Demand for advance premium stalls large hydropower projects

Demand for advance premium stalls large hydropower projects
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First Published: Wed, Feb 18 2009. 12 37 AM IST

Power projects: A 2008 photo of the Lower Subansiri hydoelectric power station on the Assam-Arunachal Pradesh border. Arunachal Pradesh has the highest potential for hydropower in India. Indranil Bhou
Power projects: A 2008 photo of the Lower Subansiri hydoelectric power station on the Assam-Arunachal Pradesh border. Arunachal Pradesh has the highest potential for hydropower in India. Indranil Bhou
Updated: Wed, Feb 18 2009. 12 37 AM IST
New Delhi: India’s efforts to build large hydropower plants have run into trouble with some states insisting on a premium in advance for the projects and the Union government unwilling to yield to the demand.
“The scheme is a non-starter with states demanding upfront premium which negates the very UMPP (ultra mega power projects) model,” said a power ministry bureaucrat who did not want to be named.
Power projects: A 2008 photo of the Lower Subansiri hydoelectric power station on the Assam-Arunachal Pradesh border. Arunachal Pradesh has the highest potential for hydropower in India. Indranil Bhoumik / Mint
The Central government’s UMPP model calls for creating special purpose vehicles—firms that work with state governments and local bodies to acquire land and obtain environmental and other clearances—typically to set up thermal power plants. These vehicles are then transferred to the successful bidder of the project.
The role of a state government is critical as hydroelectric projects take a big toll on the environment, besides displacing local residents. “The states have to come on board for the attempt to be successful, as nothing can be done without their cooperation,” the power ministry official said.
A power ministry official of the Arunachal Pradesh government defended his state’s stand. “Hydropower is a major source of state’s revenue and upfront premium contributes towards the development of the state,” he said, on condition of anonymity.
“They (the Union power ministry) have been asking us to identify and allocate projects to which we have not said yes. In fact, the upfront premium charged by other states is much more than ours,” he added.
Arunachal Pradesh government charges an upfront premium of Rs1 lakh to Rs6 lakh per MW, depending upon the size of the project. The north-eastern state is at the centre of the controversy because it has the highest potential for hydropower in India. The potential of hydropower of all the north-eastern states and Bhutan is about 58,000MW. Of this, Arunachal Pradesh alone accounts for 50,328MW. In northern India, Himachal Pradesh has a potential of producing 20,376MW from hydropower plants and Uttarakhand, 16,500MW.
Last year, state-owned NTPC Ltd’s refusal to pay an advance amount led to the cancellation of a contract to develop two hydropower projects in Arunachal Pradesh at an estimated cost of Rs22,500 crore.
The state wanted NTPC to pay Rs5 lakh per MW as upfront payment for the projects at Etalin (4,000MW) and Attunli (500MW).
With the share of hydropower falling from 40% to 25% in the past 20 years, the government is worried, as the sector accounts for only 32,000MW of the country’s 147,000MW power generating capacity.
In an attempt to create large hydropower capacities and attract investment in the sector, the power ministry had written to Uttarakhand, Himachal Pradesh and Arunachal Pradesh, asking them to identify and allocate projects with a potential of at least 500MW, to be awarded through the UMPP model, as reported by Mint on 4 August. Officials of the Uttarakhand and Himachal Pradesh governments couldn’t be contacted immediately.
Power sector experts have been sceptical of the efficacy of the UMPP model in hydropower. “It is a good concept but it will be a challenge to execute it. Hydropower projects are extremely site-specific and are not as modular as thermal projects.
A huge amount of preparation is required. The detailed project reports need to be prepared upfront. Unfortunately, this is not what the states have done at the time of awarding the hydropower projects,” Shubhranshu Patnaik, an executive director at consultancy firm PricewaterhouseCoopers, had earlier told Mint.
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First Published: Wed, Feb 18 2009. 12 37 AM IST