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                   POWER PROJECT PRIVATIZATION - FOCUS ON “HYDROPOWER”

                                                (SCENARIO 2011)

          -   A Review by Yogesh Bahadur, Managing Director Pentacle Energy & Infra Projects Pvt. Ltd.)

Introduction
This report has its primary basis on facts and figures presented in recent issue of “Powerline” magazine (No. 16,
February 2011), which states targets of Eleventh plan as they stand towards end of 2010-11; the objective being to
offer an unbiased analysis on Power Project Development, with emphasis on Hydropower, as consultants and
engineers for benefit of our own understanding of the sector and to share the same with associates and colleagues,
but with no intention to reflect or dissect the industry or any constituent of industry.

However so, I have not shied from sharing some very personal observations in the end, with regards to hydropower
sector (more so, small hydro as part of Renewable Energy) in general emanating from facts, figures and scenario of
power sector at large; certainly to brainstorm a ‘way to go’, more in an inquisitive way.

In a way, this report triggers from a dominantly hydro professional within my diversified self (since it forms more
than 50% of my individual career span), somewhat shaken by outstanding success of COAL sector which has
claims to meeting near 100% of the targets for 2010-11. Further, even almost 20 years ago, at outset of
privatization and at a time when I started my own business development and marketing career in Hydro returning
from a career overseas, we spoke of desire for following, vis-à-vis Indian power sector:

1.      To improve the Hydro-Thermal mix (then 24:76); which could well have meant Renewable-Thermal Mix
2.      Privatization of Power sector in early nineties began with Wind Energy & Small-Medium Hydro

For reference, the scorecard of 2010-11 stands as below:




                                                                                                                          1 
                                                                                                                          Page




                                                                                                                       
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Power project completions: Scenario 2010-11/Eleventh Plan
I realized from above table that both Hydro and Coal have almost doubled in capacity since 15 years ago and also
Private Sector contribution to Power stands at 50% in 2010-11, which I realized is remarkable and Private Sector
story coming truly successful, notwithstanding what NDTV Profit says about delays in power-infrastructure projects.

But what I found interesting is the observations below (base Pg. 14 Powerline):

    1. Coal accounts for 90% of capacity added out 10,210 MW added in 2010-11 and this trend of coal’s
       dominance by far, has not changed over the Eleventh plan so far.
    2. Hydro has doubled in last 15 years; so has coal with installations at 92,638 MW now almost equals the
       figure of TOTAL POWER INSTALLED CAPACITY 15 years ago.
    3. In recent years and as evident from scorecard of 2010-11, hydro success is 50% against thermal at 90% in
       target completions.
    4. Total growth of Private sector is piloted by Adani, Lanco, Reliance and Sterlite (which accounts for 50% of
       hydro success), but not even one of them has completed a single hydropower project; the only success
       coming from Allain Duhangan (JP); with the JSW project and Lanco’s Budhil are close to completion or
       partly commissioned (please correct me someone, if wrong).
    5. I do know that Lanco, GVK, GMR, Reliance and JSW all took their first hydro allotments in same timeframe
       (years) as their Thermal, some before too; thermal being significantly more in MWs. Hydro had obvious
       problems with bids, allotments and clearances, especially Environmental; so this is understandable.
    6. Even so, the article says that the “the biggest additions in both thermal and hydro sectors came from
       Private Sector. This brings me back to 15 years ago, where too JP (Jaiprakash) was the No. 1 and only
       significant hydro player and that the others have reached “a crucial point in the learning curve of private
       sector for hydro development”.
    7. The article terms hydro sector’s performance as “poor” or “could have done better”, subject to reasons of
       (a) Gorkhaland agitation for NHPC’s Teesta Low Dam III, 132 MW and (b) flash funds responsible for
       Andhra projects Pulichintala and Nagarjuna Sagar.
    8. In terms of completed projects, the Chinese account for 4833 MW (50%) of total equipment supplied in all
       sectors out of 10,210 MW. BHEL is the other notable out of remaining 50% of MW capacity added in power
       as a whole
    9. “Vibrant” states Gujarat and Orissa take the No. 1 and 2 places in maximum MWs in 2010-11; but
       unfortunately have insiginificant hydro now under installation; which means we need more Narendra Modis
       and Naveen Patnaik’s to boost other states (the leadership issue is relevant always) for whatever picture
       you may paint in your minds.

True also, that yearly results have hitherto had no meaning; but one of the underlying strategies of Eleventh Plan
was to keep close watch on Annual Targets because we wake up only in last year. More so, the target has already
been revised downward by 5000 MW.

So now that 32,000 MW have been added in 11th Plan till now, of 60,000 MW and one more year to go, this
discussion has bearing on our need to know how many hydropower projects are likely to be completed in this one
year remaining; because if coal and thermal are almost keeping up; the race will be won if hydro exceeds the rate of
progress/completions by more than double the rate so far!

So, this short statement of my observation, for benefit of my website linkages, friends and colleagues, ex-
coworkers, etc. is complete here. Those in favor of short CEO messages may not, but those with greater patience
please do feel to read on MY two-bits of insight………
                                                                                                                           2 
                                                                                                                           Page




                                                                                                                        
queries/comments/critique welcome on info@pentaclepowerengg.com

Power Sector Scenario, 2009-10
As of 2009-10, Power Sector summits and conferences were still dividing the house into (A) Thermal (B) Hydro. In
2010, with Jawaharlal Nehru National Solar Mission (JNNSM) and NTPC at its helm; we have a third house since
DIREC 2010….(C) SOLAR.

The dilution of hydro and even greater faith in supremacy of thermal is complete; as more options and those too,
easier to understand, at least from air-conditioned offices of decision makers with now well-funded infra developers.
With the finance man in the driver’s seat in most cases, it seems, though not quite true, that Solar, for MWs and
Cost of Generation that it represents vis-à-vis hydro/ thermal, there was more hoopla and euphoria created with
illogical demand for megawatt projects, when about 1 to 2 MW, was still the attainments in Solar till a while ago.

So I am reminded of 1990’s when wind was the more understandable of Renewable Energy options; e.g. 50 WEGs
x 250 MW= 125 MW and the wind sites give 24-27% PLF, so ROI is ‘X’ at Rs. 2.25. Then we get tax benefits galore
even after 20 years of demo projects after which most of these benefits were supposed to have gone long time ago!

We are all convinced that any project has to be that simple to make a viability statement. Then what’s need for
consulting experts and technocrats? Even finance people know now there are agencies who do some hi-tech stuff
called ‘Micrositing’ for Wind and what they have to do is calculate fiscal benefits and rest is Real Estate business.

And so, now that they have become Green Energy experts they can go back to evaluate their Hydropower
allotments.

And this was exactly where HYDRO and in particular the faster developing small and medium hydro lost the game!
The UMPP euphoria amongst the larger developers and Nuclear visits of American Presidents in 2009-10, further
took away even the remnants of intelligentsia and thinkers away and out of Hydro.

Irrigation experts became hydro experts, but missed in-depth tuning of Hydraulic Gradients and Moment of Inertia;
as became evident from some my own experiences in evaluating hydro installations and Viability. DPRs of
renowned consultants found copy-paste; once the very aspect of “HYDRO DIFFERENTIAL” was lost!

The Hydro Differential

We all know about Hydro differential by 2011, but too tired to accept it. But below references are for most part to
Small Hilly Himalyan Hydro; that has been my core market of focus in first years of my company building ‘faith of
our clients’ to seek higher MWs of assignments; obviously I am writing all this, because it really seems “UPHILL
Hilly Himalyan”, based upon discussions with many developers whom I have met and projects visited!

If you are in agreement with above, then you are in all likelihood, an equipment seller or consultant. If you are not;
then you are a developer sitting on some uncompleted projects, still finding reasons what goes wrong at every step.

Also, I will admit I am an entrepreneur consultant; so I do not get to meet that class of developers who are about to
complete their hydro projects or have already completed; because they have now qualified themselves to become
the Consultants in small hydro; as such I am a potential competitor!.

We have a now an established category of emerging consultants in hydropower sector - those who have some
experience with civil engineering and know how to get Techno-economic approvals, clearances, etc. with contacts
that they built when they did it.

We cannot outright reject them; because this also indirectly points a finger at inability of established Hydro & and
consulting companies to keep their edge, niche and REACH in the ‘expertise’ market. A first-time developer and
hotel chain owner himself, was informing me during course of my first assignment as an entrepreneur in 2008/9,
                                                                                                                             3 




how he felt deceived by a reputed consultant firm who simply ‘copied and pasted’ from one DPR to another and
                                                                                                                             Page




how all DPRs are same and not worth Rs. 40 lakhs being charged according to him. Now HE has made a DPR for a

                                                                                                                          
queries/comments/critique welcome on info@pentaclepowerengg.com

friend who paid him Rs. 3 Lakhs for the effort. I later came to know he had never visited his project site because
even on the day that I visited there was no road….even we didn’t and rejected the project at the road-end.

The hydro-differential, as it stands in 2011, is not just permutation and combination of head, discharge, site
conditions, local conditions, but also irrational Climate Change (unprecedented snow this year in Himachal has
revived 2000 Glaciers and last year brought floods towards end of a dry monsoon), a new breed of confused buyers
and sellers of small hydro projects, unwilling financiers who do not believe that 40% PLF is good enough and that
hydro should have at least 70 (to which I say, OK I will make it!) Solar and Wind at 18-20 are Ok, because in vogue!

Closing Facts*
(from emerging perspective in present scenario – certainly not true definitions)
1. MNRE provides guidelines and gives subsidies for Small Hydro Projects; does not make policy.
2. States make policy for development of hydropower projects, as also criteria for selection of developers; Ministry
    of Power and CEA/MNRE make the guidelines in some areas of state policy.
3. The two above have no real need to exchange or review situation unless there is a core issue addressed
    specifically from one to the other. The developers must go to state heads and local Panchayats with their pleas,
    not to central government and MNRE.
4. Tariffs vary from state to state and from one area of Renewable Energy to other; sometimes drastically and
    little rationality.
5. MNRE, CEA, MOP in New Delhi, most accessible and supportive of developers, individual or corporate
    concerns, queries, etc. and have all guidelines, updates posted on websites.
6. There is no centralized review of state policy versus guidelines in normal course; except for parliamentary
    meetings which are regularly attended by both central and state bodies and actions taken based on questions
    imposed, answered and decisions taken.
7. No centralized body looking into consensus or pooling of developers’ grievances. Policy has been driven by
    larger and powerful business groups who have been dynamic pioneers in privatization process to effect change.
8. There lies a great need for change in above scenario from central planning to put a perspective for ALL
    concernened, that is dynamic; since climate change, carbon credits, developer perception, poor rate of
    development, no consensus on criteria for developer selection (Uttarakhand cancellation of 56 projects),
    political powers different in each state, etc. are all dynamic and continually changing.
9. Few Developers even have clear idea of who are the manufacturers of hydropower turbines and equipment in
    India, but most are confident that the “Chinese” dealers have right prices and answers (large has proven too).
10. Equipment manufacturers wait for tenders to come and developers want to bypass the tendering process in
    far as can be practically possible.
11. Many developers actually feel safe that clearances are taking time, because they have problems with funds,
    even to get proper DPRs made and get clearances (smaller are as important as large; become large later!).
12. The new-age Consultants (old developers) are willing to oblige…but same commitment is missing for ‘others’ or
    ‘everything’ does not fall in ‘synch’.
13. In 2011, before we kill SOLAR and other Renewables before they are borne; streamlining and showing REAL
    SUCCESS in rate of private sector development in small hydro is very essential; just as Wind, Biomass, etc.

If Policy and Guidelines on one hand; Planning, Actions & Corrections on other are not in sync, we will never be
able to set planned targets; nor achieve them. The various players in their closed perceptions unable to find right
answers in right time will forever reach to short-circuits which in the end surfaces as unintended corruption; gains
license as the ‘way to go’. Developers in remote areas do not attend conferences and summits; there should be no
reason for forums to represent such cases; only a Centralised Policy that is swift in acceptance for change, for the
better; if Green Energy is to come out really Green; even if we must reject some age old ‘isms’ step by step.

Planning commission and relevant Government bodies make themselves redundant when Change comes, but way
too slow in a world used to “Fast Food Outlets”; advertizing & modernity driving human behavior in ALL spheres.
                                                                                                                            4 
                                                                                                                            Page




                     .--------------------*(a perspective, based on various discussions)--------------------------

                                                                                                                         

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110304 Power Project Dev Hydro Paper

  • 1. queries/comments/critique welcome on info@pentaclepowerengg.com POWER PROJECT PRIVATIZATION - FOCUS ON “HYDROPOWER” (SCENARIO 2011) - A Review by Yogesh Bahadur, Managing Director Pentacle Energy & Infra Projects Pvt. Ltd.) Introduction This report has its primary basis on facts and figures presented in recent issue of “Powerline” magazine (No. 16, February 2011), which states targets of Eleventh plan as they stand towards end of 2010-11; the objective being to offer an unbiased analysis on Power Project Development, with emphasis on Hydropower, as consultants and engineers for benefit of our own understanding of the sector and to share the same with associates and colleagues, but with no intention to reflect or dissect the industry or any constituent of industry. However so, I have not shied from sharing some very personal observations in the end, with regards to hydropower sector (more so, small hydro as part of Renewable Energy) in general emanating from facts, figures and scenario of power sector at large; certainly to brainstorm a ‘way to go’, more in an inquisitive way. In a way, this report triggers from a dominantly hydro professional within my diversified self (since it forms more than 50% of my individual career span), somewhat shaken by outstanding success of COAL sector which has claims to meeting near 100% of the targets for 2010-11. Further, even almost 20 years ago, at outset of privatization and at a time when I started my own business development and marketing career in Hydro returning from a career overseas, we spoke of desire for following, vis-à-vis Indian power sector: 1. To improve the Hydro-Thermal mix (then 24:76); which could well have meant Renewable-Thermal Mix 2. Privatization of Power sector in early nineties began with Wind Energy & Small-Medium Hydro For reference, the scorecard of 2010-11 stands as below: 1  Page  
  • 2. queries/comments/critique welcome on info@pentaclepowerengg.com Power project completions: Scenario 2010-11/Eleventh Plan I realized from above table that both Hydro and Coal have almost doubled in capacity since 15 years ago and also Private Sector contribution to Power stands at 50% in 2010-11, which I realized is remarkable and Private Sector story coming truly successful, notwithstanding what NDTV Profit says about delays in power-infrastructure projects. But what I found interesting is the observations below (base Pg. 14 Powerline): 1. Coal accounts for 90% of capacity added out 10,210 MW added in 2010-11 and this trend of coal’s dominance by far, has not changed over the Eleventh plan so far. 2. Hydro has doubled in last 15 years; so has coal with installations at 92,638 MW now almost equals the figure of TOTAL POWER INSTALLED CAPACITY 15 years ago. 3. In recent years and as evident from scorecard of 2010-11, hydro success is 50% against thermal at 90% in target completions. 4. Total growth of Private sector is piloted by Adani, Lanco, Reliance and Sterlite (which accounts for 50% of hydro success), but not even one of them has completed a single hydropower project; the only success coming from Allain Duhangan (JP); with the JSW project and Lanco’s Budhil are close to completion or partly commissioned (please correct me someone, if wrong). 5. I do know that Lanco, GVK, GMR, Reliance and JSW all took their first hydro allotments in same timeframe (years) as their Thermal, some before too; thermal being significantly more in MWs. Hydro had obvious problems with bids, allotments and clearances, especially Environmental; so this is understandable. 6. Even so, the article says that the “the biggest additions in both thermal and hydro sectors came from Private Sector. This brings me back to 15 years ago, where too JP (Jaiprakash) was the No. 1 and only significant hydro player and that the others have reached “a crucial point in the learning curve of private sector for hydro development”. 7. The article terms hydro sector’s performance as “poor” or “could have done better”, subject to reasons of (a) Gorkhaland agitation for NHPC’s Teesta Low Dam III, 132 MW and (b) flash funds responsible for Andhra projects Pulichintala and Nagarjuna Sagar. 8. In terms of completed projects, the Chinese account for 4833 MW (50%) of total equipment supplied in all sectors out of 10,210 MW. BHEL is the other notable out of remaining 50% of MW capacity added in power as a whole 9. “Vibrant” states Gujarat and Orissa take the No. 1 and 2 places in maximum MWs in 2010-11; but unfortunately have insiginificant hydro now under installation; which means we need more Narendra Modis and Naveen Patnaik’s to boost other states (the leadership issue is relevant always) for whatever picture you may paint in your minds. True also, that yearly results have hitherto had no meaning; but one of the underlying strategies of Eleventh Plan was to keep close watch on Annual Targets because we wake up only in last year. More so, the target has already been revised downward by 5000 MW. So now that 32,000 MW have been added in 11th Plan till now, of 60,000 MW and one more year to go, this discussion has bearing on our need to know how many hydropower projects are likely to be completed in this one year remaining; because if coal and thermal are almost keeping up; the race will be won if hydro exceeds the rate of progress/completions by more than double the rate so far! So, this short statement of my observation, for benefit of my website linkages, friends and colleagues, ex- coworkers, etc. is complete here. Those in favor of short CEO messages may not, but those with greater patience please do feel to read on MY two-bits of insight……… 2  Page  
  • 3. queries/comments/critique welcome on info@pentaclepowerengg.com Power Sector Scenario, 2009-10 As of 2009-10, Power Sector summits and conferences were still dividing the house into (A) Thermal (B) Hydro. In 2010, with Jawaharlal Nehru National Solar Mission (JNNSM) and NTPC at its helm; we have a third house since DIREC 2010….(C) SOLAR. The dilution of hydro and even greater faith in supremacy of thermal is complete; as more options and those too, easier to understand, at least from air-conditioned offices of decision makers with now well-funded infra developers. With the finance man in the driver’s seat in most cases, it seems, though not quite true, that Solar, for MWs and Cost of Generation that it represents vis-à-vis hydro/ thermal, there was more hoopla and euphoria created with illogical demand for megawatt projects, when about 1 to 2 MW, was still the attainments in Solar till a while ago. So I am reminded of 1990’s when wind was the more understandable of Renewable Energy options; e.g. 50 WEGs x 250 MW= 125 MW and the wind sites give 24-27% PLF, so ROI is ‘X’ at Rs. 2.25. Then we get tax benefits galore even after 20 years of demo projects after which most of these benefits were supposed to have gone long time ago! We are all convinced that any project has to be that simple to make a viability statement. Then what’s need for consulting experts and technocrats? Even finance people know now there are agencies who do some hi-tech stuff called ‘Micrositing’ for Wind and what they have to do is calculate fiscal benefits and rest is Real Estate business. And so, now that they have become Green Energy experts they can go back to evaluate their Hydropower allotments. And this was exactly where HYDRO and in particular the faster developing small and medium hydro lost the game! The UMPP euphoria amongst the larger developers and Nuclear visits of American Presidents in 2009-10, further took away even the remnants of intelligentsia and thinkers away and out of Hydro. Irrigation experts became hydro experts, but missed in-depth tuning of Hydraulic Gradients and Moment of Inertia; as became evident from some my own experiences in evaluating hydro installations and Viability. DPRs of renowned consultants found copy-paste; once the very aspect of “HYDRO DIFFERENTIAL” was lost! The Hydro Differential We all know about Hydro differential by 2011, but too tired to accept it. But below references are for most part to Small Hilly Himalyan Hydro; that has been my core market of focus in first years of my company building ‘faith of our clients’ to seek higher MWs of assignments; obviously I am writing all this, because it really seems “UPHILL Hilly Himalyan”, based upon discussions with many developers whom I have met and projects visited! If you are in agreement with above, then you are in all likelihood, an equipment seller or consultant. If you are not; then you are a developer sitting on some uncompleted projects, still finding reasons what goes wrong at every step. Also, I will admit I am an entrepreneur consultant; so I do not get to meet that class of developers who are about to complete their hydro projects or have already completed; because they have now qualified themselves to become the Consultants in small hydro; as such I am a potential competitor!. We have a now an established category of emerging consultants in hydropower sector - those who have some experience with civil engineering and know how to get Techno-economic approvals, clearances, etc. with contacts that they built when they did it. We cannot outright reject them; because this also indirectly points a finger at inability of established Hydro & and consulting companies to keep their edge, niche and REACH in the ‘expertise’ market. A first-time developer and hotel chain owner himself, was informing me during course of my first assignment as an entrepreneur in 2008/9, 3  how he felt deceived by a reputed consultant firm who simply ‘copied and pasted’ from one DPR to another and Page how all DPRs are same and not worth Rs. 40 lakhs being charged according to him. Now HE has made a DPR for a  
  • 4. queries/comments/critique welcome on info@pentaclepowerengg.com friend who paid him Rs. 3 Lakhs for the effort. I later came to know he had never visited his project site because even on the day that I visited there was no road….even we didn’t and rejected the project at the road-end. The hydro-differential, as it stands in 2011, is not just permutation and combination of head, discharge, site conditions, local conditions, but also irrational Climate Change (unprecedented snow this year in Himachal has revived 2000 Glaciers and last year brought floods towards end of a dry monsoon), a new breed of confused buyers and sellers of small hydro projects, unwilling financiers who do not believe that 40% PLF is good enough and that hydro should have at least 70 (to which I say, OK I will make it!) Solar and Wind at 18-20 are Ok, because in vogue! Closing Facts* (from emerging perspective in present scenario – certainly not true definitions) 1. MNRE provides guidelines and gives subsidies for Small Hydro Projects; does not make policy. 2. States make policy for development of hydropower projects, as also criteria for selection of developers; Ministry of Power and CEA/MNRE make the guidelines in some areas of state policy. 3. The two above have no real need to exchange or review situation unless there is a core issue addressed specifically from one to the other. The developers must go to state heads and local Panchayats with their pleas, not to central government and MNRE. 4. Tariffs vary from state to state and from one area of Renewable Energy to other; sometimes drastically and little rationality. 5. MNRE, CEA, MOP in New Delhi, most accessible and supportive of developers, individual or corporate concerns, queries, etc. and have all guidelines, updates posted on websites. 6. There is no centralized review of state policy versus guidelines in normal course; except for parliamentary meetings which are regularly attended by both central and state bodies and actions taken based on questions imposed, answered and decisions taken. 7. No centralized body looking into consensus or pooling of developers’ grievances. Policy has been driven by larger and powerful business groups who have been dynamic pioneers in privatization process to effect change. 8. There lies a great need for change in above scenario from central planning to put a perspective for ALL concernened, that is dynamic; since climate change, carbon credits, developer perception, poor rate of development, no consensus on criteria for developer selection (Uttarakhand cancellation of 56 projects), political powers different in each state, etc. are all dynamic and continually changing. 9. Few Developers even have clear idea of who are the manufacturers of hydropower turbines and equipment in India, but most are confident that the “Chinese” dealers have right prices and answers (large has proven too). 10. Equipment manufacturers wait for tenders to come and developers want to bypass the tendering process in far as can be practically possible. 11. Many developers actually feel safe that clearances are taking time, because they have problems with funds, even to get proper DPRs made and get clearances (smaller are as important as large; become large later!). 12. The new-age Consultants (old developers) are willing to oblige…but same commitment is missing for ‘others’ or ‘everything’ does not fall in ‘synch’. 13. In 2011, before we kill SOLAR and other Renewables before they are borne; streamlining and showing REAL SUCCESS in rate of private sector development in small hydro is very essential; just as Wind, Biomass, etc. If Policy and Guidelines on one hand; Planning, Actions & Corrections on other are not in sync, we will never be able to set planned targets; nor achieve them. The various players in their closed perceptions unable to find right answers in right time will forever reach to short-circuits which in the end surfaces as unintended corruption; gains license as the ‘way to go’. Developers in remote areas do not attend conferences and summits; there should be no reason for forums to represent such cases; only a Centralised Policy that is swift in acceptance for change, for the better; if Green Energy is to come out really Green; even if we must reject some age old ‘isms’ step by step. Planning commission and relevant Government bodies make themselves redundant when Change comes, but way too slow in a world used to “Fast Food Outlets”; advertizing & modernity driving human behavior in ALL spheres. 4  Page .--------------------*(a perspective, based on various discussions)--------------------------