Maheshwar Dam: Private Mess, Public Cleanup

Shripad Dharmadhikary

The Maheshwar Hydropower Project on the Narmada River is one of 30 large dams that are a part of the ambitious Narmada Valley Development Project. Since the late 1990s, the merits of the project have been challenged by affected people fighting under the banner of the Narmada Bachao Andolan.

Protest by the oustees of the Maheshwar project near the dam site, on the banks of the Narmada river in 2006.
Protest by the oustees of the Maheshwar project near the dam site, on the banks of the Narmada river in 2006.
Narmada Bachao Andolan (NBA)

On 28 October 2015, the National Green Tribunal (NGT), in a brief order, reiterated its earlier directions to the 400 MW Maheshwar project proponents to neither lower nor close its dam gates, nor cause any submergence without completing the resettlement and rehabilitation (R&R) of affected people. The order validates the people’s claim that the R&R has not kept up with the project impacts as stipulated.

However, the NGT order is not the only important recent development. In September last year, lenders to the project met and virtually decided to take over the project from the hands of its private promoters, the MW Corp (earlier S Kumars). This vindicates both the criticism of the project based on its performance on R&R front, as well as the questions raised about the wisdom of privatizing the project.

The Promise of Privatization

The electricity sector was opened up for privatization in the early 1990s, and two important reasons were given for this move. First, proponents of privatization claimed the government was constrained for funds, which the private sector was supposed to bring in. They also claimed that private companies would bring in better better performance in terms of completing projects on time; better quality of output (in this case, electricity); and lower costs (cheaper electricity, in this case). The Maheshwar project, however, represents much of what has gone wrong with privatization in the hydropower sector. The costs of the project kept going up. Even as the proponents claimed to have tied up all finances, they could not manage to fund crucial activities, and the pace of the project remained slow.

The project, which was handed over to S Kumars in 1994, remains incomplete to date. The transactions between the government and the private developer were opaque, and the power purchase agreement was skewed in favor of the private company. There were allegations of crony capitalism and of undue favors from the government. Worse, the project could not manage the rehabilitation, which was one of the primary reasons for the massive struggle of the oustees opposing the project. The government and the company vehemently refuted all allegations of shortcomings or irregularities. However, recent developments clearly show the serious problems with the project.

On the Financial Brink

The meeting of the lenders to the Maheshwar project took place on 8 September 2015. The record of this meeting shows that as of that date, the investors, including the promoters, have brought in Rs. 499 crores as equity. The lenders, on the other hand, have brought in Rs. 1815 crores, or close to 78% of the money spent so far. The major lenders are mostly public or government-owned financial entities, including Power Finance Corporation (Rs. 700 crores), HUDCO (Rs. 259 Crores), Rural Electrification Corporation (Rs. 250 crores), and State Bank of India (Rs. 200 crores). This belies the claim that privatization brings significant funds to the sector.

In spite of spending close to Rs. 2315 crores, the project is still not complete. Central Electricity Authority (CEA) reported that in September 2015, the cost of project stood at Rs. 4635 crores, up from the original estimate of Rs. 1569 crores. CEA also notes that since November 2011, the work has been suspended due to cash flow problems. In fact, even before 2011, the company was not able to maintain the expected pace of work. This contradicts the claim that private operators are inherently more efficient than public sector ones.

Even though the proponents claimed that they had secured all funding and reached financial closure, the project still ran into a severe financial crunch that directly affected the R&R work. Developers blamed the financial crunch for the lagging resettlement, though there are other reasons as well, including the lack of land for resettlement. Furthermore, the government had guaranteed the borrowing on the project. When the private company was not able to pay it back, the state government – through the Madhya Pradesh Power Management Company  had to pay out Rs. 102 crores to one of the lenders. Why the government of Madhya Pradesh (MP) provided the guarantee in the first place is also a moot question.

With the project virtually at a standstill, a committee was formed in October 2014 to find ways to salvage the project. In May 2015 the committee proposed three possible scenarios. In the first scenario, the project promoter was to bring in Rs 600 crore as equity and Rs 1200 crore of debt to complete the project. The amount would probably be higher, since the gap between the CEA estimated project cost and money already spent is Rs. 2300 crores.

Indeed, observers are putting project cost estimates even higher, at Rs. 6000 crore, and so the amount to be brought in could even go as high as Rs. 3685 crore. The promoter was to be given three months to do this, failing which the second option would automatically come in. This involved the lenders taking over the project, and getting a public sector operator to take over the project.

Of course, this meant that the public sector operator would have to bring in the Rs. 1800 crore or more. In this scenario, the private promoter would not get any return on the equity, which he had already brought in, for at least 15 years. In the final scenario, in case no public company is willing to buy into the project, the project would have to be abandoned.

Searching for Buyers

The lenders’ meeting in September 2015 noted that the promoter had not been able to bring in the required money in the 90 days given to him, and as a result, scenario two had become operational. Lenders initiated the process to take majority shares in the company and secure management control, even as the search continues for a public company to take over the project. The scenario is not optimistic, however. Any government company that takes over will have to bring in at least Rs. 1800 crore, and most likely much more. Moreover, the state government has declared an upper limit to the tariff for the electricity generated by the project at Rs. 5.32 per unit (per KWH).

This will be unlikely allow recovery of costs. In December 2011, the tariff from the project was estimated at Rs. 8.53 per unit. To put this in perspective, power from newly-bid solar plants is estimated at about Rs. 5-6 per unit. The new buyer will also have to contend with the fact that there has been poor maintenance at the dam and other build facilities, which could potentially take up lot of money for refurbishment.

And of course, as the NGT order confirms, even as project work has gone ahead, R&R is lagging far behind. This is a violation of the condition of environmental clearance of the project, and it's also a gross violation of the human rights of the oustees. The private promoter S Kumars, now MW Corp, has left behind a financial and infrastructural mess with no certainty that someone will step in to clean it up. If someone does indeed come in, it will most likely mean that public money will once again be used to pull a private company out of trouble.

An Issue of Accountability

In a press statement in October of last year, the Narmada Bachao Andolan welcomed the removal of S Kumars, and the takeover of the project by the government. But they also demanded that the government ensure that the tariff from the electricity must not go beyond Rs. 3.50 per unit. Is it really possible for the government to do this?

The government had been forewarned many times over, yet the project is nonetheless at a stage where it's possible that the third scenario, i.e. abandoning the project, may emerge as most practicable. In such a case, consider the following: The wall of the Maheshwar Dam is already built. The river has been severely disrupted. The biota and ecosystem has been disturbed. People have been displaced. Now, if the project is abandoned, who will be held accountable for all this, plus the several thousand crore rupees spent? The Maheshwar debacle offers a chance to demonstrate how those liable for the mess can be held accountable. We can only hope that this opportunity will be handled conscientiously.

Shripad Dharmadhikary coordinates the Manthan Adhyayan Kendra, a centre set up to research, analyse and monitor water and energy issues. This is a modified version of the article first published on India Together

Friday, January 8, 2016