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DAM-L LS: Sawalkote Project could outdo Enron (fwd)
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Date: Wed, 16 May 2001 16:19:56 -0700 (PDT)
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Subject: LS: Sawalkote Project could outdo Enron
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http://203.200.89.68/full.asp?fname=Power+Project+%28F%29&fodname=20010521&s
id=1
POWER
Where Angels Fear To Fjord
The $1.6-billion Sawalkote project could outdo Enron twice over
SHANTANU GUHA RAY
What can you say of a $1.6-billion (Rs 7,360-crore) power project
planned in Jammu and Kashmir? That it is one of the biggest investments
India has garnered in a single project? And that it would help further
investments by multinationals in the strife-torn valley? But in reality,
the 600-MW Sawalkote hydel
project planned on the Chenab river in terrorist-infested Doda district
could become a serious embarrassment for the government.
Why? The agreement was signed by Henning Fjeldstad, executive
vice-president of ncc International AS
of Norway (which, along with Germany's Hochtief AG, will execute the
turnkey project) and representatives of the Jammu & Kashmir Power
Development Corporation (jkpdc) late last
month in the presence of the visiting Norwegian prime minister, Jens
Stoltenberg, state CM Farooq Abdullah, his son and Union minister of
state for commerce Omar Abdullah and senior state officials.
Conspicuous by their absence were power minister Suresh Prabhu and his
top brass. And ironically, the minister was at the same venue barely
half an hour before the signing ceremony, attending an Indo-Norwegian
power seminar. But why would not a Union minister attend the signing
ceremony of one of the biggest investments in the Indian power sector?
And why would power secretary A.K. Basu refuse
comment, saying he has little knowledge of the project? And why would
Stoltenberg refuse to list it
as one of his achievements during his interview to Dagens Industri,
Sweden's leading economic daily?
The first jolt came when Norwegian Radio broadcast an interview with
Arundhati Roy wherein the
author-activist spoke of the dangers of the Sawalkote project, which
involves the construction of a
185-metre, seven-radial-gate concrete dam. Roy's concerns revolved
primarily around environmental issues, especially since Stoltenberg had
said—following the World Commission of Dams report—that no further big
dams would be constructed in Norway.
Even leaving that aside, there are countless loose ends to the project,
first mooted in 1984-85 and then
forgotten till Abdullah resurrected it a couple of years ago. Under the
agreement signed by ncc International and jkpdc, the epc (engineering,
procurement and construction) contract value is $660 million
and the total cost of the project $1.6 billion. As per the agreement,
the Norwegian consortium is expected
to raise 85 per cent of the money. But in reality, the burden lies
squarely on Indian shoulders.
For example, highly placed finance ministry sources told Outlook that
the Norwegian consortium has
promised only $220 million from Norway's Ekspord Finas (Export Finance
Organisation). And that too—as per Ekspord Finas' communication to the
finance ministry and jkpdc—only after Indian state-owned financial
institutions (FIs) counter-guarantee the same. Three of them—the
Industrial Development Bank of
India (idbi), State Bank of India and Power Finance Corporation
(pfc)—have already agreed to fund the
$450-million rupee finance part of the project. Of course, they don't
get a counter-guarantee. Add to this $435 million of external commercial
borrowings, again counter-gauranteed by the three FIs. Another $180
million will have to be raised by jkpdc. But since jkpdc is
cash-strapped, the Norwegians have agreed to
help raise the same. At a counter-guarantee.
Interestingly enough, on "the official website of the Jammu and Kashmir
government", www.jammukashmir.nic.in, a news report dated February 13
reads: "(Chief minister) Dr Abdullah
said since the Norwegian consortium has not insisted for the
counter-guarantee, the Sawalkote project has
also been assigned to them."
http://203.200.89.68/full.asp?fodname=20010521&fname=Power+Project+%28F%29&s
id=1&pn=2
Fjeldstad argues that counter-guarantees are de rigueur in power
projects, especially in politically
volatile regions. "It is a common practice worldwide. As to why the
Indian firms have agreed to fund the project, the question should be
posed to them," he says.
Reminded that representatives of Stockholm's Nordic Investment Bank
(nib) met senior finance ministry officials to inform them about being
approached by ncc for funds as low as $80 million and that they would
require a counter-guarantee from the Indian government because of the
risk involved, Fjeldstad said ncc's negotiations were still on with nib:
"If they have asked for a counter-guarantee, what's wrong?"
The Indian institutions are tight-lipped about these huge investments.
"It's not our policy to make statements on specific investments," says
idbi's spokesperson, refusing to comment on what could eventually be one
of the largest exposures of the bank. "We've not finalised all details
and cannot tell you more," says pfc general manager M.K. Goel. But isn't
all funding landing at the doors of Indian companies?
And when a foreign bank (read nib) is not ready to risk even $80
million, why would Indian FIs risk such huge amounts?
The answer of course is that Indian FIs are being forced into funding
Sawalkote, which will be touted as a
Great employment-generating measure for the troubled Valley. In other
words, this is social sector funding by another name. But even if we
accept that, is this the right project to fund?
Fjeldstad says a comprehensive environmental study the consortium
commissioned showed the region was
Sparsely populated. But by its own admissions, Norplan AS (the Norwegian
environmental organisation contracted by jkpdc for the feasibility
report) admits its study can't be classified as a full eia (environment
impact assessment) but just "a forerunner to the eia because we could
not visit all the project downstream areas due to security reasons and
that a rehabilitation plan remains to be carried out. It is estimated
that
around 200 to 220 houses…will be flooded and probably over 1,000 people
will be displaced."
And what about the cost of the project? What about competitive bids?
Highly placed sources in the
power ministry say no bids were asked for. Fjeldstad says ncc was
awarded the contract because of its past experience of working on
similar projects in the Valley. But sources admit some others—including
the Delhi-based Jaiprakash Industries—expressed interest in the project
and offered substantially lower prices but were not considered.
(Jaiprakash officials refused to comment.) According to global analysts,
hydel power project costs normally hover around Rs 3-3.6 crore per MW.
But Sawalkote is logging in at about Rs
12 crore per MW. This seems huge, even taking into account the difficult
terrain, where ncc will have to spend the first two years simply
building access roads to the site. Even the allegedly overpriced
2,100-MW Enron project is being constructed at a cost of $2.8 billion
or Rs 6.1 crore per MW.
Tensions have emerged also on the crucial issue of levelised tariff
price (ltp) at Rs 3.60 per unit as per
the contract. Power ministry regulations categorically say no ltp can be
finalised unless a power purchase agreement (ppa) is signed. And till
date, the jkpdc has not signed any ppa. Besides, how can a power project
worth $1.6 billion have such low tariffs? Experts argue that power from
Dulhasti in the same
Chenab valley is projected to come to a massive Rs 11 per unit (because
of huge cost overruns; Dulhasti is now in its 18th year of
construction!).So who will pay the extra price, especially at a time
when the j&k power board admits to finding it difficult to collect at
even Rs 2 per unit? "This will be the next step and
we will finalise it soon," adds Fjeldstad.
Environmentalists quote the Norplan report to highlight a serious crisis
of sedimentation which has often
plagued such projects in the state. The report says sedimentation will
be extensive throughout the reservoir, despite the impoundment of the
Baglihar reservoir upstream. Besides, recent sediment transport, land
use and soil erosion changes have not been registered, it says, adding
that previous estimates must be considered uncertain. "There is clear
admission the project will have huge sedimentation problems and yet the
document says nothing about what needs to be done," says Himanshu
Thakkar of the South Asian Network of Dams, Rivers and People.
At this point, Sawalkote looks suspiciously like a political project
that will make money for everyone except Indian financial institutions.
But who gives a dam for them?
BOX
Projected Objections
* No bids were called for the project.
* Power minister Suresh Prabhu attended a seminar at the same venue but
did not attend the signing
ceremony.
* IDBI, PFC and SBI will provide funding and counter-guarantee to the
$1.56 billion project.
* Power ministry voiced concerns about the project's funding but was
overruled by the PMO
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