Shimla, April 22 (IANS): The state-run Himachal Pradesh Power Corp's mega hydropower project, being funded by the Asian Development Bank (ADB), not only faces a cost overrun of Rs.606 crore but may also become commercially unviable, India's official auditor has said.

The very purpose of the ADB giving the grant under its Clean Energy Development Programme for the run-of-the-river 111-MW Sawra Kuddu Hydroelectric Project in upper Shimla that aims to generate 385 million units a year could be defeated due to an accounting procedure adopted by the state govenment, a recent report of the Comptroller and Auditor General (CAG) said.

The slow progress by contractors, inadequate provisioning of some works in the detailed project report, subsequent change in design and the late handing over of the sites to contractors are the main reasons for the cost escalation and delay, the report said.

The delay of more than five years from January 2012 to June 2017 in completing the project has not only resulted in a cost increase from Rs.558.53 crore to Rs.1,165.53 crore but also generation loss of Rs.727.77 crore during this period.

The inordinate delay, said the auditor, will consequentially increase in per MW cost from Rs.5.03 crore to Rs.10.50 crore and per unit generation cost to Rs.6.95 from Rs.2.34.

As the anticipated generation cost would be much higher as compared to the average sale rate of Rs.3.43 per unit, the project may be commercially unviable on commissioning. Till March 2014, Rs.851.62 crore has been spent on the project.

The overall increase in cost is estimated at 109 percent, while the rise in the cost of main components ranged from 31 percent to 1,692 percent, the CAG report said.

It also picked holes in the state government's decision to charge interest on a grant of Rs.442.04 crore by the ADB.

Against Rs.587.85 crore sanctioned loan of the ADB, the central government transferred Rs.491.16 crore till March 2014 to the state in the shape of grant and loan in the 90:10 ratio.

However, the state government treated the entire amount as a loan to the power corporation by charging interest at 10 percent per annum.

The conversion of grant into a loan put an extra interest burden of Rs.126.04 crore on the project cost, the auditor said. This defeated the purpose of providing grant by the ADB under the Clean Energy Development Programme.

The CAG said the change in design of the diversion barrage had added Rs.100.73 crore on the overall cost of the project.

Favouring contractor Aban Coastal Joint Venture is also one of the reasons for cost escalation, the report said.

The construction of the headrace tunnel was awarded to Aban Coastal for Rs.115.92 crore in June 2007 with scheduled completion by July 2011. The contractor failed to achieve the desired progress of work from the beginning of the work allocation.

The power corporation, instead of rescinding the work, extended financial help of Rs.29.53 crore to the contractor over and above the contractual provisions.

Official sources told IANS that state-run 126 MW Largi hydropower project in Kullu district, commissioned in 2007 with an outlay of Rs.1461.33 crore with a delay of four years, is also one of the most expensive hydropower projects. It faced a large-scale financial bungling.

Another electricity board's 100 MW Uhl (Stage III) hydropower project in Mandi district, originally scheduled to be commissioned by March 2006, is heading to huge cost overruns, on the lines of the controversial Larji and Sawra Kuddu projects, said a government official.

Himachal Pradesh's hydropower generation potential is 27,436 MW - about 25 percent of the country's total.
However, only 9,433 MW of power has been tapped till last December, which is 34 percent of the total potential, said the state's economic survey for 2014-15.