Panel for evaluating hydro PSU merger plan says it is unviable4 min read . Updated: 01 Oct 2014, 01:06 AM IST
Panel says no positive contribution can be expected by the merger in expediting the development of hydropower
New Delhi: A plan to merge all state-owned hydroelectric companies has been nipped in the bud with a joint study commissioned to evaluate its viability terming it not “in the best interest of efficient decision making".
The study undertaken by North Eastern Electric Power Corp. Ltd (Neepco), NHPC Ltd, THDC India Ltd and SJVN Ltd and submitted to the government cites reasons such as expanding geographical reach, human resource issues, and the prospect of addressing the concerns of state governments, to give the plan a resounding thumbs down.
A government official privy to the contents of the report said it says: “Integration of Neepco, THDCIL and SJVNL with NHPC may not logically lead to value enhancement for Government of India and may also not accelerate capacity addition in hydro sector. On the other hand several other issues may have to be tackled."
Mint has not reviewed the report.
Another government official confirmed that the report says the plan to merge the companies will not work.
Neither person wished to be identified.
The merger plan was driven by an attempt to stem the decreasing share of hydropower in the country’s energy mix, with the merged entity having a project portfolio of 62,674 MW, a net worth of ₹ 47,000 crore and a net profit of ₹ 2,900 crore, according to SBI Capital Markets Ltd, which was appointed to help develop the concept paper.
The study was undertaken after the power ministry called a meeting of all state-owned hydroelectric companies on 1 September; it was submitted to the government on 15 September.
Mint had reported the merger plan on 28 July. In an effort to drive synergies, the government was also exploring the possibility of state-owned NTPC Ltd transferring its hydro projects to the state-owned hydropower companies and the latter transferring their proposed coal-fuelled projects to NTPC.
According to the first government official, the report states: “The option of transferring GoI (Government of India) holding in existing entities to a holding company is likely to result in reduced confidence of board for decision-making, as the boards of such company would report to yet another immediate layer of holding company. The nominees of holding company are likely to share unequal relationship with official nominees of state governments on the boards of the subsidiary entities."
Individual companies, too, were not in favour of the merger.
The Union government has an 85.96% stake in NHPC, with the balance held by the public; the Union government is the sole owner of Neepco. In THDC, the Union government holds 73.08%, with the balance held by the state government of Uttar Pradesh. In SJVN, the Union government has a 64.47% stake, with the state government of Himachal Pradesh and the public holding 25.5% and 10.03%, respectively.
“The proposal is not feasible," said the head of a hydropower firm, speaking on condition of anonymity.
India has a power generation capacity of 250,257MW, of which 16.3%, or 40,799MW, is hydropower. A majority of India’s hydropower projects have been delayed, hampering the government’s bid to increase power generation to meet demand and boost economic growth.
“The government of India has, over the years, taken a number of initiatives to prioritise hydropower development and to attract investments in the sector. Key measures include the preparation of a shelf of well investigated projects, which could substantially reduce risk perceptions, streamlining clearance procedures, the provisions of open access and trading as per the Electricity Act 2003, etc. However, issues in implementation of such policy initiatives and regulations still plague the sector resulting in the declining share of hydropower in India’s energy mix since 1966," said a PricewaterhouseCoopers report on Hydropower titled “Hydropower in India - Key enablers for a better tomorrow" prepared for industry lobby FICCI.
The merger plan was first suggested at a presentation made to Piyush Goyal, minister in charge of power, coal, and new and renewable energy, on 2 July.
A power ministry spokesperson didn’t respond to an email seeking comment.
A concept paper on the possibility of a merger of all state-owned hydroelectric companies had recommended a phased approach, starting with the merger of Neepco and NHPC Ltd, followed by the integration of THDC India Ltd and SJVN Ltd into the merged entity. The concept paper had also spelt out the concerns such as conflict of interest among entities, diverse organizational cultures, impact on credit ratings, legal constraints in power purchase agreements and government clearances.
According to the first government official, the joint study stated, “It is perceived that no positive contribution can be expected by the merger in expediting the development of hydropower. Rather, for taking up new projects, new SPVs/companies will have to be formed in joint ventures with the state government agencies." A Special Purpose Vehicle or SPV is a company set up for a specific project.
Of India’s hydropower potential of 1,45,320 MW, 40,800 MW has already been developed with 13,063 MW under construction.
“Various factors such as environmental concerns, R&R (relocation and rehabilitation) issues, land acquisition problems, long clearance and approval procedures, capability of developers, etc. have contributed to the slow pace of hydropower development in the past. These issues have been compounded as hydropower development has largely remained under the ambit of state governments (water being a state-specific subject) with varying policies (e.g. upfront premium, royalty power, land acquisition policy, etc.) adopted by the states," the PwC report added.