NHPC Ltd, a Mini Ratna Government company, is fighting a battle on many fronts. The company had provisioned ₹550 crore last fiscal for various delayed projects. State governments are levying fee on water the company uses to generate electricity and are refusing to buy its high-cost power. In an interaction with BusinessLine , KM Singh, Chairman and Managing Director, NHPC, exuded confidence and said most of the issues will be sorted out soon. Excerpts:

What are the major challenges you face in hydro power projects?

In the hydro power sector there are many challenges. Some are natural and some are man-made and circumstantial. Under the natural, we have geological surprises as the Himalayan rocks in India are immature. We drill for one or 1.5 meter and extrapolate the result to find the kind of rock we have to deal with. Land slides in the rainy season are a big challenge. Then there are local strikes. Sudden floods affect progress of work. Local employment generation is an issue as we are able to give only temporary employment through contractors who will pay ₹5,000-6,000 a month. In West Bengal and Jammu and Kashmir there are strikes quite often. The government wants us to store water in the upper reservoir using solar powered pumps and generate electricity in the evening by flowing water down. But using the solar back-up the cost works out to ₹5-5.5 a unit. The Government and consumers want cheap power supply but when our cost itself is over ₹5 a unit how is it possible to supply below this.

What policy changes do you expect?

The Government is already working on various options including providing long-term loan. The catch is even if we get loans for longer term and the lending rates are high it will not be of much help. Differential tariffs during peak and base load will help us. The Government is also reviewing the 2008 hydro power policy to boost generation. Over 50 countries, except for India, consider hydro power as renewable energy. Our projects will also help the country build water reservoir as fighting drought has become a burning issue in most States. In Madhya Pradesh, farmers who were struggling to cultivate once in a year are now taking three harvests a year through irrigation.

Will the state governments’ water charges blunt the advantage enjoyed by the hydro power sector?

I cannot comment on this. It is a State government subject. As of today only Jammu and Kashmir, Madhya Pradesh and Uttarakhand levy it. Jammu and Kashmir levies 25 paise per cubic meter. Uttarakhand started five months back and I am not sure whether it will be levied retrospectively. Madhya Pradesh also started recently. When we argue that the tariff will increase because of this levy, the State governments say the levy is anyway reimbursed in tariff and NHPC should not worry about it. On one hand, the State governments say hydro power is costlier and on the other they are levying these charges. The Delhi government rejected our power saying it is costly. Rajasthan followed suit.. Now, West Bengal is saying Teesta Low Dam Project power is costlier. However, they are buying it from us. If that is the case, then allow NHPC to sell it in the market for ₹3.40 a unit so that everybody gets cheaper power.

What changes must be made to the Hydro Power Policy 2008?

There are issues right from fixing the tariff. The policy is framed to attract only private investment in hydro projects. In 2005, the government did a feasibility report and awarded projects to the private sector but most of these projects are stalled. In 2007-08, private investment poured in because the tariff then was about ₹7-10 a unit in peak hour. But slowly, power tariff fell to ₹2.50 a unit and all the investment made in hydro projects went dud. The stalled private sector projects in Arunachal Pradesh, Himachal Pradesh and Sikkim have good potential. There is possibility to generate 50,000 MW in Arunachal and only 405 MW has been commissioned now.

Are you considering offers from private companies for projects?

Unless and until the projects are viable we will not consider it. If the project cost is high, to whom will we sell the power to? We have done project management consultancy for Teesta-III and formed a joint venture company with the Sikkim government for operation and maintenance. We are also in discussion with the government to restart Teesta-VI and Rangit IV. For us to chip in, somebody should take care of the debt and the tariff works out to less than ₹5 a unit.

What is the progress of NHPC’s stalled projects?

We have started work at Parbati project in Himachal Pradesh. The cost of the Parbati has increased as it was stalled for long. We may have to cut down on our returns from 15-16 per cent to 8-10 per cent to recover the cost over-run. Work has started in the 800 MW Parbati-II project, the new Assam government along with the progressive Himachal Chief Minister have agreed to support the 2,000 MW Lower Subansiri project. We are expecting work on the Lower Subansiri project will start by September. We have 5,000 MW project in the pipeline, apart from the 2,800 MW stalled projects.