Mountains of Concrete - International Rivers

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At the fundamental level, however,as the hydropower sector turnsincreasingly to funds from outsidegovernment budgets, the availabilityof funding becomes more and moredependent upon the ability of the sectorto pay these back, and hence on itsability to recover its investments. Thisis true for funds raised for equity ordebt, from local or foreign markets,from banks or through bonds, indeed,for any funds that don’t come fromgovernmental sources, and for manythat do. The need for recovery of investment is especiallycritical for private developers. 69 Thus, being able to raisefunds will critically depend on whether the projects willbe able to sell power at the appropriate tariffs in the market.The key will be to achieve both high enough tariffs and thecreation of a market with enough paying capacity to buypower at the desired rates. This is precisely the aim of thepower sector “reforms” in India.The reforms consist essentially of transforming thepower sector to operate on a commercial basis. Key elementsof the reform program include full cost recovery measures, anincrease in tariffs, the elimination or phasing down of directand cross subsidies, and the development of an electricitymarket with open access and merchant sale.Even with over 12 years of these reforms so far, theuncertainty of recovery of payments for electricity soldremains. As the Working Group on Power for the 11 th Planpoints out:The off takers of power are mostly SEBs [StateElectricity Boards] and almost all of them (andtheir successor DISCOMS 70 ) continue to makecash losses. The lenders are extremely concernedover this and continue to seek a credible paymentsecurity mechanism that often entails suitable creditenhancement as may be required.However, till the time these entities start making cashprofit, the concerned Governments may need toprovide suitable comfort to the lenders by signing/operationalising satisfactory escrow agreements orrequired changes in other project documents (PPA,etc). It must be re-emphasized that the utilities in thepower sector need to generate profits through levy ofadequate user charges/recovery… 71Mechanisms like escrow 72 and guarantees have seriousimplications in that precious government and publicresources can end up being effectively mortgaged for privateprofits. Also, the escrowable capacities and guarantees thatthe government can extend are limited. Thus, it is notassured that the projects, especially hydropower projects, willnecessarily be able to raise the required money from theWhile these high energy prices may ease theavailability of funds for power projects, they willpush electricity out of the reach of the poor.The fast expanding markets of those who canpay high energy prices beg the question – whatabout those who cannot?markets, as the reforms have made limited progress.On the other hand, whatever progress has been achievedby the reforms raises questions about the impact of thesemeasures on the poor. India’s Hydropower Policy 2008 states:“Lately, financial institutions have become more flexible…infinancing power projects, particularly hydro projects. Highenergy prices in a fast expanding power market have dilutedtheir insistence on water-tight PPAs backed by Governmentguarantees….there would be no dearth of funds for projectswith viable tariffs…” 73While these high energy prices may ease the availabilityof funds for power projects, they will push electricity out ofthe reach of the poor. The fast expanding markets of thosewho can pay high energy prices beg the question – whatabout those who cannot?The important question then becomes the impact ofthese measures (reforms) on the tariffs of the electricitygenerated, and the implications for access to electricity forthe poor. The reforms, and many of the incentives beingoffered to the hydropower sector, are likely to lead to highertariffs. In the case of the Himalayan projects, distance fromload centres, difficult terrain and other factors will add tothe high capital costs of hydropower projects. There is areal danger that these projects will then end up generatinghigh-cost power supplied only to consumers with a highpaying capacity. This is an important concern. The NationalTariff Policy 2006 says: “Consumers, particularly those whoare ready to pay a tariff which reflects efficient costs, havethe right to get uninterrupted 24 hours supply of qualitypower.” 74 Is this a recognition and a pre-emptive defense ofthe fact that these policies are likely to lead to higher tariffs,which only a certain segment of consumers will likely beable to afford?It is important to note that as the major hydropowerprojects in Nepal and Bhutan are linked into the Indianpower system, these issues apply equally to them. The abilityto raise finances for projects being built by private developersin Nepal and Bhutan will be dependent on finding marketsin India at sufficiently high tariffs and with high levels ofreliability of payments. In turn, the same issues of access forthe poor will become important.16 | International Rivers
Key PlayersKey players in the massive dam building programs in all four countries include the central and provincial governmentsand the respective energy or power ministries, public corporations set up to build hydropower projects, financialinstitutions – national and international, and contractors and equipment supply companies.Recent privatization trends and reform processes havebrought in a number of new players and institutions. Theseinclude the various electricity regulatory commissions,power trading companies and power exchanges, and ofcourse the large number of private companies emerging asdevelopers of hydropower projects.Some of the key financial agencies have already beendiscussed above. Among the public sector developers of theprojects are the WAPDA in Pakistan, the Nepal ElectricityAuthority in Nepal and several publicly owned corporationsin India like NHPC Limited, North Eastern Electric PowerCorporation Limited (NEEPCO), and NTPC. Privatedevelopers are also emerging as important players in all fourcountries. Box 2 (page 18) lists some of the public and privatecorporations in India and the projects they are developing.Box 4 (page 20) explains the interests of Chinese companiesin dam building in the Himalayas.Many big and small players want to enter the hydropowerbusiness, as can be seen from the large number of privateplayers who have shown interest in hydropower projectsin Nepal. There are about 160 companies, individuals andcombinations thereof who have submitted License forSurvey applications – which are currently under review– to the Department of Electricity Development (DoED)at the Ministry of Water Resources in Nepal. Included aremajor Indian companies like Lanco, GMR, Larsen andToubro, Jindal and Satluj Jal Vidyut Nigam Limited (SJVNL).Also on the list are several well-known former bureaucrats,politicians, businessmen and their relatives.Among the new institutions emerging from the powersector reforms that will play a major role in hydropowerdevelopment are the electricity traders.Trading of electricity has gained immense importanceIn the case of a hydropower plant, in the lateryears when the cost of production decreases afterdebt repayment is complete, developers have thechance to make huge profits by selling the power atprevailing high prices in the open market.Water and Power Development Authority (WAPDA), Pakistan,2007. WAPDA is a key public sector developer of hydropowerprojects in Pakistan. Photo: Ann-Kathrin Schneiderafter the introduction of the power sector reforms. This isespecially true for private project developers, as it is powertrading that holds the key to viability; or rather, the key tothe confidence that developers and financiers seem to havein getting assured returns from these projects. In particular,it is the provision of open access and merchant sales (saleof electricity directly to consumers, mostly bulk consumerswithout a long term PPA) of a large part of the generatedelectricity that seems to be an important attraction forthese developers. In the case of a hydropower plant, in thelater years when the cost of production decreases after debtrepayment is complete, developers have the chance to makehuge profits by selling the power at prevailing high prices inthe open market. [see Box 3, page 19] India’s hydropowerpolicy notes this when it says that “…from the point ofview of the private sector themajor incentive is the scope fortrading – particularly in the lateryears when cost of generationgoes down and the market priceof power is high.” 75While some of the openaccess and merchant sales arelikely to take place through directdeals between the generator andeither the distributor or theM o u n ta i n s o f C o n c r e t e : D a m B u i l d i n g i n t h e H i m a l aya s | 17
Page 3 and 4: ContentsIntroduction . . . . . . .
Page 5 and 6: IntroductionThe Himalayas are the h
Page 7 and 8: The Regional ParadoxThe Himalayan m
Page 9 and 10: Sign of the planned Diamer-Bhasha D
Page 11 and 12: Former President Musharrafin his ad
Page 13 and 14: Funding RequirementsThe funds requi
Page 15 and 16: (PPPs), or through privatization wh
Page 17: some bilateral institutions are exp
Page 21 and 22: Box 3: Merchant Sale of Power and W
Page 23 and 24: Social and EnvironmentalImpactsThe
Page 25 and 26: No. Project Country Capacity Status
Page 27 and 28: Box 5: Diamer-Bhasha Project, Pakis
Page 29 and 30: our souls through this river…The
Page 31 and 32: The impact on this ecologically sen
Page 33 and 34: the companies who build theprojects
Page 35 and 36: A very robust finding of hydrologic
Page 37 and 38: Box 8: Some Likely Impacts of Clima
Page 39 and 40: Responses of Civil Society andAffec
Page 41 and 42: Alternative ApproachesOne of the mo
Page 43 and 44: References1 The term “greater Him
Page 45 and 46: 85 Ibid.86 Various news reports.87
Page 48: Mountains of Concrete:Dam Building

Mountains of Concrete - International Rivers

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