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FINANCING OF HYDRO PROJECTS AND RELATED PROJECT MANAGEMENT FOR COST EFFECTIVE HYDROPOWER BY G.N. MATHUR R.

INTRODUCTION. AT THIS CRITICAL JUNCTURE WHEN COUNTRY IS FACING SHORTAGE OF PEAKING POWER AND ENERGY BY ABOUT 12 PERCENT AND 08 PERCENT RESPECTIVELY, THERE IS NEED FOR DEVELOPMENT OF HYDRO PROJECTS BY PROACTIVE ROLE OF PROJECT MANAGEMENT FOR HYDROPOWER DEVELOPMENT IN COST EFFECTIVE MANNER TO MEET THE

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FINANCING OF HYDRO PROJECTS AND RELATED PROJECT MANAGEMENT FOR COST EFFECTIVE HYDROPOWER BY G.N. MATHUR R.

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    1. FINANCING OF HYDRO PROJECTS AND RELATED PROJECT MANAGEMENT FOR COST EFFECTIVE HYDROPOWER BY G.N. MATHUR R.S. CHADHA Secretary Director CENTRAL BOARD OF IRRIGATION AND POWER

    2. INTRODUCTION AT THIS CRITICAL JUNCTURE WHEN COUNTRY IS FACING SHORTAGE OF PEAKING POWER AND ENERGY BY ABOUT 12 PERCENT AND 08 PERCENT RESPECTIVELY, THERE IS NEED FOR DEVELOPMENT OF HYDRO PROJECTS BY PROACTIVE ROLE OF PROJECT MANAGEMENT FOR HYDROPOWER DEVELOPMENT IN COST EFFECTIVE MANNER TO MEET THE GIGANTIC CHALLENGE OF “POWER FOR ALL BY 2012”.

    3. IN THE LIBERALIZED ECONOMY AND THE OPEN REGULATION FOR COMPETITIVE GROWTH OF POWER SECTOR, FINANCING OF HYDRO PROJECTS REQUIRES LONG TERM PLANNING PARTICULARLY IN VIEW OF THE FACT THAT LARGE AMOUNTS OF INVESTMENTS ARE INVOLVED/ ARE AT STAKE.

    4. MARKED FEATURES FOR FINANCING THE HYDRO PROJECTS Total execution period of the Project being longer compared to other modes, these projects are susceptible to uncertainties of the future in shape of: Changing market situations Economic fluctuations New regulations etc.

    5. Requires in-depth study at all stages due to high investment cost. A slight fluctuation or backing out by any Funding agency may make the project unviable. The policies of the Government need to be sound, continuous and economical for effective financial returns during operation stage Where Government is the funding agency, the limited financial resources with the Government at times can jeopardize the construction schedule of the project.

    6. 5) The return on investment at sometimes is not attractive to the Funding agencies due to different regulations/ involvement of various agencies by the Government particularly MOEF.

    7. BACKGROUND AND PRESENT SCENARIO IN THE EARLIER TIMES, WHEN THE FUNDS IN THE FORM OF EQUITY AND DEBT USED TO COME FROM GOVERNMENT SECTORS, THERE WAS HARDLY ANY ATTEMPT FOR BRINGING THE INNOVATION. THE FOCUS WAS MUCH ON TIME/COST CONTROL AS ESCALATION/ OVERRUN USED TO BE REGULARLISED WITH THE APPROVAL OF THE GOVERNMENT.

    8. SOMETIMES, THE INSUFFICIENT FUND DISTRIBUTION THROUGH PLAN ALLOCATION, DUE TO OTHER PRIORTIES OF THE GOVERNMENT LED TO THE INEFFICIENT CONTROL ON THE EXECUTION OF THE PROJECT. FOR QUITE SOMETIME, WITH THE CHANGING SCENARIO; THERE HAS BEEN A CLEAR SHIFT IN THE POLICIES OF THE GOVERNMENT AND THE FINANCING OF THE LARGE HYDRO PROJECTS IS REQUIRED TO BE DONE IN AN INNOVATIVE MANNER WITH THE HELP OF FUNDING AGENCIES ETC.

    9. IN THIS SITUATION, THE CREDIT WORTHINESS OF THE ORGANISATION/PROJECT AUTHORITY BASED ON ITS ASSETS AND PREVIOUS RECORD FOR REPAYMENTS OF THE LOANS ETC. HAS TO BE ENSURED. HOWEVER, WITH THE UPCOMING OF CERC, THE TARIFF POLICY HAS BECOME MORE SCIENTIFIC . TO BRING THE DICIPLINE AND COMPETIVIVENESS IN THE INDUSTRY.

    10. FACTORS GOVERNING THE SOUND FINANCING OF THE PROJECT Independent evaluation of project making its sustainable based on its own strength. Effective arrangements need to be made so as to ensure matching of repayments with the streams of project cash inflows. (The normal period for repayment is 10-15 years)

    11. Ensure power purchase agreements with the various agencies in advance to mitigate the future risk. 4) All major contracts etc. need to be taken up in advance through transparent technical and financial evaluation. 5) The cost estimate and the phasing of expenditure need to be carried out scientifically.

    12. PROJECT MANAGEMENT WHILE WEIGHING THE ADVANTAGES OF HYDRO PROJECTS PARTICULARLY THEIR INHERENT ABILITY FOR MEETING PEAK POWER DEMAND AND IMPROVING THE SYSTEM RELIABILITY ETC., THERE IS NECESSITY TO BE EXTRA CAUTIOUS ABOUT THE PROBABILITY OF TIME AND COST OVERRUNS.

    13. MAIN REASONS FOR SLOW DEVELOPMENT OF HYDROPOWER Environmental issues Rehabilitation & resettlement of Project affected people Geological surprises during construction Landslides, hill slope collapses, road blocks, natural calamities like floods etc. Law & Order problems Interstate disputes

    14. Glaring example of delay of Sardar Sarovar Project Cost of project in 1986 : Rs. 6500 Crores Present cost(after 15 years) : Rs. 27,000 Crores Increase in cost per day in terms of interests and loss in production due to Unavailability of power and Irrigation facilities : Rs. 10 Crores

    15. Main Reason for delay : Law & Order problems

    16. Three Stage Programme for Better Project Management Stage-I : Survey, Investigations and Preparation/Submission of Pre-feasibility Report (if required). Preparation of Detailed Project Report (Time required: approx. 2 years) Stage-II : Environment Clearance, Project approval, Tendering Process, Development of Infrastructure. (Time required: approx. 1 year)

    17. Stage-III : Investment decision, Actual implementation of the Project and Commissioning. (Time required: approx. 3-5 years)

    18. PROJECT PLANNING TO REDUCE TIME AND COST OVERRUN Well defined objectives with innovative and flexible approach Planning the work in precise details Planning of Time Project award Contractual Aspects Use of IT and Communication

    19. PROJECT TEAM AND THEIR APPROACH TOP MANAGEMENT: Should Repose utmost faith and confidence in their team Need regularly concentrate on welfare of the staff Provide incentives and awards to the efficient staff and at the same time penalise the errant staff. No penalty for staff committing “Genuine” mistakes Should have regular interaction with staff

    20. DESIGNERS: Should have Excellent Geological inputs Open mindedness in Design and receptive ness towards feedback from site Use Innovative methods/latest state-of-art technology Execution Team : Should have motivation, Group functioning and Orientation towards work

    21. PROCUREMENT AND CONTRACT PERSONNEL: Should have sufficient experience in contract management Should Ensure “Realistic Contract” Need Regular interaction with site personnel

    22. PROJECT MONITORING AND CONTROL Management Approach (Regular Co-ordination at various levels) Daily, Weekly and Monthly review meetings Monitoring of Budget

    23. CONCLUSION THE REGULAR FLOW OF FUNDS THROUGH DEDICATED EFFORTS AND INNOVATIVE APPROACH IS THE PRE REQUISITE FOR SUCCESSFUL COMPLETION OF THE PROJECT. FOR THAT PURPOSE, TRUST, SOUND AND EFFICIENT MANAGEMENT HAS TO BE GENERATED SO THAT FUNDING AGENCIES COME FORWARD FOR FINANCING THE PROJECT. THE INTERUPPTION OF FUNDS AT ANY STAGE DURING EXECUTION CAN JEOPARDIZE THE TOTAL PLANNING ETC.

    24. TO HARNESS THE HUGE HYDRO POTENTIAL, IT IS VERY ESSENTIAL THAT HYDRO PROJECTS ARE IMPLEMENTED WITHOUT TIME AND COST OVERRUNS THE TOP MANAGEMENT COMMITMENT AND TEAM WORK ARE VERY IMPORTANT ASPECTS OF EFFECTIVE IMPLEMENTATION. THE CONTRACT BETWEEN PROJECT AUTHORITES AND CONTRACTORS IS THE MOST CRITICAL FOUNDATION FOR TIMELY EXECUTION AND SUCCESSFUL COMPLETION OF PROJECT. FOR THIS PURPOSE A HIGH PERFORMANCE & PRACTICAL CONTRACT NEEDS TO BE DRAWN.

    25. BESIDES AFFECTING PENALTY CLAUSES IN THE CONTRACT, THE CLAUSES FOR INCENTIVE TO THE CONTRACTOR FOR EARLY COMPLETION OF THE PROJECT NEEDS TO BE INCORPORATED. STRICT MONITORING AND CO-ORDINATION AT ALL LEVELS AND AT ALL TIMES IS A MUST FOR SEEING THE PROJECT THROUGH (EXAMPLE – CHAMERA 2 PROJECT)

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