive offers to pay a project-premium (which goes to the state treasury). This premium has to be above the ‘threshold’ rate pre-fixed by the state government : Rs.0.5M (about US$11,236) per MW for a project <100MW capacity, and Rs.50M (about US$1.12M) for a project >100MW capacity.

Federal generating utilities

As in most other Indian states that have a considerable hydro potential, Uttaranchal has relied on the many federal-owned generating companies to undertake power development. Some of them had been active in its area even before the state was carved out of the undivided Uttar Pradesh state. Thus, NHPC undertook the 280MW Dhauliganga Stage-I power project, which was commissioned recently. NHPC also operates the 120MW Tanakpur project in the state.

Shortly after the formation of Uttaranchal, the state government was approached by another federal generator, the National Thermal Power Corp. (NTPC), to be allocated hydro projects in the state. This was because NTPC, which is the biggest company in India for thermal power – coal, oil and gas-fired – had decided to diversify and move into hydro power.

The state government quickly realised the wisdom of doing business with the federal generating companies; they had the manpower, the experience and the technical ability to undertake medium and large hydro projects. They could also raise financial resources easier, both from within and outside India. With their past precedents, they could also obtain the various domestic clearances and approvals more easily.

Thus, the state government signed a Memorandum of Understanding (MoU) with NTPC for developing two new projects: the 600MW Loharinag Pala and 520MW Tapovan Vishnugad projects, located on the state’s two major rivers, Bhagirathi and Alaknanda respectively. Subsequently, NTPC created a fully-owned subsidiary, NTPC Hydro Limited, to develop new hydro projects up to 250MW capacity each.

Since then, the state government has cast its net wide and commissioned five well-established federal generating companies to separately develop a further 14 projects. These are to have an aggregate capacity of 2410MW, ranging from 33 to 630MW each.

In doing so, the state government has gone about making these allocations by river/valley. Thus, THDC has been given six projects (695MW) in Bhagirathi valley, NHPC three projects (925MW) in Sarda valley, and NTPC and NTPC Hydro two projects (422MW) in Alaknanda valley. Also, Satluj Jal Vidyut Nigam (SJVN) which had commissioned the 1500MW Nathpa Jhakri project last year in neighbouring Himachal Pradesh state, has been assigned three projects (368MW) in Uttaranchal’s Yamuna valley.

Inclusive of these 14, the federal-owned companies are currently developing/executing 29 major projects (9015MW) in Uttaranchal.

A detailed ‘Implementation Agreement’ was signed by the state government with each of these five companies on 21 November 2005. Under it, each of the above projects is to be developed on build, own, operate and maintain (BOOM) basis, with the ownership remaining with the company. The project would have a ‘regional’ character, with most of its power sent outside the state.

The agreement prescribed the following main responsibilities to the company:

• Carry out a survey and investigation, prepare a detailed project report, including a catchment-area plan, and conduct an environmental assessment study.

• Prepare and implement a rehabilitation and resettlement plan as per the state guidelines and the federal policy on the subject.

• Obtain the various approvals and clearances, with help to be rendered by the state government where required.

• Arrange all finances required to implement the project.

• Acquire the project-land, with the help of the state government if so requested by the company.

• Endeavour to adhere to the deadline (to be given in the agreement) for commissioning the project.

• Evacuate power to be generated by the project, through an integrated transmission system to be developed by the state/ federal agencies for that river-valley and which would connect the project to the national power grid.

• Render 12% of all power generated by the project, free, to the state government.

• Resolve all disputes through arbitration, where mutual discussions fail in that regard.

Most of the above parameters adopted under the agreement are in line with the federal guidelines. These are also likely to be followed by the state government in future dealing with the various developers, including those from the private sector.