Disturbingly Disempowering

After dithering for eight years, J&K government finally came out with a revised policy for developing new power projects. The changes are a mixed bag but the policy seems discouraging for the local investor and totally biased against those who ventured into the sector and created success stories, a Kashmir Life report.

J&K opened the hydropower sector to private investment in 2002. A hurriedly drafted policy was put into action and 10 small projects were allotted to independent power producers (IPP). One could not get the environmental clearance and was abandoned. Of the nine, two are operational and three others are at various stages of implementation.

In 2005, J&K’s wholly owned Power Development Corporation (PDC) sought bids for 25 mini projects with aggregate installed capacity of 133 MWs. As many as 19 agencies bid for 19 projects for a total of 123.85 MWs. Received bids were evaluated but never allotted because the policymakers in state’s energy ministry thought the policy needs a revamp. But it look a long time. After the 2008 elections led to the change of guard, state’s economic adviser Jalil Ahmad Khan, a retired IAS officer, was appointed as head of a bureaucratic panel to look into the main policy and suggest improvements. The new policy was approved by the cabinet last week and announced formally by the chief minister Omar Abdullah, who also holds the power portfolio, at a press conference.

The policy, Omar said, was flawed and had many grey areas which the new draft takes care of. From the lack of a model agreement to the issues of energy banking and royalty, Omar counted faults that he said the new policy has addressed.

The 2003 policy had segregated small power projects into below 25 and above 25-MW categories and kept the bids open to everybody. The new policy assimilated the two into a single category of 2 MW to 100 MWs but set aside all the projects below 10 MWs for local investors (IPP). The new policy disqualifies all those IPPs from new bidding who have three projects or projects with aggregate capacity 200 MWs already awarded to them.

Unlike the 2003 policy that allotted projects to successful bidders for 40 years on basis of built, own, operate and transfer (BOOT), the new policy reduces it to 35. While the IPPs would negotiate the terminal value at the time of transfer, the new policy wants them to determine the value at the time of bidding only. Earlier, the IPPs would procure the land at their own level but now PDC will acquire it and then lease it to IPPs. They will have to keep the projects maintained at the rated capacity for at least 20 years at any given point of time including at the end of 35 years. The PDC and the IPPs can mutually decide for delaying the transfer after end of the specified period and run the project jointly, however, remains unchanged.

Interestingly, the policy wants the projects back after 35 years at a terminal value that should not exceed 10 percent of the estimated cost of the project indicated in the bidding document.

Applications were supposed to be submitted with Rs 1 lakh for below 25 MWs and Rs five lakhs for above 25, an amount not to be refunded by the PDC. Now it would be one lakh rupees below 10-MW and double the sum per MW for above 10-MW. Successful bidders had to cough up Rs 2 lakh per MW and Rs 5 lakh per MW in the two categories of 2003 policy. Now they will pay upfront Rs 4 lakh per MW for projects with capacity of 2 to 25 MWs, Rs 6 lakhs up to 50 MW and eight lakh rupees up to 100 MW.

Earlier policy sought no royalty for first 15 years in below 25-MW projects and exempted the above 25-MW projects for five years on this front. But the new policy makes them to pay 15 per cent of energy as royalty and one percent as local area development fund.

IPPs were free to sell power to whoever they wanted – the PDC, the local grids or to anybody outside. But now they have to meet new conditions. Post-royalty, the PDC will procure 30 per cent of the energy of the below 25 MW projects at a tariff decided by the State Electricity Regulatory Commission (SERC). For projects above 25 MW, J&K shall procure quantum of power as indicated in the bid document at the tariff determined through competitive bidding process. For the balance power, J&K will have the first right to refuse.

Grid interfacing and wheeling of energy are vital and expensive. Under the earlier scheme, IPPs would be charged 10 percent of net energy supplied at the inter-connection point. The new policy offers the IPPs wheeling at open access charges as per SERC regulations. They will have to bear the T&D losses for the energy wheeled as well.

 The policy remained unchanged as far as building the requisite infrastructure by the IPPs is concerned for wheeling the energy to the spot of connectivity. They will have to bear the grid synchronization costs as well.

The new system sticks to the timelines for all the phases and processes involved in the project implementation. While it was 32 months for both the earlier categories, it is 30 months in below 25 MWs and 40 months in below 100-MWs.

PDC would stay as the facilitator and inspector with the responsibility of offering PFR and executing all the agreements including PPA with the IPP. Bidding to allotment would be PDC’s job. Surveys, DPR preparation, seeking all the mandatory clearances is the IPPs responsibility. The only concession they would be enjoying is that they would be exempted from paying water usage charges for 10 years. The government was once toying with the idea of roping in Dr Farooq Abdullah led Renewable Ministry to fund for preparing DPRs so that the process of executing the projects becomes easy and fast but it failed.

The best test for the policy would be when it would seek bids for the new lot of small projects. Right now, PDC has 310 hydro-electric projects identified across J&K of which it is keen to take up 64 in the first phase. But generally the policy seems to be loaded against the investor, at least at the local level. The policy seems to be making the sector very difficult by seeking a whole lot of concessions from an entrepreneur who has no guarantee of actually setting up the project.

The government has been accepting 12 percent energy as royalty from NHPC for decades now. It is the same pattern applicable in the JV Company the Chenab Valley Power Projects Private Ltd in which PDC has 49 percent stakes. If government can not offer 16 percent royalty to itself from the company that it owns 49 percent, how can it seek such a huge largesse from small power developers who will face immense crisis in managing financial closure and inordinate delay for systemic and weather reasons?

The policy is explicitly clear in not permitting anybody to bid for any project if it already has three or projects with aggregate capacity of 200-MWs. This is clearly aimed at forcing a stagnation of one company that has emerged as a leader by setting up one project in record time as it is in the process of implementing two others. Normally, entrepreneurs have better success rate when incentivized but the policy is openly punishing them.

The policy is silent over what will happen in cases where projects allotted in below 10-MWs would eventually add to their installed capacities. Attwathoo power project was allotted to generate 7.50 MW but the company ended up identifying it worth 11 MW of power that it is producing. The same company got Tangmarg project worth generating 6-MWs but a new survey by it upgraded its potential to 10 MWs. In Poonch, its third project was supposed to create 2.5 MWs but its potential has now jumped to15 MWs after a technical review.

Energy deficit J&K has barely started experiencing private sector investment in the energy sector at local level. It has skipped going through the policies that other Indian states have adopted, some of them in immediate neighbourhood. In Utterkhand, IPPs identify a spot and then seek allotment. In Uttranachal and Himachal, there is no free power for 5 MW projects. Nowhere is any state government seeking so much of concessions from small investors who pitch in to help societies prevent loss. Is it policy or a punishment?

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