The state has passed a bill envisaging levying water usage charges on power generation. Though far from reclaiming its water resources bartered away through Indus Water Treaty by New Delhi, it is a step in the right direction. A Kashmir Life report.
Successive state governments have compromised the interests of the state and then created issue by talking about them. State’s huge waster resources are a classic case.
Soon after the partition the state government did not interfere till New Delhi bartered its vast water resources to Islamabad in lieu of its interests in the plains of Punjab. The time tested Indus Water Treaty survived all wars but it became an issue in J&K. Nobody asked the politicians why they surrendered their rights when the World Bank and many other Western powers negotiated the deal that was finally sealed in 1960.
In the stage two, the leaders of the state played second fiddle to the central government owned hydro power major NHPC. Instead of making the efforts of tapping water resources (which was impossible for want of resources in a highly regulated and closed economy) by the state, they started handing the identified projects over to the NHPC. Now when the NHPC is generating almost half of its energy from J&K and selling it back to the state, the politicians are again in crisis. Accused of selling the interests of the state, they finally took a different route last week.
In the just concluded brief session of the state legislature, state’s Irrigation Ministry managed the passage of a bill that would lead to setting up of State Water Resources Regulatory Authority (SWRRA) for managing water resources and raising revenue against its usage. Though the law would bring every water user under its purview, the immediate idea is to make NHPC pay for its non-consumptive use. This law has given J&K the dubious distinction of being the first state in India where power generation will have to cough up ‘water usage charge’ (read tax).
“Not NHPC alone, we want everybody including the state owned Power Development Corporation (JKPDC) to pay for the water it uses to generate energy,” Irrigation Minister Taj Mohi-ud-Din told reporters after the passage of the J&K Water Resources (Regulation and Management) Bill, 2010. Passage of the bill, he said was inevitable in wake of thirteenth finance commission putting a rider over spending from the grants it recommended in absence of such an authority.
“Even if we fix a rate of only paisa 25 for every cubic meter of water that goes in power generation, it should fetch the state Rs 848 crore a year.” NHPC, he said, “earns Rs 7140 crore a year from its J&K operations”.
No eyebrows frowned in the state assembly but when the bill was taken up for passage in the state legislative council, there were abortive bids to ground it. “The routine laws about water are not being implemented on ground so what would happen to the new law?” argued NC’s Ajay Kumar Sadhotra. “There were efforts in the past as well to tax the water and Mohammad Shafi (Uri) did his bit when he was the finance minister but NHPC did not agree to it and we had to withdraw that.” Sadhotra asked if the NHPC pays 12 percent of its generations as royalty how they can pay another tax.
But Taj argued that the state will not let the huge resource of the state go waste like this. “As for 12 percent of the generations are concerned, that is state’s equity participation and no royalty,” he said, adding, “The water usage charges that the law is asking for will be levied on that portion as well, even the state owned PDC will also pay.” The bill finally became a law.
“If we are levying water usage charges on the farmers for irrigating their fields or to consumers in the cities what is the harm in making the power generating corporations to pay?” asks Taj, who said his ministry has been working on the 118-page bill for a year and has consulted Central Water Commission (CWC). “Even the CWC is working on a similar law for consideration of the cabinet,” he added.
Thousands of people outside the assembly were pleased to hear that the state government has finally come out of the slumber and started working to safeguard the interests of the state. “For many years now, we were asking the government that it should levy service tax on the power companies, telecom people and other major investors in the state so that a bit of the revenue improves the public exchequer,” Shakeel Qalander, who heads the Federation Chamber of Industries, Kashmir (FCIK) said. “I am more than happy that the state government has finally started working on this front and the law it has brought is a milestone.” However, he does not know about the follow up. “What will happen next remains to be seen,” he said.
The exploitation of state’s vast water resources has remained a vital ingredient of Kashmir’s political discourse. Reference to New Delhi bartering Kashmir’s interests to Islamabad in the 1960’s Indus Water Treaty is a common refrain. Off late, it is NHPC that is on the receiving end.
But it is also a fact that for NHPC J&K is the power house. From an identified 14275 MW potential, J&K has been able to harness only 2456 MW. Of this NHPC alone is generating 1680 MW through its four projects – Salal, Dul Hasti, Uri and just commissioned Sewa-II. For a staggered investment of Rs 8454.13 crore, the NHPC is getting 8149.90 million units at a 90 percent dependability, a year. It is adding 320-MW to its installed capacity in the state within next one year when its three projects – one in Kashmir and two in Ladakh go into generation.
The statistics prove the point (see box). In the fiscal 2008-09, NHPC achieved highest ever net profit of Rs 1050 crore as its sales turnover reached an all time high of Rs. 2562 crore. It generated and sold 16690 millions of energy in the financial year ending March 31, 2009. Interestingly, almost half of the its energy – 8240 million units – came from its operations in J&K.
In fact, NHPC took off from J&K when it started Salal in 1975. Though it has expanded and invested heavily in various projects and JVs across India, J&K continues to be its major power house.
Its generations in J&K were making 57.50 percent of NHPC’s total generations in 2003-04, 50.15 percent in 2004-05. Later the share fell to 48.38 percent in 2005-06 and 48.49 percent in 2006-07 as its projects in other states were commissioned. But in 2007-08 when NHPC’s total generation was 14813 million units, J&K accounted for 8037.31MUs (54.56 percent) because of the Dul Hasti power project that was commissioned after an inordinate delay.
In the last fiscal 2009-10 the NHPC had a net sale turnover of Rs 4218.90 crore when it sold 16960 million units of energy. Its net profit was Rs 2090.50 crore – the highest ever it booked. Its three projects operating in J&K fetched it 7991 million units of energy which makes over 47 percent of the total energy it sold. In simple terms it means J&K operations contribute almost half to NHPC’s generations, sales and profits. (It also negates the assertions by Taj that NHPC earns over Rs 7000 crore from J&K.) The share will go up in the current fiscal as Sewa-II is also up. NHPC has set a cumulative target of 8334 million unit of energy from its four operational units in 2010-11 against which the generations have reached 5019 million units by August 2010.
NHPC has grand plans for J&K. It is already in possession of five projects totalling 1679-MWs. While the 330-MW Kishanganga will get delayed because of serious crisis with Pakistan and the 1020-MW Bursar will take a long time, the remaining three are expected to generate electricity by next fiscal. These include the Nimu-Bazgo and Chutak in Ladakh and Uri-II in Kashmir.
At the same time, the NHPC is part of the Joint Venture that the PDC has with the Power Trading Corporation (PTC). Though the final agreement is yet to be signed the JV envisages 49 percent equity to NHPC and PDC with the balance two percent to the PTC. The JV will take up three projects with cumulative capacity of 2120 MWs at Kiru, Kawar and Pakaldul – all in Chenab Valley. Though MoU was signed on October 10, 2008, the promoters’ agreement is finalized and is awaiting signatures. The People’s Democratic Party is against the idea unlike NC.
The new law will have impact on the entire power generation sector. These include the 690-MW Ratle Power Project that has been bagged by GVK Development Projects Pvt Ltd. Tendered on basis of upfront premium, free power, tariff for 55% of generations by the project to be procured by the state and terminal price to be paid at the time of transfer of the project back to the state, GVK offered five lakh rupees per MW as upfront premium, 16% as free power including one percent for local area development fund , levelized tariff of Rs 1.44 per unit and Rs 380 crore as terminal price to be paid to the developer at the end of 35 years for transferring the project back to the state. Application of the new law will send the GVK bosses re-evaluating the project.
At the same time it could impact the smaller power projects that are in operation or at different stages of implementation. Around 10 projects, only one of them commissioned, have been given to private power producers and the water usage charges will make their generations costly. Right now the state purchases Salal energy for Rs 0.60 a unit and that of Uri and Dul Hasti at Rs 1.34 and Rs.3 respectively.
NHPC is paying 12 percent of generations as royalty but the state is seeking a hike, which has not been accepted in wake of presumptions that other states will also make similar demands. Taxing the generations may offer J&K one way of trying to compensate the losses, it claims, it has been suffering over the decades.
The larger argument in a section of state government is that if at all NHPC agrees to pay, it will eventually pass the additional costs to the consumer. It will end up state earning on one hand and returned the same by another. J&K purchases energy worth Rs 2000 crore a year against the actual tariff collection of not more than Rs 800 crore. The new law will add to the gap. Once the authority will be set up – Taj says it must be operational by early 2011, the controversy will leap to the front pages.
Taj, however, said the law is not all about making money. The Authority is mandated to a lot of activities for protecting the water resources and improving them besides monitoring the safety of the dams. “It is not regulation alone. The Authority will ensure judicious, equitable and sustainable management as well,” he asserted.
Most of the dams that the NHPC’s projects have in the state have an inbuilt automatic mechanism of flushing part of the storage to manage silt load. But there are no alarm systems installed,” he said. He referred to the dam of NHPC Uri-I that releases 10 percent of the water storage to flush silt automatically. “Usually this system should be applicable at places that are deserted but there is habitation for 26 km on both the banks and this automatic discharge has killed 25 people so far and these include a family of one of their officers who were taking pictures in the middle of the nearly-dry river when the gates flushed the silt,” he said. NHPC authorities have not acted on the simple request that they should install alarm system to save lives.
“Now this law will ensure that (installing alarm systems) and will make them accountable,” the minister said. He plans getting best of the experts from abroad to get the dams inspected year after year because “tens of thousands of lives are involved” almost everywhere. He, however, had no knowledge of the design defects in the dam of state owned Baghliar power project that operates in seismic zone V and has a fault line passing through the dam.
At the end of the day, insiders in the government say if the law will help J&K forcing a change in the 12 percent royalty, it will be a net gain. But can that happen?
