Return of Power Projects – Revisited

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SHAHID WANI:::::::::::::::

Recently there have been contradictory reports in the media about the transfer of two power projects, 390MW Dul Hasti HEP in Kishtwar and 480MW Uri I HEP in Uri, from NHPC to State Government. An earlier news report had said that the PMO had rejected the demand of the State for transfer of these projects while a more recent one claimed that State government was working on the modalities which would pave way for the transfer of these projects. Not sure which of the news reports is correct.

Hopefully the modalities include, besides valuation of these projects, how our power allocation and sharing amongst the northern states is going to be impacted post this transfer. Would the current allocations and sharing of power from various central generating utilities hold or would it be amended? This will all depend on whether post the transfer State Government intends to honor the current allocations of energy from these projects or it intends to abrogate the current arrangement and have full and complete ownership of all the energy generated by these plants. In case of latter scenario a serious and thorough assessment needs to be undertaken of the fall out that is likely to occur.

Be that as it may, let us understand the benefits that will accrue to the State if and when these projects are transferred by NHPC to JKSPDC and the existing power allocations arrangements with other states are maintained. The most comprehensive approach to do this is to evaluate and compare the returns to the State of Jammu & Kashmir when these projects are owned and run by NHPC and when they would be operated by JKSPDC. For the purpose of this write up we will touch upon only two issues; first, the free power currently available to J&K from these projects when they are owned and operated by NHPC and second Water Usage Charges (WUC). 

Based on the figures and documents available in public domain J&K annually gets from Dul Hasti HEP 25 crore units of free energy and buys 40 crores units from NHPC for Rs 247. Likewise, for Uri I HEP it annually gets 34 crore units free and buys 54 crore units for Rs 87 crores. So effectively it pays Rs 247 crores for 65 crore units of Dul Hasti HEP power and Rs 87 crores for 88 crores of power from Uri I HEP. The above calculations are based on per unit tariff of Rs 6.16 and 1.61 for Dul Hasti HEP and Uri I HEP, respectively.   

Now if and when these projects are taken over by the State Government the whole energy generated by these plants will be saleable as against the current 87%. This will mean that the tariff for the consumer will decrease by the same ratio of free power and since 66% of the energy produced in these projects is sold outside the State, the benefit of reduced tariff, in the same ratio, will pass on to the consumers in other states and the resulting loss will be to the J&K Government. The free power will effectively get distributed between consumers in other states and the state consumers in the ratio of 75%:25%. For consumption within the State, the reduction in tariff will pass on to the consumer and no benefit will accrue to the State Government on this account

Based on above, the loss to the State Government on account of loss of ‘Free Power’ will be about Rs 101 crores for Dul Hasti HEP and Rs 35 crores for Uri I HEP. As explained above these losses are effectively on account of the reduction of tariff with 75% of that benefit being passed on to consumers in other states and the balance 25% being passed on to local consumers and not into Government treasury. The total loss on this account for both these projects amounts to Rs 136 crores. 

As regards WUC, NHPC annually pays the State Government Rs 98 crores and 112 crores for Dul Hasti HEP and Uri HEP, respectively. These WUC have been included in their tariff as per the orders of the Regulator (Central Electricity Regulatory Authority). As in free power case, 75% of these charges are recovered from consumers of energy from these projects in other states while state consumers only pay 25% of it. Once these projects are transferred to State Government they will come under the purview of the State Regulator (JK State Electricity Regulatory Commission) who has ruled that the additional charges on account of WUC cannot be passed on to the consumer but will have to be absorbed by the Department. This means that PDD has to pay these charges to Irrigation & Flood Control Department without treating it as an expense in the tariff to be recovered from the consumers. Thus the annual loss to the State Government on this account would be of Rs 98 crores and Rs 112 crores for energy generated from Dul Hasti HEP and Uri I HEP aggregating to a whopping loss of Rs 210 crores.  

Overall just on these two accounts the State Government will suffer an annual loss of Rs 346 crores. 

The other way to understand this is to look at it from a tariff perspective. Based on the above figures the net or effective unit rate of energy from Dul Hasti HEP today is only Rs 2.29 (after accounting for free power and WUC) which is just 40% of what the tariff will be post transfer. Likewise, for power from Uri I HEP the net or effective rate today is Rs – 0.28 compared to Rs 1.39 post transfer of these projects. It is interesting to note here that in case of Uri I HEP we actually get all the 88 crore units of power for free and in addition we also get Rs 25 crore as income.  

Considering both these projects together we effectively pay only Rs 0.81 per unit which is less than one third of the tariff for Baglihar I HEP and less than one fifth the tariff for Baglihar II HEP.  

It is evident from above that currently we are getting a very good deal on both these projects which will be lost once these projects are transferred to J&K Government. The above returns are without making any investments in these projects and at no risk to J&K Government. It makes one wonder whether the State Government should really be pushing for transfer of these two NHPC power projects

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