'We must develop cheap hydro power to be competitive'

Q&A - Awadh B Giri, CEO and Director, Bhilwara Energy

Hydro power projects have typically been limited to government-owned companies because of the high capex involved, long gestation period and various complexities (read geological surprises). However, if done "properly" hydro power capacity can be set up in shorter time with a capex lower than for thermal power. Analysts say that with the sale of power from such projects in the free market, Return on Equity (RoE) for investors could as high as 30 per cent or more. Awadh B Giri, CEO and director of Bhilwara Energy (a subsidiary of LNJ Bhilwara Group), spearheaded one of the first private sector investments in hydro power projects "" at the 86 mw Malana project in Himachal Pradesh. Today, the company has over 2,800 mw of capacity in pipeline, spread across 15 projects bagged in the last few months, he tells in an interview. Excerpts:

Is the Malana hydro project in Himachal Pradesh, which was commissioned in 2001, the first hydro merchant power in the country?

Absolutely. After giving 15 per cent free power to the state, we have been selling the rest of the power to other states through Power Trading Corporation of India. Also, it was the first project to get financed on its balance-sheet through corporate guarantee of the group companies.

What was the total cost of the project? We believe it was completed in 30 months...how did you manage that?

It cost us Rs 3.75 crore per mega watt and yes it was completed in a record 30 months. The project was started in December 1998 and commissioned in July 2001. The trick was smart engineering plus a cost-effective design and effective project management. If not managed well, hydro projects can become very expensive.

Analysts tell us that you manage a very high return on equity (RoE) on this project, in the range of 20-30 per cent...

We manage a very handsome RoE, though I would not like to comment on the number.

You are also responsible for opening up of hydro sector for the private sector in Uttarakhand. How did that happen?

I had an opportunity to work for five years as the founder chairman and managing director of Uttaranchal Jal Vidyut Nigam Limited where I helped the opening up of hydropower sites for the private sector in a wholly transparent process "" through competitive bidding based on upfront fee. Now almost entire potential for hydropower in Uttrakhand is under implementation. By 2015, about 15,000 mw hydro power capacity would be commissioned by Uttarakhand.

Doesn't upfront fee increase the project cost?

No, it doesn't't. On the contrary it ensures that the developer who has given this amount in advance completes the project on time and efficiently. Today, Bhutan is emulating this model. Nepal will also follow.

Do you think the government has done its bit for developing the hydro power potential that we have today?

If the Indian manufacturing industry has to be competitive, we must develop hydro power, which is much cheaper than other forms of power. In the past 60 years, only 25 per cent of the hydro potential has been developed in the country. This has been mainly due to long time taken for allocation of hydro power projects and procedural delays in giving clearances like forest clearance, land acquisition by the state and central governments. These clearances need to be expedited. Also, there is an urgent need to allocate the huge and still majorly un-tapped hydropower potential in the country immediately and transparently to developers from various sectors who can place their resources at work. The government has again put shackles by restricting the merchant power sale from hydro plants to 40 per cent in the proposed new hydro policy 2008.

You are also a supporter of public-private-partnership (PPP) in hydro sector. Throw some light on that.

Yes, in my opinion, the PPP model would be especially good for reservoir-based power projects, which are multi-purpose and come handy for both off-peak hours and peak hours supply along with development of the area. However, there are statutory and social issues involved here in terms of rehabilitating the displaced people and getting clearances from the state and centre governments. The state and centre can be partners for developing the project while the private partner can manage the project. Also, hydro projects vested with the state owned companies should be put on joint venture with private sector companies and also listed on the bourses so that they can be managed efficiently and in a transparent manner.

Is Bhilwara Energy only concentrating on hydro?

We are developing geo-thermal energy, which is an efficient and clean form of energy. For this, we have tied up with an Iceland-based firm and have identified two locations at Puga in Laddakh and Tattapani in Himachal Pradesh. Besides, our company is looking at solar power also.