Parliamentary Committee Praises Government For Hydropower Project Execution, Highlights Constraints

The Parliamentary Standing Committee on Energy has expressed its appreciation for the government’s initiative to give due attention to the hydropower sector.

The committee headed by Janata Dal (United) MP Rajiv Ranjan Singh alias Lalan Singh, made these observations in its 30th Report on action-taken by the government on observations contained in the 19th Report on the subject ‘Delay in Execution/Completion of Power Projects by Power Sector Companies’.

The Ministry of Power in its reply on the action taken explained the measures taken for speedy development of hydropower projects. They include increasing the tenure of loans as well as lowering the rate of interest leading to reduction in tariff of hydro projects, speedy development of infrastructure and launching of National Single Window System (NSWS) for approval of clearances.

Status Report

According to the written reply furnished by the Ministry of Power, there were 38 Hydro-Electric Projects (above 25 MW) as on 25 November 2020, which were under-construction, having total Installed Capacity of 12973.5 MW.

Further, there were 24 under-construction Hydro-Electric Projects (HEPs) having aggregate capacity of 11,342 MW having either time or cost over-run in 11 States/UT. The time overrun in these delayed hydro projects ranged from 12 months to 189 months and cost overrun up to 472.92 per cent. The Ministry in its reply did not provide any update on the current status of these projects.

The delay in execution/completion of hydro-electric projects increases Interest During Construction (IDC) thereby increasing overall project cost. This results in increase in tariff. Signing of Power Purchase Agreement with Distribution Companies due to high tariff has become difficult for Hydro Power Projects.

To put things in perspective, there are only two Hydro-Electric Projects namely Baglihar-II HEP ( 450MW ) in UT of J&K and Chamera-II HEP (300 MW) in Himachal Pradesh, which have been commissioned without time and cost over-run in last 20 years.

Cause of Delay

Land acquisition is a persistent issue involved in the implementation of hydro projects. Acquisition of land for various locations of the project such as Dam, Head Race Tunnel (HRT), Power House, Switchyard etc. delay the commencement/progress of works.

The start of construction works of Hydro projects also often gets delayed due to considerable time taken in the process of Environment and Forest Clearances.

Hydro projects are normally located in difficult terrain having poor accessibility. As such, substantial time is lost due to lack of adequate Infrastructural facilities at the project site allotted to a developer by the state government. Inadequate infrastructure like roads, bridges, etc. particularly in Arunachal Pradesh and North-Eastern states result in longer construction period thereby increasing the project cost.

Funding Constraint

Among all the issues flagged for causing delays, fund constraints followed by geological uncertainties and law and order are more dominant. The delay in the construction of power projects by agencies is due to deterioration in their financial condition during the course of execution of projects. According to the ministry data, a total of 19 under-construction projects were stalled due to funding constraints.

To ensure that the projects do not get stalled due to financial constraints with the developer, the ministry in its reply stated that two dedicated power sector financiers Power Finance Corp (PFC) and REC Ltd generally offer longer loan tenure for Hydro-Electric Projects (HEP). The loan tenure offered by PFC/REC ranges up to 85 per cent of economic life of the project i.e. up to 40 years.

So far as Hydro CPSUs are concerned, financial assistance is provided to some CPSUs in the form of Grants-in-aid on case to case basis. Moreover, if a central sector project suffers time and cost overrun, the same is considered and approved by the government in the form of Revised Cost Estimate.

Financial assistance through advances against bank guarantee (gap funding) is being provided to those agencies whose financial condition deteriorated during execution of contract.

Further, it may be mentioned here that the funds for meeting the investment requirement in the power sector in central sector are mobilized by the concerned CPSUs by utilising their internal resources as well as borrowings from the market based on the strength of their respective balance sheets. The budgetary support is provided to the concerned CPSU only in case of a few projects.