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Reasons for Slow
     Realization &
Improvements in Existing
       Policies

        Priyank Jain (92)
India chronology of Policy / Regulation

  Pre 2003        • Early and late 90s Negotiations for small and medium size
                    HEPs, Bidding route initiated in early 2000s.




                  • Gave a framework for development of new capacity on
Electricity Act     competitive basis, puts statutory responsibility on
                    Regulators for market development, also includes concept
     2003           of Statutory policy (mainly Electricity and Tariff Policies




   National       • Hydro power development through private participation,
  Electricity       stresses on the need successful models for Public Private
                    Partnership.
 Policy 2005
India chronology of Policy / Regulation

 National
   Tariff     • Made competitive bidding mandatory

Policy 2006


New Hydro     • Stated objective of overcoming the
                problems experienced with respect to
Policy 2008     tariff based bidding for HEPs
Agencies Involved in Hydropower
          Develpoment
            CENTRAL ELECTRICITY AUTHORITY &
              CENTRAL WATER COMMISSION
             STATE POWER DEPARTMENTS &
                  ELECTRICITY BOARDS
                MNES - MINISTRY OF NON-
             CONVENTIONAL ENERGY SOURCES
            SEVERAL NGO ORGANIZATIONS (e.g.
                         TERI)

            INTERNATIONAL FUNDING AGENCIES
Private sector participation
             Bureaucratic delays,
       Uncertainty in power payments,
     Lack of sanctity regarding contracts,
          Insufficient infrastructure,
      Unknown hydrology and geology.
              Regulatory barriers
             High financing costs,
          Land acquisition problems,
       Rehabilitation and resettlement
               Slow legal system,
 Availability & reliability of data from the Gov
               Interstate matters
Slow realization
Environmental      • Afforestation and rehabilitation are the main
                     problems
    Issues         • Environment impact assessment studies


                   • Land-owners often demand employment and
Land Acquisition     heavy compensation in some of the power
                     stations


   Interstate      • Major Indian rivers are generally interstate

    Disputes
                   • The law and order problem areas affected by
  Insurgency         insurgency and militant problems.
                   • Difficulties in arranging manpower deployment.
Environmental Issues…

Geological    • Geotechnical investigations avoid time and cost
                over-runs.

Surprises

  Funds       • Tie up of resources from concept to
                commissioning suffer

Constraints

 Natural      • Land slides, hill slope collapses, road blocks etc.
              • Heavy rains and unprecedented floods cause
                severe setbacks in construction
Calamities
Policies & Regulations
                     • Policies and according Status of
ƒƒHydel Policy &       Implementation ƒƒCompetitive Bidding
Mega Power Policy

                     • Issues Impacting Delay Hydro Power Project
Environmental and    • Harmonizing Inter-Ministerial Policy
Forest Regulations     Measures/Initiatives



                     • Time to converge on a Mutual Beneficial Path
 Central & State
 Hydro Policies
Issues and Challenges
• Integrated Management of Hydro Projects

 Power Evacuation    EPC & Construction
 and Transmission           Risks


 Macro-Economic
 Perspective and       environmental
   Investment           sustainability
   Bottlenecks
Reasons for Slow Development
Long gestation period


Time consuming process for project clearances

Until recently, the national focus has been on
thermal generation

Highly capital intensive and absence of committed
funds

Poor financial health of State Electricity Boards
(SEBs)

Technical constraints due to complex geological
nature of the projects
Absence of long tenure loans makes it
difficult for private investors

Advance against depreciation is
disallowed

ROE was not attractive enough for
investors

Dearth of competent contracting agencies
to construct the project site

Inter-state disputes as Water is a state
subject
Regulatory-related suggestions
• Timely clearances :
   – Techno-economic clearance by the Central Electricity
     Authority (CEA) and an environmental clearance by the
     Ministry of Environment and Forests.
   – With regard to the environmental clearance.
   – The MoEF give proper guidelines for adverse effect
     control.
   – Examples include: Effect on the Land, effect on water
     quality, effect on flora and fauna.
Regulatory-related suggestions
• The two biggest effects of hydro project development in India
  are the cutting of trees & displacement of people living in the
  area.
   – Recommend the to provide compensatory aforestation –
     equivalent to the forest cover lost as a result of the
     project.
   – Due to law and order problems and judicial interventions.
   – The resettlement process should be handled by the
     government, as it is very difficult for private project
     developer to handle such sensitive issues, and should be
     treated as a welfare scheme, with the government bearing
     the cost of implementation.
Finance-related suggestions
• Penalize delays in project implementation
   – Each developer should be required to submit a bank guarantee of 3 to
      5 percent of the cost of the project as a performance guarantee. If
      project development is delayed by more than one year due to reasons
      attributable to the developer, the contract to develop the project
      should be cancelled.
• Offer payment security
   – Lack of payment security is a primary reason the private sector shies
      away from developing power projects in India.
   – Recommend the central government pursue reform more rigorously,
      particularly in distribution. This will help ensure that state government
      utilities are self-reliant and are able to pay for the power they
      purchase.
• Provide funding for report preparation
   – Recommend the government create a fund of for use in paying
     for preparation of bankable detailed project reports. This
     special-purpose funding vehicle is known as a corpus fund.
     Funds would be made available through a central hydro
     authority to the agencies involved in preparation of the reports.
     The cost of report preparation would be recovered from the
     developer to whom the project is allotted. Thus, the fund
     becomes “revolving.”
   – In addition, financial institutions could join together to form a
     “hydro bank” specifically to provide loans at attractive rates to
     project developers. The hydro bank could offer loans with
     interest less than the PLR. In addition, the hydro bank should be
     allowed to increase loan repayment periods beyond the typical
     ten years. Doubling this repayment period – to 20 years – could
     significantly improve the project’s financial position.
• Make purchase of green power compulsory for utilities
• Require ‘time-of-day’ metering
   – A significant advantage of a hydroelectric project is the
     ability to provide peaking power in the mornings and
     evenings when electrical demand is highest.
   – Owing to the high demand, the rate paid for this peaking
     power is substantially higher than for electricity produced
     at non-peak hours. However, to compensate a hydro
     project owner, arrangements for “time-of-day” metering –
     in which electricity consumed at different times of the day
     is recorded – is required.
Development-related suggestions
• The central government can play an important role in
  facilitating efficient, effective, and timely project completion
  by building access roads to project sites, acquiring land
  needed to develop the project, providing telecommunication
  facilities, and developing a master plan for transmission.
• Some project sites are not approachable by roads that are
  suitable for motorized vehicles. Access roads benefit not only
  the project but also adjoining villages. Therefore, access roads
  should be constructed by the government, and these costs
  should not be loaded on the project.
• Land required for development should be acquired by the
  government and made available to the developer at nominal
  lease charges.
• The land acquisition process is time-consuming and can meet
  roadblocks and judicial intervention, resulting in delays the private
  developer cannot absorb.
• Telecommunication facilities on the way to and at each project site
  will provide the ability to communicate quickly and effectively.
• Reducing the amount of import duty that hydro project developers
  are required to pay for importing construction and generation
  equipment will help reduce overall costs for developers.
• A master plan for transmission of electricity generation should be
  prepared by the central government for the national grid and by
  each state government for the state grids. The master plan should
  include transmission schemes for every generating plant in the
  state, both existing and future.
Way forward
• Consistent policies and regulations should be made through
  the States.
• Large scale hydro projects which involve greater risks due
  to geological uncertainties etc should be implemented by
  the state nodal agencies, while the relatively safer projects
  with reduced risks and smaller capital investments should
  be offered to the private entrepreneurs.
• A single window clearance setup for hydro projects will
  solve most problems related to the clearances etc
• Renovation and Modernization of existing /old hydro power
  plants should be promoted and planned for, instead of
  complete focus on setting up of green field power projects
• Financial issue like Long term debt financing / long tenure loans,
  differential tariff for pea and off-peak hours need serious thinking
  and early implementation
• The private sector participation in the large scale development of
  hydropower should be promoted. This can be achieved either
  through public-private partnerships or through independent private
  projects (IPP way). The Government of India has already recognized
  the need to increased private involvement and has referred to it in
  the national policy document.
• The hydro sector needs to develop a set of competent civil
  engineers / contracting agencies that have the technical and the
  management expertise to conceptualize and develop a project of
  the required scale. The contract management practices with a
  transparent system of selection of contractors and resolve any
  disputes that may arise need to be reviewed.
Indian Hydro Power - A new regulatory effort

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Indian Hydro Power - A new regulatory effort

  • 1. Reasons for Slow Realization & Improvements in Existing Policies Priyank Jain (92)
  • 2. India chronology of Policy / Regulation Pre 2003 • Early and late 90s Negotiations for small and medium size HEPs, Bidding route initiated in early 2000s. • Gave a framework for development of new capacity on Electricity Act competitive basis, puts statutory responsibility on Regulators for market development, also includes concept 2003 of Statutory policy (mainly Electricity and Tariff Policies National • Hydro power development through private participation, Electricity stresses on the need successful models for Public Private Partnership. Policy 2005
  • 3. India chronology of Policy / Regulation National Tariff • Made competitive bidding mandatory Policy 2006 New Hydro • Stated objective of overcoming the problems experienced with respect to Policy 2008 tariff based bidding for HEPs
  • 4. Agencies Involved in Hydropower Develpoment CENTRAL ELECTRICITY AUTHORITY & CENTRAL WATER COMMISSION STATE POWER DEPARTMENTS & ELECTRICITY BOARDS MNES - MINISTRY OF NON- CONVENTIONAL ENERGY SOURCES SEVERAL NGO ORGANIZATIONS (e.g. TERI) INTERNATIONAL FUNDING AGENCIES
  • 5. Private sector participation Bureaucratic delays, Uncertainty in power payments, Lack of sanctity regarding contracts, Insufficient infrastructure, Unknown hydrology and geology. Regulatory barriers High financing costs, Land acquisition problems, Rehabilitation and resettlement Slow legal system, Availability & reliability of data from the Gov Interstate matters
  • 6. Slow realization Environmental • Afforestation and rehabilitation are the main problems Issues • Environment impact assessment studies • Land-owners often demand employment and Land Acquisition heavy compensation in some of the power stations Interstate • Major Indian rivers are generally interstate Disputes • The law and order problem areas affected by Insurgency insurgency and militant problems. • Difficulties in arranging manpower deployment.
  • 7. Environmental Issues… Geological • Geotechnical investigations avoid time and cost over-runs. Surprises Funds • Tie up of resources from concept to commissioning suffer Constraints Natural • Land slides, hill slope collapses, road blocks etc. • Heavy rains and unprecedented floods cause severe setbacks in construction Calamities
  • 8. Policies & Regulations • Policies and according Status of ƒƒHydel Policy & Implementation ƒƒCompetitive Bidding Mega Power Policy • Issues Impacting Delay Hydro Power Project Environmental and • Harmonizing Inter-Ministerial Policy Forest Regulations Measures/Initiatives • Time to converge on a Mutual Beneficial Path Central & State Hydro Policies
  • 9. Issues and Challenges • Integrated Management of Hydro Projects Power Evacuation EPC & Construction and Transmission Risks Macro-Economic Perspective and environmental Investment sustainability Bottlenecks
  • 10. Reasons for Slow Development Long gestation period Time consuming process for project clearances Until recently, the national focus has been on thermal generation Highly capital intensive and absence of committed funds Poor financial health of State Electricity Boards (SEBs) Technical constraints due to complex geological nature of the projects
  • 11. Absence of long tenure loans makes it difficult for private investors Advance against depreciation is disallowed ROE was not attractive enough for investors Dearth of competent contracting agencies to construct the project site Inter-state disputes as Water is a state subject
  • 12. Regulatory-related suggestions • Timely clearances : – Techno-economic clearance by the Central Electricity Authority (CEA) and an environmental clearance by the Ministry of Environment and Forests. – With regard to the environmental clearance. – The MoEF give proper guidelines for adverse effect control. – Examples include: Effect on the Land, effect on water quality, effect on flora and fauna.
  • 13. Regulatory-related suggestions • The two biggest effects of hydro project development in India are the cutting of trees & displacement of people living in the area. – Recommend the to provide compensatory aforestation – equivalent to the forest cover lost as a result of the project. – Due to law and order problems and judicial interventions. – The resettlement process should be handled by the government, as it is very difficult for private project developer to handle such sensitive issues, and should be treated as a welfare scheme, with the government bearing the cost of implementation.
  • 14. Finance-related suggestions • Penalize delays in project implementation – Each developer should be required to submit a bank guarantee of 3 to 5 percent of the cost of the project as a performance guarantee. If project development is delayed by more than one year due to reasons attributable to the developer, the contract to develop the project should be cancelled. • Offer payment security – Lack of payment security is a primary reason the private sector shies away from developing power projects in India. – Recommend the central government pursue reform more rigorously, particularly in distribution. This will help ensure that state government utilities are self-reliant and are able to pay for the power they purchase.
  • 15. • Provide funding for report preparation – Recommend the government create a fund of for use in paying for preparation of bankable detailed project reports. This special-purpose funding vehicle is known as a corpus fund. Funds would be made available through a central hydro authority to the agencies involved in preparation of the reports. The cost of report preparation would be recovered from the developer to whom the project is allotted. Thus, the fund becomes “revolving.” – In addition, financial institutions could join together to form a “hydro bank” specifically to provide loans at attractive rates to project developers. The hydro bank could offer loans with interest less than the PLR. In addition, the hydro bank should be allowed to increase loan repayment periods beyond the typical ten years. Doubling this repayment period – to 20 years – could significantly improve the project’s financial position.
  • 16. • Make purchase of green power compulsory for utilities • Require ‘time-of-day’ metering – A significant advantage of a hydroelectric project is the ability to provide peaking power in the mornings and evenings when electrical demand is highest. – Owing to the high demand, the rate paid for this peaking power is substantially higher than for electricity produced at non-peak hours. However, to compensate a hydro project owner, arrangements for “time-of-day” metering – in which electricity consumed at different times of the day is recorded – is required.
  • 17. Development-related suggestions • The central government can play an important role in facilitating efficient, effective, and timely project completion by building access roads to project sites, acquiring land needed to develop the project, providing telecommunication facilities, and developing a master plan for transmission. • Some project sites are not approachable by roads that are suitable for motorized vehicles. Access roads benefit not only the project but also adjoining villages. Therefore, access roads should be constructed by the government, and these costs should not be loaded on the project. • Land required for development should be acquired by the government and made available to the developer at nominal lease charges.
  • 18. • The land acquisition process is time-consuming and can meet roadblocks and judicial intervention, resulting in delays the private developer cannot absorb. • Telecommunication facilities on the way to and at each project site will provide the ability to communicate quickly and effectively. • Reducing the amount of import duty that hydro project developers are required to pay for importing construction and generation equipment will help reduce overall costs for developers. • A master plan for transmission of electricity generation should be prepared by the central government for the national grid and by each state government for the state grids. The master plan should include transmission schemes for every generating plant in the state, both existing and future.
  • 19. Way forward • Consistent policies and regulations should be made through the States. • Large scale hydro projects which involve greater risks due to geological uncertainties etc should be implemented by the state nodal agencies, while the relatively safer projects with reduced risks and smaller capital investments should be offered to the private entrepreneurs. • A single window clearance setup for hydro projects will solve most problems related to the clearances etc • Renovation and Modernization of existing /old hydro power plants should be promoted and planned for, instead of complete focus on setting up of green field power projects
  • 20. • Financial issue like Long term debt financing / long tenure loans, differential tariff for pea and off-peak hours need serious thinking and early implementation • The private sector participation in the large scale development of hydropower should be promoted. This can be achieved either through public-private partnerships or through independent private projects (IPP way). The Government of India has already recognized the need to increased private involvement and has referred to it in the national policy document. • The hydro sector needs to develop a set of competent civil engineers / contracting agencies that have the technical and the management expertise to conceptualize and develop a project of the required scale. The contract management practices with a transparent system of selection of contractors and resolve any disputes that may arise need to be reviewed.

Notas do Editor

  1. INTERNATIONAL FUNDING AGENCIES – WORLD BANK, UNDP, GLOBAL ENVIRONMENT FACILITY, THE ASIA ALTERNATIVE ENERGY PROGRAM (ASTAE), ASIAN DEVELOPEMENT BANK,INDIAN RENEWABLE ENERGY DEVELOPMENT AGENCY (IREDA)
  2. Private sector participation in overall power development in India has been about 11 percent.