Monday, August 18, 2014

Exploring Community Owned Small Hydro Projects

What does an agrarian population need to achieve self-sufficiency as well as economical and sound standards of living through sustainable development practices?

Robust Economy? No. An economy can be absolutely hale and hearty on papers even while leaving a significant part of the population behind, without any tangible benefits. The proverbial ‘third world’ will affirm. Besides, most ‘robust’ economies are sustained on high levels of pollution caused by heavy industrialization.

Good governance? Quite possible, but what ‘constitutes’ ‘good’ governance? More importantly, what ‘ensures’ the same?

The answer lies in the prudent use of critical natural resources, particularly water and community ownership of the same. And, the concept is not a new one. The importance of water to civilizations across the world, through the ages is well known. Perhaps lesser known is the science of water management as it evolved through the times.

Small water bodies like tanks, ponds, reservoirs and wells formed an integral part of the social structure across civilizations. Their community ownership was assured by the formation of committees accountable to the community. Such committees oversaw the regular use, sanctification and maintenance of the water bodies.

With the expansion of the agrarian economy, water networks in the form of canals and other channels were engineered. Elaborate civil structures that facilitated the usage of water by the community in a sustainable manner also came to be integrated into the social architecture.

The point to be noted here is that water has traditionally been recognized as a critical community resource. Its usage for domestic and agricultural purposes and maintenance were taken up as a community effort.
The modern Indian society that, amidst rising environmental concerns, currently faces a dire need of uplifting the standards of living of its citizenry can adopt the same approach. Considering the additional demand for usable electricity as a basic need of contemporary society, community owned small hydro power projects appear to be a convincing solution towards sustainable development.

How would they help?

India’s potential for small hydro projects is estimated to be around 15000 MW; much of which is concentrated in the Himalayan region as river based projects. Small hydro power plants can provide these regions of difficult terrain and remote location with the much needed electricity for domestic purposes while simultaneously encouraging local enterprises. A well designed hydro initiative can promise long term revenues to finance a series of local initiatives in the years to come. Installations of community owned small hydro schemes can provide the populace with long term income streams.

The surplus electricity from such projects can be sold to the grid. Significant dividends can be earned by selling the ‘green electricity’ through the REC program. The prospect of claiming CDM benefits also exists. Eco-tourism projects can be taken up as an additional source of revenue.

The profits would bring in seed capital and overhead finance for further community owned enterprises which would facilitate its wholesome socio-economic development. The most likely result of such an enterprise would be a rise in the per capita income. Improved living standards and an enhanced GDP would follow almost as a sequel.

The most important benefit of small scale community owned hydro projects, however, lies in their acceptance by the people. The lesser the project size, lesser would be the problems of population displacement, rehabilitation and resettlement associated with it.

Run-of-the-river projects with no reservoirs have practically no submergence issues associated. Smaller dams further reduce the chances of population displacement. The states of Karnataka, Himachal Pradesh and Arunachal Pradesh have led the way in achieving large scale sub-urban and rural electrification by successfully implementing small hydro projects. The immediate tangible benefits of small scale projects far outweigh the associated problems. Few or no incidences of public dissent regarding such projects are recorded. Proprietary claim on the project and associated benefits paves way for the address of most project related issues by the community itself.

For projects aimed in areas of strategic importance, involving the locals in understanding the socio-political issues and seeking their solutions is likely to create a sense of belonging and security among them. The idea is to push heavy onus of project execution and maintenance to the beneficiary population. This would ease project implementation significantly. Involvement from concept to commissioning of the project and later its operation and maintenance would help integrate the remote tribes to the mainstream population.

The concept has passed a series of litmus tests in the desert state of Rajasthan. The 2001 Ramon Magsaysay award winner for Community Leadership, Rajendra Singh has successfully demonstrated how community owned small hydro projects have been instrumental in altering the socio-economic conditions of communities across the state.

Leveraging the traditional knowledge of the local populace regarding land and environment, Singh and his Tarun Bharat Sangh (TBS) have revived five regional rivers – Arvari, Ruparel, Sarsa, Jahajwali and Bhagani – which remained dry for a long time. In addition, Alwar, the dry district of western Rajasthan, which had been declared as a ‘dark zone’ is now dotted with more than 5000 johads (earthen check dams) spanning over 1000 villages. Neembi, one of the many dry villages, spent around INR 50,000 in 1994 to construct two johads. Today, the hamlet is a self-sufficient unit that engages in farming and cattle-rearing and earns significant revenues by trading its products.

Small scale hydro projects have helped construct small water networks across villages to help agriculture, local enterprises and other domestic activities.

Slow progress in India: Where did the problem lie?

Even with a robust regulatory framework in place Small Hydro Projects (SHP) development in India, especially the community owned genre has taken place at a slower-than-expected pace. The reasons can be traced to the complex geological nature of the projects and the difficult terrains typical of hydro-rich regions. These lead to difficulties in carrying out in-depth investigative studies.

The lower Himalayan region, one of the most potent regions for hydro power development, is strategically critical. Infrastructure development in these regions has faced the dual prongs of adverse geography and strategic hazards.

The absence of an investor friendly environment has added to the list of obstacles. To start with, the return on investments has been far from attractive. The absence of long tenure loans has made it difficult for private investors. To make matters worse, advance against depreciation is disallowed. Tariffs being affected by factors other than pure techno-financial aspects have played down investor interests.

Project management also has presented its own share of snags. The lack of a clean and objective approach has facilitated the nurture of incompetent contract management agencies. Poor contract management has added to the list of financial woes.

In addition, bureaucratic delays related to land acquisition and designing Rehabilitation and Resettlement (R&R) packages have affected the pace of project development. Water being state subject, inter-state disputes has also stood as hurdles in the way of small hydro power development.

The Way Forward

Community Ownership of projects would necessitate educating and empowering the concerned population. This would help in project planning, implementation, operation and maintenance.

Replacement of the currently estimated 1.5 lakh traditional water wheels running in the Himalayan region with improved, high efficiency water mills can help the local economies to step up their domestic and farm produce. Water mills for electricity generation of 3 – 5 kW have been adopted at a few places, to enhance productivity. Uttaranchal, with 500+ water mills for electricity generation, now looks forward to replicate the model at a larger scale. The state has also undertaken a mass movement to install electricity generation water mills with community participation.

With benefits like the growth of indigenous industries and local enterprises on the platter, involving communities for wholesome project ownership should pose a lesser challenge than it initially appears to be.

               InfralineEnergy Energy Renewable Research Team


The views expressed here are solely those of the author in his private capacity and do not in any way represent the views of the Infraline Technologies (India) Pvt. Ltd. (organization). The organization is not liable for any use that may be made of the information contained therein and any direct/indirect consequences resulting therefrom.

Tuesday, August 5, 2014

Premium Rescheduling : Respite for Road Developers

To fast track the slow-moving sector and in order to provide major relief to the companies the Finance Ministry approved the policy of premium rescheduling as proposed by Rangarajan Committee report. The policy proposal of MoRTH was based on the recommendations of NHAI Board, which in turn had considered various representations made by concessionaires before MoRTH/NHAI for some of the already awarded national highway projects through PPP mode.

The aim of this proposed policy initiative is to increase the pace of development of building highways infrastructure and facilitate expeditious completion of awarded highway projects facing financial stress in the current economic situation. Legal opinion in this regard from the Ministry of Law & Justice (MoU) was also obtained before the final provisions were submitted for consideration by CCEA.

The Highways sector in India is going through a difficult phase. A host of factors, a few of which are sector specific and others which are external and beyond the control of MoRTH/NHAI and Contractors / Developers, have adversely affected the sector. For instance, in 2012-13, out of total targeted award of around 8000 Km, the MoRTH/NHAI could award only 1322 Km of highways on BOT (Toll) and the trend continues this year, as well. The ministry has been able to award only 3,169 km of road projects in 2013-14 against a target of 7,500 km.

To summarize, the main reasons leading to this dismal situation for projects are:
  • Overall economic downturn
  •  Lack of equity in the market 
  •  Difficulty in arranging debt
  •    Highly leveraged balance sheets for highway developers
  •   Land acquisition & approval and clearance related issues

To address the above, MoRTH is taking conscious steps like shifting focus from PPP projects to public funded EPC contracts as mode of delivery, emphasis on land acquisition and qu ality of project preparatory activities and facilitating policy level changes to make the environment more conducive for developers/contractors.

One of such enabling initiatives is to consider restructuring of premium payable by concessionaires of the projects awarded on premium, to the Authority i.e. NHAI. Premium is an amount paid by the roads developing developer to the National Highway Authority of India in PPP (BOT-Build, Operate and Transfer) projects. It is based out of the estimated Toll revenue of developers.

Rationalization of Premium

NHAI specify that there are 53 Highway Projects (4 laning as well as 6 laning ones) which were awarded on a premium basis in recent past when prevailing economic scenario was buoyant. Most of the concessionaires for such projects have recently communicated to MoRTH/NHAI - their inability to honour premium commitments upfront in the current economic environment in spite of their earlier commitments in this regard as per the executed project concession agreements. Because of this, many projects are delayed and it is feared that the implementation for such projects could get postponed for an indefinite period.
NHAI, for such projects, have two distinct options:
  • Option 1 -To adopt the legally appropriate and technically straightforward choice of terminating such projects where the concessionaires are unable to fulfill their commitment of premium payments as stated at the time of bidding as per the terms of the contract.
  • Option 2- To allow rationalization of project premium for all such premium bearing projects, wherein, the proposed premium offered to be paid by the concessionaire to the Authority during the bid stage may be allowed to be deferred towards the later part of the concession period. However, NPV of the total premium payable would remain the same.

Case Example: In case, the premium (P) quoted by the bidder is greater or equal to the Toll (T) collected minus Debt (D) payment & 0&M(0) expenditure, the project is stressed one at that point of time. This would imply that the concessionaire is required to borrow money from the lender in order to pay premium to NHAI. The project will only be in a comfortable position if premium quoted is less than the revenue earned minus debt payment & O&M expenditure. Consistent negative cash flows based on the revenue projected as per the traffic survey and the total project cost provided in Financing document may also lead to a project to be the stressed one, as long as estimated TPC by concessionaire is in the reasonable proximity of the TPC approved by PPPAC/CCEA. Than the project would be considered for the rescheduling of premium payment made to NHAI.

National Highways Authority of India or NHAI has approved nine projects so far for deferment of premium repayment worth around INR 6,000 crore. Deferment would be available from 2014-15 till 2026-27. During 2014-15, deferment amounting to INR 651 crore has been granted. There are two aspects that NHAI looks into before deciding which projects can get deferment:

a) There has to be a clear and visible case of revenue shortfall and
b) These companies should be able to repay the rescheduled amount along with interest at least one year before the concession period ends

This decision of deferring premium payment could provide a major boost up to infrastructure companies like GMR, GVK, Ashoka Buildcon, IVRCL, Sadbhav Engineering and Gammon Infrastructure.

       InfralineEnergy Roads Research Team

 Disclaimer :

The views expressed here are solely those of the author in his private capacity and do not in any way represent the views of the Infraline Technologies (India) Pvt. Ltd. (organization). The organization is not liable for any use that may be made of the information contained therein and any direct/indirect consequences resulting therefrom.