(Note: This is a composite post aggregating all the stories ET did over the past week on the hydel scam in Arunachal Pradesh, a state in North-Eastern India)
Between 2006 and 2009, the Congress government in Arunachal Pradesh signed 130 MoUs with companies allowing them to build hydelpower projects in the state. This blizzard of MoUs almost escaped all scrutiny. A handful of greens worried about the fallouts of building so many dams. The locals protested. But, in the rest of the country, the pattern did not cause many ripples.
Last November and December, however, a clutch of surprising news reports began doing the rounds — that the projects in Arunachal are facing large delays, that companies are looking to exit. To understand what was going on, ET went to Arunachal, and then to Andhra — most companies which signed MoUs hail from this state in south India. Here is what we found:
1. The companies are indeed struggling.
As excited companies began taking a closer look at their new projects, they realised the supporting infrastructure— the primary responsibility of the state and the Centre—to add 40,000 MW in one go was not there. Road connectivity from highways to project sites was either missing or inadequate to support heavy vehicles. Also missing was power, transmission towers and administrative infrastructure like surveying staff and land records… Capital is missing too. All these projects are public-private partnerships (PPPs), with Arunachal bringing in equity of 11-26%—or Rs13,000 crore, according to Paliwal. In 2012-13, Arunachal’s entire budget was Rs3,535 crore. “We don’t know how the government plans to raise this money or if they have made any budgetary provisions,” says Kawale.
2. Listening to the companies, one could not help wondering if the state had signed more projects than it could support. It was also unclear why it had signed projects for more MW-age than what the centre had budgeted for in its 50,000 MW programme (this is explained in the stories that follow). Then, while the state government said this rush was born of no more than its urgent desire for development, many of the companies it had tied up with had questionable technical or financial ability to handle these projects. (Hint: Google “Nano Excel Power” and read a Times of India article that pops up on the first page of searches). There were other puzzles. For some reason, the state had turned its back on multi-purpose projects (which can also do flood control) and was only pushing hydel power projects.
In May 2000, the Centre allocated six projects in Arunachal, adding up to 20,700 mw, to the National Hydro Power Corporation (NHPC). NHPC prepared detailed project reports for them between 2003 and March 2006. A report by the government auditor on hydel capacity addition by PSUs, released in 2012, outlines what happened next. The Comptroller & Auditor General (CAG) says the state government, then helmed by Gegong Apang of Congress, ignored several NHPC attempts to sign MoUs with it. Instead, between 2006 and 2009, Arunachal took five of the six projects, amounting to 18,700 MW, away from NHPC and gave them to Reliance Energy, Jaiprakash Associates, a state JV with Jindal Power, KSK Energy and NTPC. This, observes CAG, has resulted in five projects out of six conceived in January 1999 not taking off so far even though a large hydel plant takes about 10 years to come up.
And it looked like money had changed hands.
In April 2007, Gegong Apang was ousted and replaced by the then power minister, Dorjee Khandu. The MoU signing accelerated: 101 between February 2006 and March 2009. Brokers and fixers made money by connecting companies with state officials and politicians, who acquired new muscle overnight. Alleges Tapir Gao, state convenor of the BJP: “Unofficial payments made to the Congress ranged between Rs10-15 lakh per MW.” During that signing spree, Arunachal added 39,000 MW. Current and aspiring MPs and MLAs began lobbying for hydel projects to be allowed in their constituencies. Agrees Jarjum Ete, a Congresswoman and a Panchayati Raj activist: “All legislators have benefited from MoU signings in their localities.” At the same time, power has become a prized portfolio. Each of the three CMs after Apang retained the power portfolio.
There are striking similarities between this and the ill-fated thermal power plant boom in Chhattisgarh. There too, companies had rushed in fecklessly, only to realise belatedly that their initial assumptions (about high power demand and abundant coal) were incorrect. For its part, signing MoUs with gusto, the state government had encouraged them.
3. There are two things to be said here. One, NHPC is not the only company whose projects were taken away and given to the private sector.
A CAG report last year indicted the Arunachal Pradesh government for taking hydel projects away from NHPC and giving them to private companies. However, NHPC is not the only PSU whose projects were taken away by the Arunachal government. Nor is Arunachal the only state where hydel PSUs have lost projects. If anything, NEEPCO, the North Eastern Electric Power Corporation, set up to build power projects in north-eastern India, has suffered worse. In state after state in India’s eastern frontiers, its projects have been taken away and given to private companies — usually in a non-transparent manner.
4. Second. While Arunachal signing MoUs in return for cash is, yes, a scam, it is a scam which cannot be measured only in Rupees. It has resulted in three unnerving developments. First, we have made a hash of the hydel potential in the state. As the first story shows, all manner of companies have walked away with MoUs. Second, this sudden influx of cash into the hitherto rudimentary economy of Arunachal Pradesh has resulted in some changes very similar to the “resource curse”. Third, the accompanying environmental costs (more on this farther down this post) are potentially crippling.
As money came in, says Ete, “politicians began distributing cash in lakhs in village meetings. People now expect money everytime politicians visit.” At the same time, the cost of contesting elections shot up. Says Laeta Umbrey, MLA from Roing district: “Elections are becoming very expensive. And once it gets costly, it never comes down. In my district, one opposition leader spent Rs18 crore — my constituency has 11,000 voters.” In the process, Arunachal Pradesh has encountered its version of the resource curse.
5. An accompanying story, posted on the ET website, featuring interviews with three politicians in the state, the Congress’ Jarjum Ete, the BJP’s Tapir Gao, and Laeta Umbrey, MLA of a local party, explores the changes in the state in more detail.
“If you look at corruption in Arunachal, in the early 1980s, political activity in the state was sizably supported by the timber lobby. This ended with the Godhavarman case. Then came the liquor lobby. And in the last two elections, the hydropower lobby has played a large role. Why do politicians need this money? Not only for elections but also because politicians in the state have picked up the habit of distributing cash. They distribute cash in lakhs and the media stays silent on this.”
6. The third big fallout is environmental in nature. Propelled by short term and personal interests, the state is making dramatic changes to the brahmaputra basin.
Take what will happen to the Lohit, which flows out of Arunachal and into the Brahmaputra, when the Lower Demwe Hydro Electric Project on it switches on. According to the project’s environmental impact assessment (EIA) report, the Lohit’s flow is around 463 cubic metres per second (cumecs) in winter, 832 cumecs in summer and 2,050 in the rains. (A three cumecs flow is akin to a Tata Nano passing you every second.)
This will change once the dam comes up. For up to 20 hours a day, says the report, the dam will trap the river, releasing just 35 cumecs of water. The remaining will be released to spin the turbines only when demand for electricity rises in the evening. At that time, the river’s flow will expand to 1,729 cumecs. As the reservoir empties out, the river will again shrink to 35 cumecs.
This is palpably new. River flows ebb and rise over months. “But now, what was an annual variation will now be a daily variation,” says MD Madhusudan, a biologist with Mysore-based Nature Conservation Foundation. And this is from just one dam; each of the eight tributaries emptying into the Brahmaputra has multiple dams coming up.
To gauge their combined impact, rifle through the EIA report for the Jaypee Group’s Lower Siang Project. If water from the three terminal dams on the Lohit, Subansiri and the Siang rivers reaches the floodplains at the same time, the Brahmaputra’s height will fluctuate daily by 2-3 metres as far as 65 km downstream.
(If you want more information on any of this, google for Arunachal Pradesh State Pollution Control Board and read the EIAs uploaded on its website).
7. A trip to the first RoR (the sort of dam coming up across the state) project to come up in the state did nothing to assuage these concerns.
8. There were a couple of minor sidelights in all this. One, companies are today looking to exit the hydel space. But there are few buyers. Except a new breed of energy companies like Greenko.
Which power-generation company with operations in India delivered the best returns in a post-Lehman Brothers world? That distinction does not belong to sector heavyweights such as Tata Power, Reliance Power, NTPC or Suzlon Energy. A little-known, 260-crore company, operating primarily in the clean energy space, has left these powerhouses trailing on shareholder returns since January 2009, by being a contrarian in the hydel power space. As promoters of hydropower projects, facing different forms and degrees of distress, make a beeline for the exit, Greenko is keenly waiting for them there. Since 2006, this Hyderabad-based company has bought about 30 hydel projects, at various stages of clearances and completion, with a combined capacity of 725 mw.
9. While on Greenko, also see this: the transcript of our interview with Greenko’s head, Anil Chalamalasetty. It goes into a lot of detail on hydel — more detail than what we could have accommodated into these stories. And so, it was uploaded.
10. Now for the second minor sidelight.
Sometime in 2009, the cabinet of the Congress government, led by Dorjee Khandu, had cleared the sale of 49% in the Hydro Power Development Corporation of Arunachal Pradesh Limited (HPDCAPL) to the Naveen Jindal Group. The state, through HPDCAPL, had committed to 11-26% equity contribution in every hydel project coming up in Arunachal, including those of other private players, adding 38,600 mw by March 2009. And Jindal’s 49% ownership of HPDCAPL would have effectively given it ownership in every project.
This, as the story outlines, is an utterly bizarre transaction. No one I know, including friends and contacts with far more experience in corporate structuring, etc, than neophyte rajshekhar, has ever heard of something like this! Which is why this story is significant. It throws light on the kind of crazy shenanigans the state government is up to. (I should add that similar transactions have taken place in other NE states as well. Which underscores the need for more coverage from this part of the country.)
11. Put it all together and, as the opening essay argued, what Arunachal Pradesh has seen indeed is very similar to Coalgate.
Hydel in Arunachal has four parallels with the controversial coal block allocations of 2006-09. One, Arunachal gave out more hydel projects than it needed to. Two, the state used discretionary powers to allot dam sites, increasing the clout of state politicians, bureaucrats and local brokers to influence allocations. Three, besides sector heavyweights such as Reliance Power, Jindal Power and NHPC, the list of 55 companies featured those in unrelated businesses such as seeds, travel, highways and real estate. Four, construction has barely begun. The state doesn’t have roads or transmission lines. Companies don’t have money and even genuine players are looking to exit.
All that plus the accompanying environmental and social damage!
On the whole, the package of stories leaves me feeling dissatisfied. We could not study a couple of important dimensions of the hydel scam in Arunachal. Prime among them is the fact that a lot of politicians are putting their money into hydel projects in this state. For more on that, read Soumik Dutta’s articles on the hydel projects coming up in Sikkim. he has done a better job of uncovering those processes. Google him. “Soumik Dutta +Sikkim”.
ps – Last year, I had spent a lot of time on Coalgate. I see strong overlaps between what happened there and here. Maybe it is the brain forcing old familiar frameworks onto new data. Or maybe the political economy of natural resources in India is not all that different between coal and hydel. Anyway, click here for more information on coalgate — a composite link aggregating the work by my colleagues and me on coalgate.
(a copy of this post has also been uploaded to anomalocaris, my blog for economic times)