The enlarged footprint of projects in J&K, with one third of its installed capacity being in J&K has earned the NHPC the local sobriquet of the new ‘East India Company.’
For nearly the last two decades, when Dr. Farooq Abdullah as the Chief Minister of Jammu & Kashmir signed an MoU with the NHPC for developing seven hydro projects in the State, there has been a strong feeling of betrayal amongst the people of the State, particularly in the Kashmir valley, that he bartered away the most prized resource of the State, i.e., water, to the NHPC.
Prior to the signing of the MoU for these seven projects, the NHPC had been operating the 690 MW Salal HEP and the 480MW Uri HEP in the J&K with the third project, the 390MW Dul Hasti HEP, being then under implementation. While the work on Salal HEP had been started by the State government in late ‘60s, it was handed over to the NHPC in mid-70’s when the NHPC was set up, and was amongst the first projects to be commissioned by the NHPC.
With the energy crises in J&K worsening every winter, the impact of which is most severely felt in Kashmir valley, there is a perception among the common man that the energy generated by the NHPC owned hydro projects in the State was being sold to other States while J&K was being starved. In the last two decades, post the signing of the MoU, the NHPC has commissioned several other projects like Dul Hasti (2008), Sewa II (2012), Uri II (2016) and now Kishanganga HEP (2018). This enlarged footprint of projects in J&K, with one third of its installed capacity being in J&K (out of its total installed capacity of 7,047 MW across the country, 2,339 MW are located in J&K) has earned the NHPC the local sobriquet of the new ‘East India Company.’
The narrative has been developed further and many people, including top leadership of the State, irrespective of party lines, believes that the transfer of these NHPC projects to the J&K Government (J&K State Power Development Corporation — JKSPDC) would end the energy shortage in the State. They further believe that the State could have a very reliable source of revenue by exporting energy to other States. This misconception is presumably based on their incorrect understanding that (i) the NHPC sells the energy it generates on a monopolistic basis thereby making huge profits and (ii) the NHPC sells all the energy it generates outside the State, leaving the State energy starved.
The fact of the matter is that the energy tariff is determined through a due regulatory process — the Central Electricity Regulatory Commission and the State Electricity Regulatory Commission for the central and states generating utilities — based on the costing (total cost of construction, including servicing of the debt and equity, operating and the maintenance cost of running the power station) and energy yield calculations to ensure its competitiveness. The Regulator allows the promoter only a predetermined rate of return (as of now it is 15.5%) on equity investment. As can be seen, the current return on equity is not a windfall, and there are numerous investment opportunities where the government or company can invest and earn a higher yield with much lower risks.
As regards the allocation and sale of the energy generated by the NHPC in J&K to other States, there is a very well defined mechanism for that. The allocation of energy to different States in the northern region is based on the Gadgdil formula. Based on this mechanism today, J&K roughly gets about one third of the energy generated by these plants. Of this, 13% is made available as free power while the balance, about 20%, is purchased at the tariff approved by the regulator.
It needs to be added here that, like other northern States getting a share or allocation of energy from the NHPC’s projects in J&K, J&K also gets a share or allocation of energy in any hydro, thermal project or nuclear power project developed by any central generating utility in any of the northern States. These utilities include those generating energy from hydro stations (NHPC, SJVNL, NTPC), thermal (NTPC) and nuclear (NPCIL). As a matter of fact, J&K gets much more energy from the central generating utilities than its entitlement — against a firm allocation of 1,600 MW to which the State is entitled, it gets an additional special allocation of more than a 1,000 MW. Interestingly, these 1,000 MW include allocation from even Western Region, Eastern Region and from hydro stations in Bhutan.
It also needs to be borne in mind that a major portion of the current allocations comes from non-hydro projects, which generate energy uniformly throughout the year. This is particularly important for the valley since its demand is maximum in winter when the generation from hydro plants drops to less than one fifth of their peak summer generation.
So what does J&K gain by taking ownership of these hydro projects from the NHPC? Besides the risks and uncertainties associated with hydro projects, there are some additional downsides, particularly with regard to allocation of energy that J&K is currently availing from power projects, both hydro and non-hydro, owned by central generating utilities and located in other States. If post transfer J&K decides to abrogate the current allocation of power (and the existing power purchase agreements) from these ‘transfer’ projects to the other States, there is no reason why J&K should not expect a similar abrogation of allocation of power to J&K from central generating stations in other States. Any alteration in allocations of energy from these plants will critically impact J&K, particularly the valley, since its winter demand, in absence of adequate generation from hydro projects, is mostly met by thermal and nuclear plants of the central generating utilities.
Rather than creating a hype around the return of power projects, people clamouring for their return need to study and understand the implications, both short and long term, of what they are seeking.
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Iftikhar A. Drabu is a civil engineer by qualification with more than 35 years of industry experience out of which 15 years are in hydro ...Read More +