South Asia Investor’s Workshop on
“Cross-Border Electricity Trade”
(Thursday, 25, September, 2014, Hotel Taj Mahal, Man Singh Road, New Delhi)
Experiences and Challenges faced by SJVN
Remarks by Mr. R K Agarwal
Executive Director
SJVN Ltd1
Contents
• 900 MW Arun-3 HEP
• Regulatory Issues of Power import fromNepal
• Inter regulatory issues
• Solutions for making the Nepal power morecompetitive
2
Power Scenario in India
• Indian power sector - highly skewed Hydro : Thermal mix.
• Towards the end of 1970’s, Hydro share was 40%, an ideal mix to
take care of the peak and off peak requirements.
• However, in the last 40 years, the proportion has declined to 19%.
• By the end of the current Twelfth Plan it might decline further to
about 13%.
• Hydro projects in Bhutan and in Nepal would be greatly relevant to
contribute towards the objective of a balanced power sector
profile in which hydro capacity moves towards the ideal mix of
about 40%.3
Development of Hydro Projects In Nepal & Bhutan
• SJVN has initiated development of followingHydro Power Projects :-
• In Nepal-900MW Arun-3 HEP.
• In Bhutan- (i) 600 MW kholongchu HEP & (ii)570 MW Wangchu HEP (both in JV)
• 400 KV, D/C Muzaffarpur- DhalkebarTransmission Line in JV mode.
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ARUNARUN--3 HEP3 HEP
MEMORANDUM OF UNDERSTANDING (MOU) BETWEEN GOVT. OF NEPAL ANDSJVN FOR EXECUTION OF ARUN-3 HYDROPOWER SIGNED ON 02/03/2008.
A PUBLIC / PRIVATE COMPANY TO BE INCORPORATED BY SJVN IN NEPAL FOR
THE PURPOSE OF EXECUTING THE ARUN-3 HYDROPOWER PROJECT ON BOOT
BASIS.
GOVT. OF NEPAL TO PROVIDE OVERALL SECURITY AS PER APPLICABLE LAW
WITHOUT ANY CHARGE.
GOVT. OF NEPAL (GON) SHALL FACILITATE ALL CLEARANCES AND APPROVALS.
GON AGREES TO EXTEND ALL PRIVILEGES AND FACILITIES TO SJVN
ACCORDING TO PREVAILING LAWS & REGULATIONS OF NEPAL IN RELATION TO
LICENSES, PERMISSIONS, AUTHORIZATIONS AND ASSURANCES, ETC.
BOTH PARTIES SHALL ENTER INTO A DETAILED PROJECT AGREEMENT FOR THE
DEVELOPMENT AND OPERATION OF PROJECT, WITHIN 18 MONTHS FROM THE
DATE OF ISSUANCE OF SURVEY LICENSE i.e. 16th Jan.2010
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ARUNARUN--3 HEP3 HEP
ROYALITIES TO BE PAID TO GoN
SJVN TO PROVIDE 21.9 % FREE POWER TO GOVT. OF NEPAL.
ENERGY ROYALTY @ 7.5% OF THE AVERAGE TARIFF / kWh / YEAR
FOR FIRST 15 YEARS AND @ 12% BEYOND IT.
CAPACITY ROYALTY @ NRs. 400 (i.e. INR 250) / Kw / YEAR FOR FIRST
15 YEARS AND @ NRs. 1800 (i.e. INR 1,125)/kW/YEAR BEYOND IT.
EXPORT TAX @ 0.005 % OF EXPORTS SALES REVENUE.
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LOCATION OF PROJECTLOCATION OF PROJECT
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ARUN ARUN –– 33HYDRO ELECTRIC PROJECTHYDRO ELECTRIC PROJECT
(900 MW)(900 MW)
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Tumlingtar Airport in 2010-11 Tumlingtar Airport in 2012-13
Airview of metteled Tumlingtar airport
ACCESSIBILITY TO THE PROJECT SITE ACCESSIBILITY TO THE PROJECT SITE ByBy ROADROAD
• ABOUT 295 KM FROM JOGBANI / BIRATNAGAR
• ABOUT 380 KM FROM SILIGURI / BAGDOGRA (INDIA) VIA ITAHARI (NEPAL).
NEARESTNEAREST AIRPORTAIRPORT
• TUMLINGTAR : DIRECT FLIGHTS FROM KATHMANDU AND BIRATNAGAR
NEARESTNEAREST RAILRAIL HEADHEAD
• JOGBANI, BIHAR (INDIA BORDER) / BIRATNAGAR (NEPAL) : THROUGH BROAD GAUGE (FURTHER BYROAD VIA ITAHARI, HILE, TUMLINGTAR, CHAINKUTI UPTO PROJECT ).
NEARESTNEAREST SEAPORTSEAPORT
• KOLKATA SEAPORT : ABOUT 600 KM FROM JOGBANI
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Regulatory Issues of Power import from Nepal :
India and Nepal have taken several initiatives to develop hydropower in Nepal but these projects have not made much progress. There are several reasons behind this, but the most prominent are
• Lack of regulatory framework in Nepal Nepal does not have an independent regulator. The Nepal Electricity Authority(NEA) , a government-owned entity, controls all aspects of power, viz,generation, transmission and distribution. Inconsistent policies with regard tothe incentives offered for hydropower developers.
• Lack of adequate grid interconnections and transmission line between two countries.
• Issues related to power trading with IndiaPricing of power has been the most important hurdle in power tradingbetween India and Nepal largely because prices are not fixed on commercialprinciples.
• Nepal lacks an integrated hydropower sector policy basically in terms of large projects.
Though now projects above 500 MW are coming on scene in Nepal but stillexisting policies/ regulations are not able to address problems related toinfrastructure, multiple clearances, land acquisition and licensing.
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Inter regulatory issues
• Similar grid code and O & M procedure to be adhered to– Grid systems of two countries need to be operated on same real time parameters.
• An interconnection between the grids which operate in synchronism – same frequency, voltage, stability & reliability criteria will be a solution.
• Similar tariff mechanism i.e. Deviation mechanism need to beadopted.
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• Establishment of an independent electricity regulatory commission & Formulation ofan integrated Hydropower Policy.
To attract larger private investment in hydropower, Nepal will have to formulatean integrated hydropower policy and establish an independent electricityregulatory commission .
This will help the two countries to determine the price of power oncommercially determined principles.
• Setting up interconnections and transmission lines will also facilitate trade.
The recently initiation to set up Dhalkebar-Muzaffarpur transmission line is astep in the right direction.
• Competitive Tariff of Nepal Power:
To export the power to India, the tariff should be competitive with thatprevailing in India.
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Solutions for making the Nepal power more competitive : Exemption from the existing Import/Export duty• Duty on export of Power to India from Nepal may be exempted in both the countries
which will be in line with Govt. of India Policy intent of promoting Hydropower inneighboring countries to enhance India’s energy security.
• Prevailing export tax for Power in Nepal is levied @ 0.005% of export sales revenue.
• Presently, PTC is a nodal agency for Cross-Border Trading of Power and having validimport license issued. There is no custom duty for importing power from Bhutan. Thesame should be extended in the case of Nepal and all Power Trading Companies beallowed for import of power from Nepal.
• The financial institutions in India/Nepal will consider it as a conducive environment andwill like to fund the Power Projects of Indian developers in Nepal.
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Solutions for making the Nepal power more competitive :
Open access to Indian transmission & connectivity by CTU in India to Developer in Nepal)
• A Policy framework may be considered allowing open access to the transmissionsystem in India for PPA based as also for merchant sale of power/power tradingas applicable in India, to the project developers in Nepal.
Power Purchase Agreement with DISCOMs in India
• For the hydro projects being developed in India, the Policy provides for Power Purchase Agreement with DISCOMs, for which tariff is determined by the CERC/SERC. The capital cost, in the initial stage is estimated through appraisal by CEA and subsequently CERC also gets it reviewed by Expert Agencies for revision of such costs.
• It may be considered that similar approach be followed for projects being developedin Nepal for PPA with DISCOMs in India.
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Solutions for making the Nepal power more competitive :
Operation of the Transmission System :
• Exchange of power between India and Nepal has been happening over the years, butfor a very limited amount of power and at lower voltages through a fewinterconnections. Now that larger power projects are likely to come up, such as Arun-3of 900 MW, Extra High Voltage Transmission System is also being planned.
• It may be considered to lay down specific Guidelines and Codes for operation of theGrid.
• In order that there is complete clarity on these issues, for all the stakeholders,including developers, financial institutions, authorities in Nepal and authorities in India,a comprehensive Guideline may be required.
• Though the operation of the system would be needed at a later date, an in principleacceptance for formulation of such a Guidelines may be considered in order to addressany uncertainty in the minds of any of the stakeholders.
• Scheduling and dispatch of Power.
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Solutions for making the Nepal power more competitive :
Speeding up of setting up of new coming Projects in Nepal:
• It is the high time to speed up the setting of the Hydro PowerProjects in Nepal viz. Arun-3 HPP (900 MW) which is waitingfor startup for years due to non concluding & signing of ProjectDevelopment Agreement (PDA).
•- Inordinate delays like signing of the PDA inevitably attribute to
delays in project execution, cost overruns and impacting the viability of the Projects.
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Solutions for making the Nepal power more competitive :
Concessions in Custom Duty & VAT to keep large ventures in hydropower, techno-economically viable.
• In near future, several mega projects in Nepal will be in construction concurrently.
• The production capacity of Cement & Steel of requisite specifications available in Nepalwill certainly not be able to meet the cumulative demand.
• This situation is certainly necessitating the Project Developers to import the Cement &Steel from India till the adequate production capacity is made available in Nepal.
• Thus, the Custom Duty & VAT are going to impart a huge impact on Project cost.
• Thereby concessions in Custom Duty & VAT and import license fees need to beextended on plant, machinery and equipment, and construction materials (includingspare parts), cement, admixtures, resin capsules, reinforced steel, fuel, lubricants,satellite communication sets, explosives and all Project related items, includingconsultancy and other expatriate services likely to be imported into Nepal for thepurpose of the Projects.
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Solutions for making the Nepal power more competitive :
Exemption of corporate tax during generation license period.
• As per the prevalent provisions in Nepal, for the licensed industries engaged inproduction & distribution of electricity, if the production & distribution is completed bythe end of Chaitra 2075 (i.e. April 13, 2019); there is 100% exemption for first 10 years,50 % for next 5 years.
• Since the PDA for any of the upcoming project could not be signed till date; thereby the upcoming projects will not be completed by Chaitra 2075.
• In view of the same, it is proposed that the existing deadline of Chaitra 2075 may be extended by another 10 – 15 years i.e. up to Chaitra 2085 -2090.
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Solutions for making the Nepal power more competitive :
Exemptions/concessions in Royalties to Govt. of Nepal.
<< Capacity Royalty >>
Though there is provision of capacity royalty in hydropower development policy ofNepal; but, as per international best practices and policies there is no provision ofcapacity royalty for mega projects.
The amount of capacity royalty for Mega Project is substantial and is resulting in highertariff thereby impacting the viability of the project.
During low generation or nil generation, the revenue from the project , net of O & Mexpenses and debt service; may not be sufficient enough for payment of capacityroyalty.
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Solutions for making the Nepal power more competitive :
Support by Govt. of Nepal to developers in Land acquisition AND ROW
• Absence of properly identified land & lalpurjas as experienced commonly by theDevelopers in general are making land acquisition very time and resource consumingfor the developers.
• So the Developer needs administrative coordination and assistance of GON forimplementation of rehabilitation and resettlement plan.
• The Govt. of Nepal should make available all such Govt. land required for the executionof the project to the Developer on priority after the submission of completeinformation by the Developer.
• Non GoN land should be purchased in the name of GON and such purchased land shallbe given to the Developer on lease for the project period in view of the followingreasons.
• GON needs to provide a comfort to the project Developers and the lenders that thelenders' requirement of mortgaging the forest land (which is proposed to be on lease tothe project company) shall be explicitly allowed.
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CONCLUSION
• Delay in signing of PDA to be avoided.• Delay in approvals by authorities to be curtailed.• Reasonability for charging of Royalties and Free
Power.• Exemption from Custom duties , Vat etc. on
Cement, Steel and other construction materials.• Right of Way for Transmission Line.• CEA/CWC and of Projects of Indian PSUs need not
to be put for further review.
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Thank You.
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