Who pays for it?

IT is hardly news that State governments in India continue to deny citizens their basic rights of rehabilitation, or that they continue to flout the law even after repeated court strictures in this regard, all in return for dubiously promised social benefits. Yet even in this sorry background, the saga of the Maheshwar Dam project in Madhya Pradesh is discouraging.

Of the many large dams (as many as 30 in number) in the Narmada Valley, the Sardar Sarovar has perhaps received the greatest media attention. Yet the Maheshwar Project, near Mandleshwar in Khargone district, is very significant in its own way - not least because it was the first privatised hydel project in India. The promoters of the project are the S. Kumars group, which is run by the Kasliwal family that originally began in textiles but has now diversified into power generation, tyre manufacturing, infrastructure development, financial services and even Information Technology. For this particular project, the group created a new company - Shree Maheshwar Hydel Power Corporation Limited (SMHPCL).

The project has been controversial and plagued by difficulties from the start. Since 1997, when work on the project first began, local people who would be dispossessed, displaced or deprived of livelihood, have been involved in protests against it. The affected people, including peasants, fisherpeople, boatspeople and agricultural workers, have resisted the project because their legitimate demands for adequate compensation and rehabilitation have thus far been denied. The popular protests and the inability or unwillingness of the promoters to meet any of the demands, in turn, created such conditions that successive external partner companies - U.S.-based multinational Bechtel in 1997, the German companies Bayernwerk and VEW Energie in 1999, the U.S. power company Ogden in 2000 - have left the project.

Then there were barriers created by the often-problematic financial activities of the main promoters. Between 1998 and 2000, two S. Kumar group companies - Induj Enertech Limited (the holding company for SMHPCL) and Modak Rubber and Textiles Limited - along with several other companies (42 in all) were sanctioned loans by the Madhya Pradesh State Industrial Development Corporation in the form of ICDs (Inter-Corporate Deposits) without proper application, documentation, scrutiny, and securities. The outstanding debt for these 42 companies is now more than Rs. 800 crores. Default on these loans led the State government to file a First Information Report and initiate criminal proceedings against the promoters of the Maheshwar project.

Work on the project was suspended from 2001 to 2005, as the project properties were attached due to default and the public financial institutions also stopped providing finance for it.

However, in September 2005 the Madhya Pradesh government waived the condition of grant of security by handing over shares of SMHPCL of Rs.30 crores against the settlement of outstanding loan of Rs.103 crores. In addition, the returnable amount was reduced from Rs.103 crores to Rs.77 crores and the rate of interest was brought down from 14 per cent to 8 per cent. Amazingly, no explanation has been provided as to why all these concessions are being given to a private party, who is also a declared wilful defaulter, at the cost of the public exchequer.

But all this enabled the work on the Maheshwar project to be resumed in 2006, with SMHPCL once again seeking large loans and equity participation from public financing institutions, even in excess of the amount permitted under the law. And so, once again the affected people are on the streets to stop a project that is seen to be flawed on technical, social and financial grounds.

The proposed 42-km-long Maheshwar reservoir will submerge both a rich land economy and a rich river economy. As per the Ministry of Environment and Forests (MoEF) clearance given to the SMHPCL in 2001, the dam will submerge dwellings of over 8,000 families, partially or fully, in 61 villages in the area. This is in addition to the 5,000 landless Kewat, Kahar and Dalit families who will lose their livelihoods of sand quarrying, fishing, and so on, if the dam is built, even if their homes escape submergence. It also excludes the large number of people who may be additionally affected by large-scale waterlogging expected in the adjoining area.

The rehabilitation and resettlement (R&R) of the project is governed by the rehabilitation policy of the Madhya Pradesh government as well as the conditions of the environmental clearance of the MoEF. Both of these require that the affected people be settled with agricultural land in the lieu of agricultural land that they lose, and that only in very exceptional cases can an oustee receive cash compensation. Yet, till today, not a single affected family has been given agricultural land.

Further, the MoEF itself has noted that there is no rehabilitation plan at all for the affected people. In a letter sent in early June to the State government, the MoEF has even directed that work on the project be stopped until a plan with details of proposed housing units, agricultural lands identified/required/developed, the implementation schedule of R&R, and so on is worked out and made available.

But the more urgent question relates to the perceived social gains of this project. In particular, most independent studies come to the conclusion that the power produced by this project will be far less than promised as well as prohibitively expensive, so the proposed gains are largely illusory.

Some of this is because of technical reasons. The Maheshwar project site is at a point in the river where there is no river gorge and where the river flows through the plains. Because it is situated in the plains of the Narmada valley with a low rim, there is a technical and design bar to higher production of power. Because of this, nearly 80 per cent of the power will be produced during the four monsoon months, and for the rest of the year the project will produce power for an average of only 1.5 hours a day.

Thus, although the Maheshwar project has an installed capacity of 400MW, it will have a firm power production of only 92 MW initially and 49 MW finally, since the actual extent of firm power in a hydel project is based on the available water flows and is typically only a fraction of the proposed installed capacity. That is why in periods of drought, hydel power does not suffice because of inadequate flows, and this is borne out by the performance of other hydel projects in Madhya Pradesh in recent years.

The delays in the project have caused the estimated project outlay to go up from Rs.465 crores in 1994 to around Rs.2,233 crores today. Yet, the Power Purchase Agreement (PPA) with the Madhya Pradesh State Electricity Board has a "deemed generation" clause, requiring compulsory payments at deemed generation levels, irrespective of actual production, and provides for guaranteed rates of return on equity ranging from 16 per cent to 32 per cent for 35 years. This, combined with the massively increased outlay, significantly increases the cost of power from this project.

As a result, the likely power tariff has gone up enormously. Based on the tariff formula in the PPA , it may be conservatively estimated that the average cost of power from the Maheshwar project will be around Rs.3.5 to 4 per kWh at bus bar, and the cost of peaking power will be much higher. (This compares with the cost of the power produced at bus bar by the State Electricity Board today at Rs.1.25 per kWh for thermal and Rs. 0.25 per kWh for hydel, and the cost of the NTPC produced power at Rs.1.67 per kWh.)

Clearly, the cost of Maheshwar power will be prohibitively expensive, with the potential to ruin the State Electricity Board. All signs exist of another Enron-type fiasco in the making, this time with the added devastation produced by large-scale displacement and completely inadequate rehabilitation.