The Teesta Files Part II

MK SUBBA

The Background of Teesta Stage III HEP

(The DEED of AGREEMENT)

 The Central Water Commission (CWC), in the year 1974, constituted an expert team to assess the viability of constructing Hydro Electric Generation projects, particularly along the Teesta and Rangeet river valleys of Sikkim. Vide a letter dated 12.10.1987, the Ministry of Power, Government of India (GoI), based on the Detailed Project Report framed by the CWC for the 1200 MW Teesta Stage III Hydro Electric Project, sought the concurrence of the Government of Sikkim (GoS) to execute the project under the Central Sector with the National Hydroelectric Power Corporation Ltd. (NHPC) as the implementing agency. The GoS gave its concurrence on 14.03.1988.

However, in 1991, the GoI notified a new liberalized Hydroelectric Policy, allowing private companies through public-private partnerships (PPPs) and joint ventures to participate in hydropower generation, especially targeting the North and North-East regions of India. It also offered state governments the option to invest in the equity share capital. By 1993, the GoS invited private developers globally on a "Build, Own, Operate and Transfer" (BOOT) basis, on which seven private parties were shortlisted. A High-Level Committee was formed to examine the bids and offers. This continued for a long time till 1997, when only three parties finally submitted bids, which were rejected by the GoS.

With no options left, the GoS again proposed to allot Teesta Stage III, along with Teesta Stage I and II, to NHPC, which offered to execute all three projects on a "Build, Operate and Own" (BOO) basis. This was unacceptable to the GoS. The matter was referred to a Negotiation Committee in January 2003, which also failed to reach any mutual agreement.

By then, the new Electricity Act 2003 had come into force, facilitating the development of Hydro Power Projects more liberally, with an aim to harness 50,000 MW across the country. By June 2004, the GoS decided to identify a joint venture partner through private negotiations, considering the financial and technical capacity required. The GoS decided not to take up the project independently. The Sikkim Power Development Corporation Limited (SPDC) and the Energy and Power Department (EPD), GoS, shortlisted a consortium led by Cosmos Electric Power Supply Limited (CEPSL), comprising Colenco Power Engineering Limited, Leighton Holdings, and M/s MCORP Global Modi Group. A High-Powered Hydro Power Committee (HPHPC) was constituted to expedite hydropower development in Sikkim, which recommended 13 projects in the state.

The HPHPC, after scrutinizing bids from CEPSL, NHPC, Reliance, and Sutlej Jal Vidyut Nigam Limited, recommended allotting Teesta Stage III HEP to CEPSL. However, this was deferred by the State Cabinet on 18 October 2004. The HPHPC reiterated its recommendation to award the project to CEPSL with negotiated changes to the contract terms, but the Cabinet again deferred the decision on 23 November 2004.

In February 2005, the HPHPC recommended the allotment of Teesta Stage III to another consortium led by Athena Projects Private Limited (APPL), consisting of Andhra Pradesh Power Generation Corporation Limited (APGENCO), Larsen & Toubro, Power Trading Corporation of India Limited (PTC), and Infrastructure Leasing & Financial Services. These entities were expected to have the necessary expertise, although APPL was incorporated only in August 2004 and had no prior experience implementing hydel projects. Nevertheless, the project was awarded to the APPL consortium by the GoS, based on the strength of its consortium members' experience. Unfortunately, the consortium members did not participate in the project, and in their absence, Teesta Urja Limited (TUL) had to employ consultants for design and engineering works as the project proceeded.

On 26.02.2005, the GoS, through the Energy and Power Department (vide No. 34/GOS/E&P/2004-05/254), issued the Letter of Intent (LoI) to Athena Projects Private Limited (APPL), 119, Jorbagh, New Delhi, for the development of the 1200 MW Teesta Stage III Hydro Electric Power Project in Sikkim on a BOOT arrangement under a joint sector model, subject to the following conditions:

1. Revenue royalty at the rate of 12% of net energy or money equivalent thereof would be charged for the first 15 years. Beyond 15 years, a royalty of 15% of net energy would be made available to the GoS free of charge.

2. The project would be offered for a period of 35 years from the date of commercial operations, after which it would revert to the GoS, free of cost and in good condition, unless extended on mutually agreed terms.

3. The SPDC/GoS would invest 26% in the total equity. Upon request from the GoS, the IPP would arrange the required funds, which would be repaid from the sale proceeds of free power.

4. The IPP would provide employment to local skilled, semi-skilled, and unskilled manpower per eligibility criteria, including business and contract opportunities for locals.

5. The IPP could not transfer or sell the project without prior GoS permission.

6. A Resettlement and Rehabilitation plan would be prepared and implemented by the GoS at the IPP’s cost.

7. The IPP would submit equity and technical details of its consortium members at financial closure.

On 06.04.2005, APPL informed the GoS that it had incorporated "Teesta Urja Limited" (TUL) as a Special Purpose Vehicle (SPV) under Section 92 of the Companies Act 2013, with the Corporate Identification Number (CIN): U31200DL2005SGCI33875. Its registered office was located at B2/1A, Safdarjung Enclave, Africa Avenue, New Delhi – 110029. On 20.04.2005, the GoS approved the SPV formation, with APPL and its consortium holding 74% equity and GoS holding 26%.

On 18.07.2005, the GoS entered into an Implementation Agreement (IA) with TUL titled “The Deed of Agreement” for the development of the 1200 MW Teesta Stage III HEP. Key features included:

1. Free supply of 12% power to the GoS for the first 15 years and 15% thereafter till the 35th year.

2. Rehabilitation and resettlement of affected villages to be funded by TUL in coordination with GoS.

3. TUL was required to adopt villages nearby and provide facilities such as roads, power, schools, health care, sanitation, etc.

4. TUL was responsible for power evacuation and signing a Power Purchase Agreement (PPA).

5. TUL had to obtain environmental clearance and fund the Catchment Area Treatment Plan.

6. TUL had to carry out the Environmental Impact Assessment (EIA) with the Forest, Wildlife & Environment Management Department and the State Pollution Control Board.

7. Commercial operation (COD) was to be achieved within 60 months from financial closure (i.e., by 18.09.2012).

8. 26% equity of TUL had to be allocated to GoS through an Equity Subscription Agreement, with the arrangement for repayment to be covered through free power and dividends.

9. The remaining 74% equity was to be subscribed by APPL and its consortium members. Changes in equity pattern required GoS approval.

10. After 35 years, the Teesta Stage III HEP and all its assets would be transferred to the GoS, free of cost and in good condition, with the state's interest safeguarded.

Thus, the saga of Teesta Stage III HEP — investigated, surveyed, and studied since 1974, even before Sikkim became the 22nd state of India — finally took off, promising to be among the best hydro projects in the world and of national importance. It was projected to be the highest revenue earner for Sikkim. Yet, as Sikkim celebrates 50 years of statehood, the promise remains unfulfilled.

 (Views are personal.  Email:  mksubba@gmail.com)