This is the second of a two-part series on how corruption led to the dam disaster in Sikkim and how expert recommendations were repeatedly ignored by the Pawan Chamling government. In part one, we looked at how the Sikkim dam which was destroyed in October 2023 was doomed from the start thanks to shoddy deals and repeated oversight. Read Part One here.
The year was 1974. Sikkim was yet to gain statehood and only a few towns were electrified. And in the few towns that were electrified, drastic load shedding was a daily reality.
Following the Nehruvian model that believes in dams and hydel projects as “temples of modern India”, the Government of India discussed the hydropower potential of Sikkim.
After Sikkim became a state, the elected governments continued to pursue this policy. “I reiterated that hydropower projects in Sikkim will continue to benefit Sikkim and the Sikkimese people for a long time in future years as these projects would serve as a sustainable form of revenue generation,” the former Chief Minister Pawan Kumar Chamling wrote in a Facebook post in 2018. Chamling, who is from the Sikkim Democratic Front, had helmed the government for 21 years before the current Chief Minister Prem Singh Tamang took over.
But, the hydropower boom, as many residents, activists and experts have unceasingly called out over the years, has only spelt disaster for the state. In an audit conducted by the Comptroller and Auditor General (CAG) in September 2009, Sikkim’s hydropower potential had been assessed at a peak of 8,000 MW and the Sikkim government had identified 35 projects.
But the audit pointed to a host of problems that riddled the Sikkim government’s push to build on the state’s hydropower potential. This included the lack of state policy for the time-bound and transparent implementation of the projects, inconsistency in the awarding of projects, the potential revenue loss and insufficient precaution against impact on the environment.
In October 2023, in one of the worst disasters the state has witnessed in recent times, about 75 people, most army personnel, lost their lives and about a 100 went missing following a glacial lake outburst flood (GLOF), which submerged the Teesta-III dam located at Chungthang in Mangan district of Sikkim.
In the first part of this series, we looked at the decades-long problems, which had plagued the Teesta-III project – right from the selection of the Athena-led consortium to the revenue loss resulting from the multiple delays and problems in the dam design. These, according to the experts, had spelt disaster for the dam. This second part looks into how many other hydropower projects were also plagued with similar problems.
No private power policy
Hydel projects in Sikkim can be traced as far back as 1927, so wrote researcher Vibha Arora in ”They are All Set to Dam(n) Our Future’: Contested Development through Hydel Power in Democratic Sikkim’. The 50 kW Ranikhola micro-hydel project was commissioned as far back as 1927 “to cater to the needs of the royal family and residents of Gangtok”.
In 1974, “the then Political Officer of Sikkim, who was also the then representative of the Government of India in Sikkim, discussed hydropower potential in Sikkim with the Ministry of Irrigation and Power, Government of India,” noted a writ petition filed in 2005. The petition was against the agreement signed between the State of Sikkim and Teesta Urja Ltd (now Sikkim Urja Limited), the special purpose vehicle, for setting up Teesta Stage III and among the petitioners was the former Sikkim Chief Minister Nar Bahadur Bhandari.
“It was then decided that the Central Water Commission should formulate proposals to carry out surveys for hydro power potential in Teesta and Rangit Valley in the State of Sikkim,” the petition added.
By 2009, Sikkim’s hydropower potential had been identified at 8,000 MW. “The State Government identified (up to September 2009) 35 hydro power projects of total capacity 5,741.20 MW for development by independent power producers and the National Hydro Power Corporation (NHPC),” the 2009-2010 CAG audit report noted.
| SI No. | Particulars | No. of projects | Capacity |
| 1 | Total number of projects identified | 35 | 5,741.2 |
| 2 | Letter of Intents (issued) | 33 | 5,681.2 |
| 3 | LOIs withdrawn | 2 | 139 |
| 4 | LOIs against which agreements are yet to be drawn | 3 | 120.5 |
| 5 | Agreements signed | 28 | 5,421.7 |
| 6 | Agreements withdrawn | 5 | 314 |
| 7 | Agreements valid | 23 | 5,107.7 |
| 8 | Projects awarded to NHPC | 4 | 1300 |
| 9 | Projects awarded to IPPs | 19 | 3,807.7 |
| 10 | Projects commissioned to (NHPC) | 2 | 570 |
Although the Sikkim government since 1991 had pushed to get more private players to bid on projects, it had failed to draft a power policy to “bring in transparency and to ensure better deal for the States” despite the advice to the Government of India to all the states.
“In 2002-03, after more than a decade of announcement of the private power policy by the GOI, the State Government engaged the Administrative Staff College of India, Hyderabad as consultants for preparing the hydro power policy for the state. The ASCI submitted (September 2003) a draft policy for the state, which, inter alia, envisaged advertisement of the projects to seek potential bidders, award of projects to the highest bidder; laying down qualifying criteria for the IPPs such as past experience of hydro power development; determining financial capability of the IPPs; rate of royalty, norms for maintenance of projects etc,” the audit states.
According to the audit, till September 2009 “no further action was taken by the Power Department to get the private power policy approved and notified by the Government even as of September 2009”.
EastMojo couldn’t independently verify if the ASCI-recommended draft policy was implemented. But an earlier report by EastMojo highlighted how the Sikkim government in its internal correspondence had admitted that the letter of intent (LOI) it had issued to Athena Projects Private Limited for the construction of the Teesta Stage III 1200 MW project, was the State’s hydropower policy. This was concurred by the high-powered hydro committee and endorsed by the cabinet, according to the report.
But, as pointed out by the audit, (till 2009) the absence of the policy (specifically drafted for the State by the ASCI) led to several inconsistencies in the awarding of projects to independent power players or IPPs, loss of revenue to the state, environmental risk etc.
No transparency and safeguards
Given that the state had not formulated a power policy at the time “all projects, irrespective of the size were awarded by the state government through the MOU [Memorandum of Understanding] route without calling for bids”, the CAG 2009-2010 report stated. This meant that the government had not notified among other things the details of the potential available, modality for award of projects, technical capability, financial strength and experience of IPPs chosen, to the public.
To date, there doesn’t exist a public repository of the completed and ongoing hydropower projects in Sikkim.
Further “the state government should have incorporated specific conditions in the agreements to safeguard its interests in cases where the plants, after commissioning, remain shut down for considerable lengths of time due to reasons attributable to the developers.”
Effectively, the state had no enabling provision “to compel the IPPs for payment of appropriate compensation in lieu of the free power receivable from the projects.”
Although there were provisions in the agreements for levy of penalty upon delay of more than 12 months, there was “no clause for levy of penalty for plant remaining defunct after commissioning was incorporated in agreements.”
Potential revenue lost
In the first article on Teesta-III, EastMojo reported how the quantum of loss due to delay in the project had mounted to Rs 13,965 crore, according to the 2015-2016 CAG report. The delays and non-payment by the Athena-led Teesta Urja Limited, now the government-run Sikkim Urja Limited, had led to an ever-surmounting cycle of debt for the small state.
What the 2009-2010 CAG report also noted was the potential revenue the state would lose out on because of the poor terms of agreement.
For instance, the Sikkim government did not impose any royalty uniformly on all the developers. “In respect of 17 IPP projects, the Government imposed 12 per cent free power for the first 15 years and 15 per cent free power for the remaining agreement period of 20 years (16th to 35th year),” the CAG report stated.
But, in the case of two projects awarded to Gati Infrastructures Ltd (the 99 MW Chuzachen and 51.7 MW Bhasmey) and four projects awarded to the NHPC (Rangeet Stage III, Teesta Stage V, Teesta Stage IV and Lachen HEP), the government charged 12% free power for the entire agreement period, which according to the audit report from the time, may lead to a potential loss of Rs 143.5 crore per year from the 16th year of operation.
Also, just “an amount of Rs 10,000 per MW was charged as ‘processing fees’ in the agreements drawn with 18 IPPs between July 2005 and December 2008, irrespective of the size of the projects,” the report notes and adds that there were no ‘processing fees’ imposed on the developers of 10 projects i.e. six IPP projects of 347.7 MW agreements signed between December 2002 and November 2003 and four NHPC projects of 1300 MW).
The audit compared this to the upfront premium other state governments including Himachal Pradesh, Uttarakhand, Jammu and Kashmir and Arunachal Pradesh had charged at the time. The Sikkim government lost out on revenue of a minimum of Rs 279.87 cr as compared to Himachal Pradesh, Rs 138.52 cr compared to Jammu and Kashmir and Uttarakhand and Rs 60.08 cr as compared to Arunachal Pradesh for projects above 100 MW.
Additionally, the Sikkim government only imposed a penalty of Rs 10,000 MW per month on the IPPs for delay in the commissioning of the project leading to a loss of anywhere between Rs 2,514.49 crore and Rs 2,622.76 crore for each year of delay in commissioning the project (when compared to the rate of penalty imposed by Uttarakhand, Himachal Pradesh and Jammu and Kashmir).
The first story in this series provided details of the equity subscription agreement that was decided on for the Teesta Stage III dam. According to this arrangement, the government would have 26 per cent stake in the TUL (now Sikkim Urja Limited). This was also seen in the case of six joint venture projects of 100 MW formed between July 2005 and March 2006.
“It was however, seen that even after more than three years of award of the projects to the IPPs, the equity subscription agreements had not been signed as of September 2009 which is indicative of the absence of seriousness of the State Government in following the terms of agreements and achieving the laid down milestones,” the CAG report from 2009-2010 notes.
Moreover, the agreements signed between the government and the various IPPs allowed “various time periods stretching up to 7 years, for the commissioning of the projects after the date of signing”. But, it didn’t lay down any condition of compensation by IPPs in case of abandonment of the projects midway through implementation.
Environmental impact
As per the Environment Protection Act of 1986, Environment Impact Assessment or EIA was “made mandatory under the Environmental (Protection Act, 1986 for 29 categories of developmental activities involving investments of Rs. 50 crores and above”.
The Act requires the IPP to carry out the EIA in association with the Forest, Forest Environment and Wildlife Management Department. But, as the audit revealed, this was only done in the case of two projects i.e. Teesta-VI and Dikchu HEP.
In respect of all other projects (21 of the 23 projects that were audited), “the EIA/EMP [Environment Management Plan] were prepared by agencies based outside the State”. The FE&WM department was not aware of the agencies, which had been tasked in carrying out the EIA and EMP.
The audit noted, “the EMPs had been prepared through assessment of secondary data without diligent study, observation and research of the prevailing ground realities over an adequate period of time”.
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