Saturday, September 27, 2014

Terminated hydel projects take Court route back to North Sikkim


North Sikkim appears headed to, again, bear with the complexities of hydel projects with an ‘additional’ three hydroelectric projects. Three hydroelectric projects in North Sikkim which had earlier been terminated by the State Government are all likely to resume from the point where they let off. Following the earthquake of 18 September, 2011, the State government had terminated a total of five hydel projects- two in West Sikkim and three in North Sikkim. Now, the terminated projects in north Sikkim are all set to resume after the project developers approached the High Court of Sikkim which decided the matter in favour of the project developers. Bureaucratic arbitrariness in terminating the projects without arguing out all aspects of the situation or clearly explaining the reasons behind the decision won the day for the project developers in the Court.
All the three projects are to be constructed on the Lachungchu, which is a tributary of the River Teesta in north Sikkim. In fact, all the three projects are located further above the 1200 MW Teesta Stage II being developed by Teesta Urja at Chungthang. The 99 MW Lachung HEP undertaken by Lachung Hydropower Private Ltd, the 99 MW Bhimkyong HEP undertaken by Teesta Hydropower and the 99 MW Bop HEP undertaken by Chungthang Hydropower limited, all on the Lachungchu, have been allowed to resume by an order of the High Court issued on 17 September, 2014.
The High Court has quashed the order of termination of the projects issued by the State Government [on 12 March this year]. The termination order was issued by the High Powered Committee chaired by the Chief Secretary set up to arbitrate on the matter following the High Court’s earlier directions on the matter. The Committee was to reconsider the initial order of termination of these three projects issued by the Power Department on 21 June, 2012. Following this order of termination the project developers approached the High Court of Sikkim; the Court redirected the matter to the high powered committee which, eventually, stood by the earlier order of termination. Following this, the project developers again approached the Court which has now quashed the order the high powered committee on termination of the projects.
The high powered committee under the CS had recommended the termination of the projects mainly on three grounds. Firstly, as per the agreement with the state government the developers had to achieve financial closure within 12 months of the signing of the Agreement (by 17 January 2009). This could not be achieved. Secondly, and also as per the Agreement, construction works on the project were to be undertaken within 6 months of financial closure. This, too, was not achieved. Finally, commercial operation of the projects was to be achieved within 72 months or 5 years of the signing of the Agreements (by 17/1/2014). This, too, could not be achieved.
As regards the first point of financial closure within 12 months, it is explained that the Ministry of Environment and Forests had imposed a complete embargo on the projects on 08 October, 2008 which was lifted only on 18 September, 2010. Therefore, it was argued, the deadline on financial closure could not be met. The embargo had been imposed a few months before the end period of achieving financial closure. The Court noted that no financial institution would like to invest money in a dead project. In fact the embargo was lifted only two years later. The high powered committee, it seems, did not consider this point while passing its recommendation for termination.  While the committee was aware of the embargo, the court noted, it completely ignored it and ruled that financial closure was not achieved within the time schedule.
The issues and constraints presented by the earthquake of 18 September, 2011 were also raised by the project developers. It took a long time for normalcy to return after the earthquake. This point, too, went unnoticed by the high powered committee. The court notes that the contract is not between two private parties but between the government and private companies. “Thus, the government as an employer was under obligation to take note of all these facts and then take a decision in a reasonable manner and not in an arbitrary manner,” reads the order of the division bench of the High Court.
The High Court goes on to observe that the high powered committee should have considered that when the financial closure itself was not achieved for reasons which cannot be attributed to the developers then how  could the construction works or commercial operations of the projects be achieved. “It does not appear to be a case in which the companies sat as idle spectators and did nothing… the companies started working on their projects even before the formal Agreements were executed…,” noted the court.
Finally, when the embargo was lifted, the project developers went about commissioning various studies as required of them when they were slapped with show cause notices on why the projects should not be terminated. This was on 05 December, 2011.
The Court further notes that the committee “completely ignored” these factors and proceeded to take a decision in a straight line for not achieving the various milestones as per the Agreements.
As quirky as it may sound the committee itself recorded that failures on the above aspects could be attributed to a host of reasons and yet it went on to recommend the termination of the projects. And while cost overruns were obvious and was also noted by the committee, the projects being BOOT projects, the financial burden was on the project developers and not the state government.
The arbitrary decision of the high powered committee in terminating the three projects has only resulted in the projects being delayed by a further almost three years. The state government will now have to set new timelines for various milestones such as financial closure, commencement of construction and commissioning of the projects. Needless to add, there will definitely be cost overruns and in the end analysis, a prolonged period before these projects are commissioned and the state can rake in the benefits.

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