Are Kashmir’s New Hydro-Electric Projects Economically Viable?

Representative photo: A view of the Salal Hydroelectric Power Station in Reasi district, J&K. Photo: 7kB/Wikimedia Commons, CC BY-SA 4.0

Pulwama, Kashmir: In the last two years, since the abrogation of Articles 370 and 35(A) of India’s Constitution on August 2019, and the bifurcation of the former state into two union territories, the Government of India has sanctioned a slew of hydropower projects in the Himalayan state of Kashmir.

While the government claims that these projects will make this region power-surplus, there is growing concern among residents about the projects’ economic costs and environmental impact.

According to a memorandum of understanding (MoU) signed between the National Hydroelectric Power Corporation (NHPC) and the J&K administration on January 3, 2021, the region will produce an additional 3,497 MW of hydel power by 2025, which will double the present capacity in J&K of 3,504 MW.

But opinions in the region are split. Before the abrogation of Article 370, which granted the region a special political autonomy, it was mandatory to have the chief minister’s consent before implementing such projects. This is no longer necessary.

According to the UT administration, led by lt. governor Manoj Sinha, who was appointed by the Centre, these projects are essential for the region’s growth. In a press conference announcing the deal, Sinha said J&K would get 49% equity in the project, that the projects will bring in an investment of Rs 35,000 crore, and that they will create jobs for local youth.

“The Central government is committed to the development of J&K,” he finished.

While the ecological implications of hydropower projects are not unknown, the government may also have overstated their economic benefits.

The projected earnings from the Ratle project in particular – under construction on the Chenab river in Kishtwar district – will make up less than 0.2% of J&K’s 2021 budget. This is hardly significant.

A flurry of projects

Of the 3,504 MW of HEP that J&K produces today, 1,211.96 MW comes from 21 J&K-owned projects; 2,009 MW from seven Central projects; and 42.5 MW from four projects owned by private firms.

The Centre owns most of the new projects. Of these, two – Ratle and Kirthai-II – are to be executed as a joint venture between the NHPC and the State Power Development Corporation limited (SPDCL). Three other projects – Sawalkote, Uri-I stage II and Dulhasti stage II – will be built by NHPC on a ‘build, own, operate and transfer’ (BOOT) basis for 40 years, after which they will be transferred to J&K.

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It’s not easy to calculate the revenue from all projects. For most of them, critical information like project costs and shareholding terms between J&K and the Centre aren’t public. Instead, let’s consider Ratle as an example case.

In 2010, the Ratle project was awarded to GVK, a Hyderabad-based construction company, on a BOOT basis for 35 years. It commenced construction in 2013 and expected operations to begin from 2018. However, GVK left the project midway.

Ratle is today being executed as a joint venture between the NHPC and the SPDCL, called the Jammu Hydropower Corporation Ltd. The project will be controlled by the NHPC.

The new MoU, signed between the NHPC and J&K on January 3 this year, says the NHPC’s share in the venture will not be brought below 51%. The project will be fully funded by the Centre. The NHPC will contribute Rs 808.14 crore for equity, and J&K’s (technically SPDCL’s) share of Rs 776.44 crore will come from the Centre as a grant.

On January 20, 2021, the Centre accepted a Rs 5,282 crore investment proposal for the Ratle project.

Economic gains

In the project’s first year of operations, 1% of the power produced will be given to J&K. This will be incrementing every year 1% over the next 11 years. And then, for the duration of the project, J&K will receive 12% of the project’s output – of 850 MW – for free.

Ratle is expected to produce 3.13 billion units of energy every year, according to SPDCL officials. At 1% royalty, J&K will receive 31.37 million units in the first year. If 1 unit of HEP energy sells for Rs 3.50 – the average from different HEP projects – J&K will earn Rs 10.9 crore in the first year. By the 12th year, the state will be getting 376.4 million units, amounting to Rs 131.7 crore. To put this number in perspective: J&K’s budget for 2021 is Rs 1, 01,428 crore, of which the Centre gives Rs 30,757 crore as a grant.

HEP sales are the primary source of revenue from these projects. Water cess charges have been waived for Ratle for the first 10 years, as have the state taxes on the machinery being imported.

Also read: What Does the Article 370 Decision Mean For J&K’s Already Troubled Ties With Water?

Project delays

Another variable that influences whether these projects will be competitive in India’s energy market is project delays.

“If the project cost increases, the rate of energy per unit will also increase,” said Iftikhar Drabu, a civil engineer and expert in hydroelectric projects. “Sawalkote was estimated to cost Rs 21,000 crores five years ago.” Today, he said, its cost would be closer to Rs 24,000 crore.

Such escalations come with their own developmental costs. In the case of the Baglihar project in Ramban district, Drabu warned, project delays resulted in the energy cost rising to Rs 11 per unit. “Many states refused to buy its electricity. Ultimately J&K bought that energy, putting a dent on common peoples’ pockets,” he said.

According to him, Ratle is the only project that can be completed with the given timeframe. “Given the topography and climatic conditions of the valley, other projects will take a minimum of 10 years to complete.”

He is also skeptical of the government’s claims Ratle will create 4,000 (direct and indirect) jobs in the valley.

“A dozen people can operate such projects, leaving no scope for large-scale sustainable employment,” according to Drabu. “However, J&K will get secondary benefits, like a stable power supply for business and household consumption.”

Questions have been sent to the administration regarding the viability of these projects. The article will be updated once they respond.

Environmental risk

Finally, of course, there are the considerable environmental costs.

According to Economic Times, the Centre approved the 178-MW multipurpose Ujh project in Kathua at an estimated cost of Rs 9,167 crore. It will require 4,350 ha of land. The expert appraisal committee meeting on the project, on December 22, 2020, observed that 52 villages of 3,700 families are likely to lose their homes, and more than two lakh trees will be cut.

The locals are worried about the consequences of these projects. In 2005, floods in the Chenab washed away a 105-meter-long bridge located at the Baglihar project’s site in Doda district. The debris in the water made the floods more destructive.

The villages of Tangar and Sawalkote are sandwiched between two hydropower projects on the Chenab river, and their residents fear for their lives and property. “I can’t sleep at night. A disaster can hit our village and wash us away anytime in future,” said Reyaz Ahmad, who lives with his family in a two-story house in Tangar.

The glacier burst in Uttarakhand on February 7, 2021, killed 70 people, left 134 missing and destroyed two hydropower projects.

Also read: Two Months After Floods, Chamoli in the Grip of Fear, Trauma and Sleeplessness

Experts have warned about similar risks from the Centre’s dramatic HEP projects expansion in the Himalayan region. Shakil Romshoo, dean of research and head of the Earth sciences department at the University Of Kashmir, warned in 2018 that there are 15 glacial Lakes in the Ladakh, Karakoram and Chenab region that have grown in size and are vulnerable to bursting open and triggering floods.

This is an old story repeating itself.

Members of Kashmir’s School for Rural Development & Environment, a governance and conservation think-tank, found that in 2000–2015, the NHPC earned close to Rs 40,000 crore by selling hydel power produced from J&K. This power is exported even though J&K faces an energy shortage every winter, said Sayed Qadri, a board member at SRDE.

“The irony is that the J&K government buys around 19-20% of the power generated in J&K from NHPC projects at market rates.”

And the region’s indigenous residents pay both ways, Qadri said. “Not only do we lose our most-prized commons – the water – but we also have to buy the energy generated from our own water.”

This story was reported with an NFI Fellowship for Independent Journalists.

Umer Ahmed is a freelance journalist living in Pulwama, Kashmir.

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