Consolidating The Empire

As Kashmir is witnessing unprecedented load shedding, the NHPC is consolidating its empire in the state. With the Uri-II in operation, the hydropower giant’s generation from J&K would cross 47%. This time J&K government is not unhappy because now its gets its bit in cash, reports R S Gull


As the rival armies on the Line of Control (LoC) and International Border (IB) were exchanging mortars this autumn, J&K state missed one major development that took place literally on the LoC: the completion of the Uri-II. A 240-MW project that feeds on the discharge of Uri-I located within the firing range of Pakistani gunners was completed during the ceasefire that the rivals were, at the peak of it, desperate to do away with.

While two of the four turbines of 60-MW capacity each went into trial run early October, NHPC insiders said the remaining two will start later this year. NHPC, India’s major hydropower utility, has already started evacuating energy from the project to Kishanpur and the state government has started getting its share: the same old 12% royalty plus one percent for local area development fund. In case of a snag in the direct line, the NHPC grids the transmissions with the Uri-I to wheel the energy out.

Uri-II is an interesting run-of-the-river project because it is last major activity that the river is diverted to do before crossing the LoC with a thundering roar. The project has a 52 meter high concrete gravity dam near Salambad, quite famous for the cross LoC Trade Facilitation Centre (TFC) and an underground powerhouse on left bank near Sadwania village, between Lal Pul and Salamabad, 10 Kms from Uri township. Its 600-mters long open channel connects the dam that supplies water to power house by a 4.28 Kms headrace channel.

It is perhaps one of the few NHPC projects in J&K that did not alter much of the human population. Three water mills and a couple of houses were submerged and not more than 40 houses in Slamabad and Nawpora were dislocated. Most of the 123 hectors of land that it acquired belonged to the state government.

But it is the location that makes the project unique. Located literally on the LoC, it is surrounded by battle guns, bunkers, barracks, heavy artillery guns and tons of concertina wires. Though slightly over eight kilometers short of Kaman Bridge (near Aman Setu), this is at a stones-throw from the Pakistani Rangers overlooking most of the project sites.

CM Omar Abdullah inspecting Kishenganga site in Bandipora.Pics: Bilal Bahadur
CM Omar Abdullah inspecting Kishenganga site in Bandipora.Pics: Bilal Bahadur

Implemented by Alstom for electro-magnetic part and by Hindustan Construction Company (HCC) for the civil works, the project would eventually be ready at a cost of Rs 2300 crore. Once fully operational, it would generate nearly 1150 million units of energy, a year.

J&K government had handed this project to NHPC in 2000. But the NHPC took a long time in taking it up, initially because of the border tensions. It was the November 2003 ceasefire that encouraged the power giant and the work started formally in 2006.

Though initial reservoir filling of this project was accomplished on August 18, 2011, it faced two major problems almost at the fag end of its implementation. Firstly, the locals forced any progress on the work for 105 days ending July 2012. The crisis was rooted in a special policy that NHPC intended to adopt – seeking bids from contractors for all the category C and D jobs that this project would offer. If implemented, this outsourcing would fetch lowest wages and no rights at all to anybody who would get either of the two category jobs.

As locals forced a halt on any work from March 19, 2012, the case eventually was taken up by the then Power Minister Sunil Kumar Shinde. It was the Uri MLA and the most vocal anti-NHPC politician, Taj Mohi-ud-Din who negotiated and settled the deal: the policy reversal. They got the bonus of free power for the entire population living within the five kms radius of the project.

The second major issue that the project faced was in March 2013 when a massive landslide blocked a portion of the entrance tunnel trapping for some time more than 100 workers. It was technical and easily manageable. Both the issues had had cost and time overruns.

The completion of Uri-II is a milestone in NHPC’s J&K operations. It will substantially increase NHPCs generations from J&K. NHPC generated 8684 million units from its four operational projects in 2011-12 that increased to 8771 million units in 2012-13. Given the NHPCs cumulative generations from all its projects across India at 18683 million units in 2011-12 and 18923 million units in 2012-13, the share from its operational projects in J&K is at 46.48% and 46.35%, respectively.

NHPC-Generations-from-J&KOver the years, J&K government has handed over nine major projects totaling 3359 MWs to NHPC. So far, seven projects with cumulative installed capacity of 2009 MWs stand completed and in generation. Of the remaining two, the 330 MW Kishanganga project located in remote Gurez again on LoC, is being implemented strictly as per the directions of the International Court of Arbitration (it is disputed with Pakistan), there has not been any major development on 1020 MW Bursar on the Chenab.

Interestingly, however, the NHPC is not in a position to make best of the two small projects that it completed in the arid Ladakh desert. The 45 MW Nimu-Bazgo in Leh and 44 MW Chutak in Kargil are generating energy since 2012 summer but the lack of adequate load and absence of an evacuation set up (Ladakh continues to be outside the national grid) has reduced the twin projects to captive stations that are solely dependent on the demand that local consumer raises. This is precisely why the NHPC is not adding the generations from the twin projects to its overall output.

The second major happening on the NHPC front is that its most controversial 330-Kishanganga Hydropower Project is about to have the first major breakthrough: its 23.50 kms long head race tunnel (HRT) that drains water from Neelam in Gurez to the power house in Bandipore is going to be ready mid-winter. This is going to be one of the longest tunnels in Kashmir and borrowed anywhere in the Himalayas.  An HCC led consortium with BHEL, German DSD Noel and PEES, is implementing the project.

R Madhvan, HCC’s Hydro head told reporters last week that they were asked to complete the tunnel by January 2015 but they are completing it by March 2014 only – a year ahead. “We approached the tunnel from the both sides. From Gurez side we used drilling and blast method (DBM) and completed 8115 meters out of 8410 meters stretch and for Bandipore side we used Italian and so far we completed 12719 meters of the 14750 meters tunnel.”

SPDC-GenerationsBut completing of tunnel does not make the project. It has still problems at the dam site. Pakistan had taken the dispute over this project to International Court of Arbitration (ICA) and it is yet to offer the final decision. The Court in its partial award in February 2013 has upheld India’s right to build the project and have inter-tributary transfer but had literally banned its plans to use drawdown flushing for unloading accumulated reservoir sediment. In the given scenario when the final award is awaited, there are only two options – either to address Islamabad’s concerns and raise the bed level of the dam spillways by four meters or to effect a design change that will fundamentally alter the dam.

Since NHPC in undecided on the issue and is holding the design of the dam for around a year, the consortium officials said they can not rule out the delay in completion of the project. If the target of having the project functional by 2016 is to be kept, the dam is to be filled in 2015 summer, under the systems laid down by the Indus Water Treaty. But if the dam is not ready, the idea of filling the reservoir does not matter. That means more delay.

But that does not mean, the NHPC is not spending. Its officials told Chief Minister Omar Abdullah who visited the tunnel and the ground breaking function for the powerhouse was informed by the end of October 2013, it has booked an expenditure of Rs 2809.64 crore against the sanctioned cost of Rs 3642.04 crore including the interest during construction.

What made Uri-II’s completion and fast implementation of Kishanganga interesting is that the state policy makers no more exhibit the unhappiness that they had routinely done every time the NHPC was happy. The change is two major factors.

Firstly, it is the availability of energy locally. Though J&K’s State Power Development Corporation (SPDC) has gradually increased its generations from 1689.69 million units in 2008-09 to 3931.56 million units in 2012-13 (thanks to Bagliahr-I), there is a huge mismatch between demand and availability. So the government has no option but to purchase energy in bulk. Energy purchases have gone up from 10332.59 million units in 2009-10 (worth Rs 1992.46 crore) to 10677.017 in 2010-11 (Rs 2309.77 crore) to 10992.611 in 2011-12 (Rs 3000 crore) and 12052.168 in 2012.13 (Rs 3668.40 crore).

In such a situation, J&K is not only an address for NHPCs power stations only but also its major market: J&K is a major bulk buyer of NHPC generation. This is in addition to 12% royalty that the state gets excluding the one percent for LADF. Since 1997-98, J&K government has purchased 610087.305 million units from NHPC’s three projects which is worth Rs 3835 crore. Most of the energy comes from Uri-I, the 480 MW project that is NHPCs Kashmir goldmine.

Secondly, the state government is earning for whoever uses its water, thanks to the 25 paisa cess per cubic meter of water use imposed by the State Water Resources Regulatory Authority (SWRRA) that celebrated its third birth anniversary in October last month. Article 370 apart, SWRRA make J&K distinct in India because it is the only state that taxes water usage. So more water usage means more money for the state.

NHPC-paymemtSince October 2011 when it was created, the SWRRA has raised bills worth Rs 2276.66 crore and Rs 1335.63 crore was actually paid. There are only two major water users in power generation – the NHPC and the SPDC. There are quite a few independent power producers (IPP) but they are marginal players.

Interesting twist in the story is that of an outstanding of Rs 941 crore, it is J&K’s fully owned SPDC that has not paid more than Rs 736 crore. NHPC has paid Rs 1315.63 crore and SPDC, state’s main generation utility, has paid Rs 20 crore only.

A senior officer of the SPDC said when the SWRRA started levying the cess, they went to the SERC for changing the tariff structure in its supplies to the state. But SERC advised the generator not to pass the additional costs to the eventual customer but the supplier should absorb it. “SPDC has raised the demand to the Power Development Department which is the bulk buyer for the state government and the only energy retailer,” a senior PDC officer said. “Once, we get this amount, we will clear the SWRRA bills.”

NHPC run power project at Egomurslong, Leh.
NHPC run power project at Egomurslong, Leh.

SWRRA cess, it is interesting to mention, has impacted tariffs in most of the North Indian states that use NHPC power generated in J&K. Initially, NHPC took the J&K government to court over the water cess. But water being a state subject, it lost the case. When paying the cess became inevitable, the NHPC petitioned over the additional costs and was advised to pass it to the end buyer. This made energy slightly expensive in the state.

At the same time, however, it created certain problems. Neighbouring Punjab that already runs multiple disputes over water with the J&K stopped evacuating 100 MW of Baglihar energy that it had purchased from Power Trading Corporation (PTC). Bagliahr sells half of its energy (225 MWs) to PTC for debt servicing. As Punjuab stopped evacuating the now-costly energy, PTC was in loss for it took some time to get another buyer. Now West Bengal purchases this energy.

To manage the loss it incurred, PTC went against Punjab State Electricity Corporation and filed a case in the SERC Punjab. It sought a compensation of Rs 124.51 crore plus Rs 49.45 crore of water usage charges levied by SWRRA. As the two fought the case for two years – even SPDC was a party because it owns the 450 MW Bagihar, the Punjab SERC dismissed the case on October 10.

Litigations and problems apart, J&K government is happy that Uri-II will give it additional revenue for the use of same water that Uri-I discharges.  SWRRA insiders say the systems within the states and outside will grow understanding the issues in J&K and this major revenue earner will gradually start playing second fiddle to commercial taxes department – the main earning arm of the state. Interestingly, state government has not spent even a single penny from this amount, so far.

Amid brightened energy futures, there are gloomy patches as well. J&K government may soon write to SWRRA to waive the cess on the upcoming 1000 MW Pakal Dul, one of the three project that JV company Chenab Valley Power Projects Private Limited is implementing. The JV is owned by SPDC, NHPC and PTC in the 49:49:2 ratio.

PDC-PaymentGiven the crisis that Pakal Dul is facing: it will produce highly expensive energy if the debt equity ratio is at the normal 70:30. To make the project cost less, the PIB has suggested the state government must reduce the land costs, waive of taxes and forgo its 12% royalty. Besides, the JV is toying with the idea of seeking a Rs 2500 crore soft debt which will effectively help reduce the gestation period.

The interesting part is the state government has agreed to all this. It is on basis of this commitment that the NHPC, which runs (Regional Director of NHPC is its MD) the JV that state government leads (M Y Khan is its chairman), has rehashed the DPR. At 2013 price level, the new costs of the project are at Rs  8988.05 crore for 1000 MWs.

But if the state government provided an exemption to the JV in which it has half of the stakes and SPDC – that it fully owns, continues defaulting SWRRA bills, Congressman Taj Mohi-ud-Din’s only contribution to J&K state will die of an electric shock, literally.

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