Negotiating Power


Public discourse over J&K’s energy crisis has brought NHPC into sharp focus. A cabinet sub-committee, that revisited the history of the company’s ‘exploitative’ relationship with the state, has brought some uncomfortable facts to the fore illuminating the various state governments’ inability to negotiate well with the hydro-power giant. A Kashmir Life report.

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National Hydro Power Corporation (NHPC), India’s hydropower major and J&K government have had a long relationship. The corporation was actually born with the award of the Salal Power Project, located in Reasi. Initially, it acted as an agent of the union power ministry to handle the project and subsequently the asset was transferred to the hydroelectricity giant.

Almost a century after India and Pakistan signed the Indus Water Treaty, Kashmir, is now fully aware of the losses it suffered in “India’s national interest”. Demands for compensation are being raised from either side of the ideological divide of Kashmir’s politics. Even a former chief minister has written formally to the Prime Minister about it. People on the street link the expansion of the NHPC in J&K as part of the unwritten ‘resources exploitation’ plan. Last summer a senior Congress minister in Omar Abdullah’s government termed NHPC as “an East India Company”.

By now, NHPC has four operational stations with a cumulative installed capacity of 1680 Mega Watts (MWs)in J&K which offer it nearly half of the total electricity generation it sells annually. Of the five other projects (1719 MW) shifted to the corporation for implementation in July 2000, three (369 MW) are at an advanced stage of implementation as work on 330-MW Kishangaga goes on amid a dispute between India and Pakistan being currently heard by the International Court of Arbitration as one in Doda region is yet to see the survey completed. Besides, NHPC and J&K have 49% stake each in three other projects with a cumulative capacity of 2120-MW that are being implemented under the Joint Venture (JV) Chenab Valley Power Projects Ltd. India’s Power Trading Corporation (PTC) holds the balance two per cent equity.

A proactive Kashmiri civil society created a situation by exposing partly the historic documents suggesting the NHPC skipped adhering to the terms and conditions that the erstwhile state government had set for it, especially on Salal. They went to the court and used the RTI route to access certain documents showing the NHPC lacked any agreement with the state government thus suggesting that its operations were illegal. Caught on the wrong foot, the state government was forced to revisit the records of its decades-old relationship with the NHPC. The government set up a cabinet sub-committee (CSC) on May 26, 2011, with a specific mandate to “look into various issues arising from the terms and conditions of entrustment of the hydroelectric projects to the NHPC in the state.”

Looking into the issue, the CSC has made some value-addition to the overall debate but has not discovered much that could offer energy deficit J&K a breather.

Dr Farooq Abdullah

It is the Cabinet Order No 328 of June 21, 1975, that, according to the CSC is fundamental to the entire relationship because it offered the state’s terms and conditions for a relationship on electricity sharing with the central government. But this file is missing from the records of the state government. And, this fact has not been talked about for the first time in the cabinet. On December 13, 1984, the state government sent a draft to the cabinet indicating that the particular file was missing. In 1995 when the government was processing a proposal for NHPCs exemption from the Stamp Duty, the department informed the law ministry that the agreement was missing.

The CSC has also failed to trace that file. Terming it a “serious matter”, the CSC sees a larger plot when it says the importance of the missing file cannot be overlooked because Sheikh Abdullah “had returned to power after a gap of more than two decades”. The CSC has actually recommended the constitution of a Task Force led by a senior officer to look into the “circumstances leading to the misplacement of the records pertaining to this important cabinet decision.”

A subsequent file (a memo to the cabinet dated October 28, 1980) pertaining to the Dul Hasti power project, however, bears a reference to the missing file. It mentions that after the cabinet took a decision, the conditions and terms were conveyed to the central government on July 21, 1975, in a letter (PD-IV/234/72).

The CSC says the letter suggested that the responsibility of the execution and management of the project was J&K governments during construction. Once in operation, half of the total generation from the project would go to J&K at generation cost and it will be reviewed every five years. The J&K government was at liberty to sell part of its share as the overall profits of the project were to be shared equally (50:50) by the state and the central government (later NHPC).

While the project was supposed to be fully funded by the Government of India (GoI), its ownership would be reverted to the state government later at a depreciated cost. The state government retained the sole rights for developing fisheries and navigation in the reservoir.

What is interesting in the records dug out by the CSC is that the NHPC did not enter into an agreement with the state government even years after the terms and conditions were set. The report makes a reference to the letter that Sheikh Abdullah wrote (DO No PDD/IV/243/72) to the then Energy Minister Abul Barkat Abdul Gani Khan Choudhary on October 16, 1981, pointing out specifically: “…all the terms and conditions for the execution of Salal Hydel Project have long back been finalized but the Ministry of Energy is yet to enter into formal agreement with the state in spite of their verbal and written assurances.” Did Gani Khan respond? The CSC is silent on.

The CSC has recorded that on July 25, 1979, a joint secretary, Mr Belliappa in the Energy Ministry had informed a Dul Hasti-related meeting that the “Government of India will not be able to agree to the same terms and conditions as are applicable in the case of Salal.” The officer refused to share the profits of the Dul Hasti with J&K government.

Later, in a meeting that was convened to sort out certain issues regarding Salal in Delhi on July 23, 1984, the CSC says the minutes have quoted Dr K L Rao, the then union minister for irrigation and power saying in 1969 that “(J&K) state would be given 50% of share out of the net profit from the project.” It was never implemented.

The CSC report offers a lot of details of the meeting using the minutes that it has somehow traced. Joint Secretary (hydro) in Delhi had indicated in the meeting that the then union Irrigation and Power Minister, Dr Rao had communicated in his letter to the J&K chief minister in 1969 that J&K would be provided 70-MW from Salal with an installed capacity of 230-MWs. After its installed capacity jumped to 345 MWs, the state government demanded a pro-rata increase to 120 MWs. J&K’s chief secretary, who attended the meeting firmly sought a commitment that power allocated to the state should be made available. The GoI did convey to the state officers that Salal being a run-of-the-river plant, its generation would be fluctuating, so supplying 80-MW throughout the year may not be possible. However, the state government officials insisted that while the state should get 80 MWs, the supply of 35% of the total energy generated throughout the year from the project should be ensured to the state after discussions. The CSC is silent over whether or not the NHPC provided the energy it agreed upon earlier.

Explaining sharing of benefits, JS (H) informed the meeting that though Rao had indicated in 1969 that the state would get 50% of the net profit that Salal would make, the GoI has actually evolved a formula for the ‘home’ states – they would pay 1.5 paise per unit at bus bar cost, or generation cost without any added costs. J&K was told even this formula was subject to review but compensation was assured. No one knows whether it happened or not.

In the same meeting, the NHPC chairman conveyed to the J&K government that since NHPC is a company and the state government has not invested any equity in Salal, it may not be legally possible to share profits. The JS (H) explained things and suggested to J&K that it accept the 1.5 paise per unit compensation. Chief Secretary of J&K was convinced but he said the state government’s views would be conveyed. The CSC report does not offer any details if the state position was conveyed.

After these discussions, the J&K power department submitted a detailed memo to the cabinet that highlighted the lack of an agreement between NHPC and the state government. “Lands required for the project have been acquired by the state government at the cost of the government of India,” the CSC quotes the memo.

“Under Section 256(2) of the Constitution of India as applicable to J&K, no land can be transferred to the government of India till an agreement is signed between the state government and the government of India.”

Compelled by the legal binding, the memo suggests a draft agreement was prepared by the state power and law departments and sent to the government of India on June 24, 1975. It appears, the memo points out, “a revised draft agreement was also furnished to the government of India but relevant record on the subject is not traceable in our records.”

The NHPC, however, bailed out J&K bureaucracy by furnishing a draft agreement that the J&K power development commissioner and NHPC officials including its chairman and MD discussed much later on September 5, 1984. J&K sought certain changes in the agreement. The memo offers details of the agreements and the disagreements between the two sides.

The J&K government insisted that the state should get 80 MWs and pro-rata when the generation is less than 80 MWs. NHPC said that when the generation falls below 110 MWs, J&K’s share would also fall accordingly. This issue was finally taken up by the then Deputy Chief Minister (power) who met NHPC officials on September 11, 1984, and felt the NHPC position was logical. The state sought certain changes in the draft agreement but NHPC put its foot down saying it was detrimental to the company’s interests.

The two sides, however, agreed that the NHPC will have the right to change its policy of computation of tariff only after consulting the state government which would have full rights over fishing and tourism and the sole arbitrator in case of a dispute will be the union power secretary. The J&K government agreed.

The PDD suggested vetting of the agreement. The salient features of the agreement that the CSC has quoted include that the “government of India has transferred the project with all its assets and liabilities and rights there under to the corporation (NHPC) on absolute ownership basis”. J&K’s share from the generations shall be a minimum of 80 MWs (and pro-rata when the generation is less than 80 MW) and 35% of the annual energy generated after meeting requirements of the NHPC as per the draft agreement. The NHPC may consider allocating the additional power to J&K from the project depending upon its availability after meeting the requirements of the NHPC and commitments made to other states as per the directions of the Government of India. NHPC, however, was supposed to pay 1.5 paise per unit at the bus bar level as compensation. It was later changed as the national policy for home states changed – 12% free power plus the share at generating cost. Taj Mohiddin has been saying that the NHPC has overcharged the state government.

Revisiting the available records by the CSC reveals that the details of the final agreement on Salal were finalized by the parties in September 1984. Terms and conditions that the state government had set for the project in 1975 were not fully adhered to. Though the CSC suggests that the return of the project, as per the cabinet decision of 1975, remains unchanged, it fails to offer any such reference in the 1984 parleys when the two parties were negotiating the new terms of the agreement. Even after the CSCs report, it is still unclear if the two parties signed an agreement at all. The whole issue at that point in time was relegated to the background in the wake of shifting power equations when G M Shah came to power in the state. And, the status quo presumably lived on.

But on the basis of the terms of the relationship, the CSC has made out a case of breach in the agreed terms. The NHPC has not supplied the energy to the tune it was supposed to. The project, according to CSC has generated 67411 million units of energy between 1987 and November 2011. The state was supposed to get 12 per cent (free power as royalty/compensation) plus 35 per cent (billed at bus bar rates) that makes around 31686 million units. However, it got only 22883 million units including the free power. The quantum of energy that did not wheel to the state, according to CSC, cost Rs 589.26 crores and the state had to procure the same at much higher rates that cost it Rs 2350 crores, a clear loss of more than Rs 1600 crore.

By the time Salal was operational, NHPC was the new master representing the central government. The Salal decisions impacted the further negotiations on Dul Hasti and Uri. On July 25, 1979, when the energy ministry in Delhi and the J&K government were finalizing the land transfer for the Dul Hasti project, New Delhi rejected taking a representative of J&K on board of the NHPC. This time the project was supposed to be implemented by the GoI on its own and J&K was to get a “reasonable requirement” of its energy demand from this project which would be subject to “certain minimum and maximum limits”. The state cabinet under Sheikh Abdullah on December 15, 1980, still transferred the land “pending settlement of terms and conditions” for lease. The state government did not insist or follow on its own demands and meekly gave up on them without even a whimper.

The actual benefit-sharing scheme came from Delhi. ABA Ghani Khan Choudhary wrote to Sheikh Abdullah on April 16, 1981 (DO No: 53/3/79/USG) offering him the blueprint of the scheme approved by the GoI. While 15% of the generation was to be kept “unallocated” at the disposal of the central government, the balance 85% was to be divided within the beneficiary states in the northern region on the basis of the pattern evolved in Super Thermal power stations during the last five years in which consumption of the respective states was vital.

However, the state was supposed to get “compensation” at 1.5 paise per unit of generation to be calculated at the bus bar level – after discounting the auxiliary consumption but without taking into account the transmission losses.

Sheikh Abdullah reacted by saying it would deprive the state “of the full benefit from their most important endowment, and retard their process of development in the consequence.” Insisting, in his letter to Khan (DO No PDD/IV/243/72) on October 16, 1981, the plan is vague, Sheikh said people with less consumption – because of non-availability – and more population should be preferred. “…we would much rather receive the royalty in the shape of free energy to meet the ever-widening gap between the power availability and not assessed needs,” Sheikh wrote.

Meekly, the letter quoted partly by the CSC indicated that the formula is not acceptable because it does not appreciate the requirements of the state government.

Discussions followed between the state and the GOI officials. On November 12, 1981, with MoS Energy Vikram Mahajan, the then state Finance and Planning Minister put up a note to the cabinet and suggested agreements between the two sides. While the GoI will keep the 15% of generations, J&K would get 10% free power in lieu of cash royalty. After completion of the project, the state would work out the rate of payment of 1.5 paise per unit of electricity generated as a percentage of the cost of generation at that point in time. “In the event of this percentage falling below 10%, the state government accepts to pay at bus bar rates for the difference between the figure of 10% additional power allocated to it and the figure that emerges as a percentage of the rate of payment of 1.5 paise to the cost of generation,” the CSC mentions in its report.

Additionally, the state government sought a 10-yearly review of the rate of payment per unit of electricity and a right to sell its share – from compensation to the share it gets as part of the northern region – to any other state if it wishes so. The cabinet approved the proposal (decision NO 417) on November 17, 1981. It was conveyed to the GoI(No PD/IV/243/72) on November 19, 1981.

File image of Omar Abdullah

But the GOI had some reservations. The Energy Secretary in Delhi responded (No: 46/1/77/USG/DO.V) on August 24, 1982, seeking modification of the two conditions – 10% additional energy to the state and a review of compensation rates after every 10 years. As the state government sought suggestions, the then Power Development Commissioner of the state suggested the modified formula should be accepted as GOI has agreed to a demand for a larger power share in addition to the compensation that would add Rs 2.86 crores to the public exchequer in a year. The proposal was approved by the state cabinet on October 22, 1982 (decision No: 326) and conveyed to the GoI, accordingly.

On April 23, 1984, when the cabinet started discussing the Uri-I, it decided, a bit differently. Later it conveyed to the NHPC on April 25, 1984, the cabinet (decision No: 103) accorded consent to the implementation of the project on an improved set of conditions. Apart from suggesting 15% unallocated energy to stay with the GOI, the state sought 10% and an additional 1.5 paisa/kWh, at the bus bar level to be calculated later. From the balance of 75%, J&K sought its share as one of the north Indian states and suggested a review after 10 years for benefits and energy sharing formula.

This time, there were additional conditions. “Any additional generation on Uri project, as a result of the project taken up by J&K on Jhelum river main and its tributaries subsequently, would accrue to the J&K state over and above the share under the formula subject to provisions of subsisting agreements and internal treaties,” read the cabinet decision. Apart from seeking 50% staff from J&K state, the cabinet decided that the state government “may buy back the project or a part thereof, if and when it is in a position to do so, after paying the depreciated cost of the same.”

The NHPC is profitably running the 480-MW project Uri-I. Its second project 240-MW Uri-II is slated to go into generation in 2012. But the “additional” power that the agreement is referring to is the generation that will go up after Jehlum gets more water. As the upcoming Kishanganga will add 52 cubic meters more discharge – by getting it from Neelam (Kishanganga) and discharge into Madhumati and eventually to Wullar, officials believe the twin NHPC projects will be richer by 312.62 million units a year as their generations would go up. NHPC, insiders said, have substantially invested to add another turbine in Uri-I but now the state government is keen to invoke its right over everything that is additional on account of the Kishanganga (Neelam) project.

So far, the latest MoU was signed between NHPC and the J&K government on July 20, 2000, when Dr Farooq Abdullah gave seven projects to the corporation for implementation. One of these projects (120-MW Sewa-II) is already operational. Three others – 280-MW Uri-II, 45-MW Nimmo Bazgo and 44-MW Chutak – are at an advanced stage of implementation. 1000-MW Pakal Dul has been taken back and is one of the three projects that an NHPC:PDC: PTC joint venture Chenab Valley Power Projects (CVPP) is being implemented. Work on the controversial 330-MW Kishanganga is going on as the state is awaiting the basic survey on the 1020-MW Bursar.

These projects were given on the condition of 12% free power and the state purchasing a 15% central share of unallocated power at bus bar rates to meet its winter requirements. The NHPC is supposed to fill 30% of its A and B category positions by taking people from the J&K government on deputation as it is agreed that NHPC will accommodate locals at C and D positions after “adjusting its surplus staff.”

The MoU was approved by the cabinet on October 4, 2000 (decision No 158/15). Clause (b) of the MoU reads; “The projects are being handed over to NHPC for funding, execution and operation. A mutually accepted methodology will be worked out for handing over these projects to the J&K government separately.” Here in lies the catch. The methodology could have easily also been incorporated into the MoU. But, it appears that at every stage of the negotiations with NHPC, the giant was given an easy exit by the state government at the very start and at crucial stages of negotiations every time.

The CSC believes that “since these projects were transferred to NHPC for funding, execution and operation purposes only, their ownership continues to vest with the state.” The committee wants the state government to “take concrete steps to work out the modalities for buying back the project(s) as and when it is in a position to do so, after paying the depreciated cost of the same.”

The CSC has made things clear by offering an official account to the public discourse on energy that continues to dominate the newspaper front pages. The records are missing from the state government and it is official now.

There is no agreement between NHPC and the state government anywhere on record. The NHPC has never agreed to return the project. Even the state government has agreed to the 1984 draft agreement that almost negated the cabinet decision of 1975. Instead of objecting, the state government has actually endorsed the GoI decision of transferring Salal to its fully owned NHPC on an ownership basis.

There is also no agreement on the Dul Hasti project. The NHPC has already made clear that it is against repeating Salal in Dul Hasti. In fact, the J&K cabinet agreed to lease out land well before the two sides agreed on an understanding. Royalty apart, of all the four NHPC projects in the state, J&K gets the least from the Dul Hasti.

The report has made certain issues related to Uri clearer – the state can buy it back at a depreciated cost and can stake claims over whatever is additional to the basic installed capacity. The CSC has actually suggested moving ahead on this front.

On the number of projects that were transferred to NHPC in 2000, there was an impression that it had happened on the basis of BOOT (built, operate, own and transfer). But the CSC has given the actual position. “The projects are being handed over to NHPC for funding, execution and operation,” the memorandum that was submitted to the cabinet said. “A mutually acceptable methodology will be worked out for handing over these projects to the J&K government separately.”

Post Script

“I assure the House that we (government) are committed to get back power projects, despite the fact that NHPC is not happy with our efforts because it is earning half of its profits from J&K,” chief minister Omar Abdullah informed the state legislature last week while winding a fierce debate on the energy issue. “My government has also initiated the process to convince New Delhi about our demand.”

State government, Omar said, was pursuing the case for transfer of NHPC power projects, especially the Salal, with the GoI, there is no headway. The transfer, he said, was being sought on the basis of the recommendations that Dr C Rangarajan made as head of a task force that Prime Minister Manmohan Singh constituted. When former chief minister Mufti Sayeed formally sought the transfer of Salal, Prime Minister sent the case to Dr Rangarajan and sought his advice. Though he made a suggestion of handing over Dul Hasti power project, it was never discussed later.

Dr C Rangarajan

“The Rangarajan Committee has recommended the transfer of only Dul Hasti Hydro Electric Project to the state and the matter has been vigorously pursued with the Union Government at various fora”, Omar told the lawmakers. He said the state-owned PDC has been asked to “work out the present cost of Dul Hasti Project on the basis of internationally accepted norms in the industry which can form the basis for further negotiations with the government of India and NHPC.”

Referring to the recommendations that CSC made and his cabinet accepted, Omar said the state law ministry is examining as to how the state government should proceed in respect of its claim for Rs 2350.85 crore from NHPC on account of losses suffered in the absence of any agreement. He talked about his government’s “project-wise strategies” for seeking the transfer of the NHPC projects to the state.

In the meanwhile, there is a contradiction within the government over the water usage charges that the state government has levied on NHPC and other water users in the state. Finance Minister Abdul Rahim Rather said the public exchequer has not received any penny so it was reflected in the budget proposals for 2012-13. However, Omar and later his Irrigation Minister Taj Mohi-ud Din asserted that the state government was actually in receipt of Rs 480.61 crores till December 2011. This amount, Taj later clarified, was received against Rs 543.761 crores of water usage bills that his ministry sent to NHPC for the period between November 11, 2010 and September 30, 2011.


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