By Himanshu Damle
Why is it that the Tata Mundra Project has suddenly become a bone of contention for all across the spectrum; from the financiers to the beneficiaries, the owners, as well as the people of the area? Why is this project, likely to become the largest power generation unit in the country, being opposed nationally and globally? Obviously, there is more than meets the eye. So, what exactly went wrong?
- Photo credits : Sanjeev Thareja
The Power Quagmire
India has always had chronic problems in meeting the electricity needs of its’ peoples. At the beginning of the post-liberal era or the mid-1990s, the then Congress Government, headed by P.V. Narsimhan Rao, initiated a series of measures to address the already growing crisis. It promulgated a Mega Power Policy, whereby projects of more than 1,000 MW would be built to improve the electricity grid in the country. This would apply to projects anywhere in the country, except for the states of Jammu & Kashmir and North-East India, where the cap on generational capacity was reduced to 700 MW. What looked like a decent plan on paper, however, failed in practice, as the gap between supply and demand just kept increasing. It was ten years before the Government decided to amplify the Mega Power Projects (MPPs) by setting up Ultra Mega Power Projects (UMPPs) in a bid to overcome the shortfall. The prefixing of ‘Ultra’ meant a multiplication by a factor of 4 of what the MPPs were hitherto envisaged to generate. In other words, a generational capacity of 4,000 MW made the projects Ultra Mega.
Project: Imminent Impact
The Tata Mundra Project (Coastal Gujarat Power Limited and CGPL hereafter), a wholly owned subsidiary of Tata Power, became the first UMPP that got approved by the Government of India in 2006-07 and was established in Mundra in the Kutch area of Gujarat. Kutch is an ecologically fragile region having a coastline dotted with mangroves, sand dunes, coral reefs, mudflats and a nest of some of the rarest marine species. The coalfired thermal plant adds to the vulnerability of the marine ecology and is built near the massive Mundra SEZ (Special Economic Zone). It also happens to be one amongst the many power generational units over the coastline of 70 km that together would produce 22,000 MW of power.
So, how did this project come about? As in the case of UMPPs, the proposal for this project was initially nurtured by the government-owned Power Finance Corporation of India (PFC) and after a competitive bidding process, Tata Power took over by offering the lowest levelized tariff of Rs. 2.26 (US $ 0.04) per KWh. The project consists of five units of 800 MW each and is priced at a whopping US $4.14 billion. The funding for the project comes from a consortium of Indian banks, led by the State Bank of India and contributions from other National Financial Institutions; like India Infrastructure Finance Company Limited, Housing and Urban Development Corporation Limited, Oriental Bank of Commerce, Vijaya Bank, State Bank of Bikaner and Jaipur, State Bank of Indore, State Bank of Hyderabad and State Bank of Travancore and also through External Commercial Borrowing (ECB). The ECB comprises of International Finance Corporation (IFC) – the private lending arm of the World Bank Group, Asian Development Bank, Exim Bank of Korea, Korea Export Insurance Corporation and the BNP Paribas.i Of the whopping cost of the project, the financing from IFC and ADB is US $450 million each, which appears to be a mere chunk of the whole. However, it has a huge leverage point, since it is assumed that funding from these multilateral giants gets approval only if safeguards and guidelines laid down by them are met successfully.
Since the Kutch coastline is marine rich, fishing becomes one of the major means of livelihood. Thus, the main inhabiting population of the coast happens to be a migratory fishing community locally called bunders. They live in fishing settlements for 8-9 months of the year when fisheries reach an economic peak and then go back inland to the villages for the remaining part of the year. Other economic means are more rural-economy oriented and involvement in salt making, animal rearing and cashcrop cultivation is common. Mundra is a blessed oasis, in an otherwise hot and parched area that borders the great desert, with groundwater fit for drinking and agricultural and horticultural options in the offing. The Project has undoubtedly disrupted the prevalent order with a promise too difficult to keep and the players involved too complacent to mend their ways.
CGPL is located next to another UMPP, the Adani Power Project and both of these are fueled by coal- the thorn in the bush to climate change polylogues all over the world. Tata Mundra is fed entirely on coal imported from Indonesia. With the world trying hard to come to grips with excessive hazard due to the burning of this fossil fuel, the ratiocinating of the Government of India seems to have gone on a tailspin, with a trail of such plants dotting the vast shoreline of the country and the mineralrich hinterlands. All of this in an attempt to solve the official line of the “demand versus supply” equation.
The northern coast of Kutch, where Mundra is located, has witnessed large-scale, rampant industrialization in the last decade. Adani port (the largest private-sector port of the country), Adani SEZ, OPG’s coal-fired thermal plant and metal forging units have already done more than enough to cause irreparable damages to the geography of the land and sea. They have torn the social fabric of the population and left their economic means in tatters. What should really be occupying the mind of the company has eluded it completely, for CGPL plans for an expansion of 1,600 MW to the existing capacity, disregarding the mitigation that it has orchestrated in the first place.
- Photo credits : Sanjeev Thareja
Taking Recourse with the Accountability Mechanism
Machimar Adhikar Sangharsh Sangathan (MASS) that transliterates into Association for the Struggle for Fish workers’ Rights is a local organization of the affected communities which filed a complaint with the Compliance Advisor Ombudsman (CAO) - an independent recourse mechanism for the IFC and Multilateral Investment Guarantee Agency (MIGA) of the World Bank Group - in June of 2011. The complaint outlined parameters where the IFC committed significant policy breaches and supervision failures and wanted the CAO to weigh in with its findings. After a two-year long rigorous process, CAO came out with its findings that validated the complainant’s case by admitting to policy breaches, supervision failures and leniencies on IFC’s part. As a result, there were lapses and impacts:
1. The Environment and Social Impact Assessment (ESIA) filed by CGPL was deficient and shockingly, even failed to identify certain communities as project-affected.
2. A cumulative impact study was not carried out despite the presence of certain large-scale polluting industries in the vicinity.
3. CGPL failed to conduct adequate, meaningful and informed consultation with the affected communities and even shied away from sharing information about the action and mitigation plans.
4. There was a clear violation of the environmental clearance with large stretches of mangroves, dry-land forests and bio-diversity rich creeks meeting a destructive end during the construction of the outfall and inlet channels.
5. CGPL U-turned from the initial deal to have a closed-cycle cooling system and switched over to a cheaper and more environmentally destructive once-through cooling system. Why CGPL turned the degrees is reason defying.
6. Access roads for the fisher-folk and pastoralists to their respective fishing and grazing grounds were either blocked or diverted, forcing the villagers to unusually longer routes and impacting their finances as a result of increased transportation costs and delays.
7. The project has accentuated a decline in fish catch, which has been recorded empirically ever since the CGPL became fully operational. The situation has also aggravated due to the adjacent Adani project.
8. There is inadequacy in addressing the health and environmental impacts of ash contamination from the project. It has contaminated drying fish, salt and animal fodder in the area, giving rise to significant health concerns. Adding to the woes, ignoring the potential hazard of radioactivity from the coal ash pond has deteriorating health impacts. Due to such health hazards, the children and the elderly are most vulnerable to respiratory ailments and the gravity of the situation can be gauged by the fact that the two coal plants are together burning 28 million tons of coal every year.
9. Turning over to the finances and cost-benefit side of CGPL. The company totally ignored cost overruns and a likely tariff increase in times to come, by either misrepresenting it or underestimating its bid. As a result, the financial burdens would conveniently be placed on the customers.
Findings and Responses
CAO confirmed the inadequacy on IFC’s part to consider in its risk assessment studies the seasonally resident fishing community; the majority members of which belong to a religious minority and are most susceptible to be affected by the project. This excluded a population of close to 25,000 from application of land acquisition standards, biodiversity conservationism and other relevant policies enacted for their protection as laid down in the Performance Standard 5 of the IFC.ii The audit report pointed that IFC was lackadaisical in fulfilling requirements to manage impacts on airshed and the marine environment. On a more specific level, CAO brought to light that IFC did not ensure that its client CGPL applied the 1998 WB guidelines for thermal power, which puts a cap on the net increase on emissions of particulates or sulphur dioxide within the airshed. In case of marine environment, CAO found that the IFC did not possess any robust baseline data and thus, the future impacts of the project were bound to be missing a crucial component. IFC did not assure itself of the plant’s seawater cooling system as complying with the applicable IFC Environmental, Health and Safety (EHS) Guidelines. This could be gauged from the fact that when CGPL bid for the project, they had a closed water cooling system in mind, which suddenly got switched over to a once-open cooling system, which is more hazardous, even if economically cheaper. The failure not to comply is significant, since the thermal plume from the project’s outfall channel will extend well into the shallow waters of the estuary, posing an existential risk to marine life and marine resources. The coast of Mundra is getting dense with industries that are highly polluting and a failure to conduct a cumulative study when a new industry is planned is a grave injustice, not only to the geology of the region, but also to the demography of the region. The latter is largely left ignorant of the hazards that accompany the erection of a new industry, which, incidentally are the cumulative causes of an alliance with other industries in the vicinity. A lender like the IFC, which is known for its safeguards and guidelines and is at least insistent on paper that a strict adherence to it is be followed, could not have deliberately chosen to ignore this grave risk. This was nothing but a felony committed by IFC, since it failed to undertake a cumulative impact assessment of the area. It even failed to advice and admonish its client CGPL that environmental and social risks emerging from the project’s proximity to the Mundra Port and the Adani Power Plant and SEZ should have been assessed by a third party, neutral in stature, which in turn would help devise mitigation measures. Therefore, a compounded assessment made by the CAO sternly suggested that IFC’s review and adoption of its client’s reports are not robust to ensure that the performance standards and supervision requirements are met.
So, how did the IFC react to the recourse mechanism’s findings? They reacted by proficiently dismissing and essentially rejecting them. They audaciously defended their decision to fund the project, their client CGPL and even passed over any remedial action plan. Since the CAO reports directly to the President of the WBG, the report with its findings was tabled before Dr. Jim Yong Kim; who sat over it in bureaucratic silence for close to a month. He eventually cleared the management response, thus acquitting the IFC of any wrong doing and putting a question mark over the need for the compliance mechanism. Dr. Kim – who with his constant rant of a sensible investment by the Bank that would give highest importance to climate change mitigation on one hand and a commitment to eradicate extreme poverty on the other – clearly failed to deliver on his promises.
The World Takes a Note
The issue spiraled into worldwide attention with 68 organizations from around the world opposing the plant in Mundra and the IFC’s involvement in it. The organizations extended their solidarity to the fishing community and demanded an explanation for rejecting the findings of the CAO report that highlighted IFC’s violations in funding the project. They alleged how the fishing community continued to suffer the impacts of air pollution, contaminated water and the loss of ecological resources at their disposal, because of this wayward decision of the IFC in particular and the WBG in general.
The protesting organizations appeared to be stunned by the decision that would have given a chance for the World Bank President to prove to the world that he, with his past rooted in public health advocacy and constant reminders of the commitment of the Bank to phase out of funding fossil fuels had not just frittered away.
Similar sentiments were echoed by over a hundred Indian organizations; who thought of the President’s response as a cruel shock to the numerous fishing families affected by the project. They had hoped for a just decision to be coming their way based on the President’s expertise in public health. These organizations had no qualms in voicing their anguish at the fact that the President was complicit in human rights violations on the ground and all talk of transparency and accountability was a mere sham and it was business as usual that mattered most for the WBG. They also expressed their worries about the accountability mechanism at the Bank becoming a mere farcical exercise if no actions were ever forthcoming on its findings.
MASS was represented at the 2014 WB/IMF Spring Meeting and that made the world take notice in a big way. A petition to support the cause of the fishing families and pastoralists in Mundra garnered over 24,000 signatures, which was then duly delivered at the Civil Society Organization meeting and taken serious note by Executive directors of more than 15 countries/blocks. One to one meetings were held with the offices of the Executive Directors, who promised a sensitive intervention, with some even admitting that IFC’s failure to acknowledge its mistake was a serious and a contentious issue that needed to be taken up.
Though a lot of solidarity was promised, what seems to be moving would only require a keen eye to detect, if at all there is even a semblance of it. A meeting with the higher-ups of IFC went on to commit that any actions plans that were being formulated would be diligently shared with the people affected, but eventually, all that came out from the office was what had come even before the project had been commissioned, thus proving the entirety of the exercise of an action plan as a non-starter. Building pressure from the ground-up appears to be the only strategy to work at the moment and this was vociferously expressed at the Spring Meeting in 2014. MASS came out with a four-point agenda, from which there was no question of budging. The petition mentioned above demands urgent actions to restore, rehabilitate and resettle, to provide adequate compensations, to acknowledges its lapses, to refuse the financing of any expansion and to make the IFC pull out of the project.
So far the IFC has hinted that it will not be financing the expansion.vi After being scanned by the compliance mechanism of the IFC, a complaint was also filed with the Asian Development Bank. Their recourse mechanism, the Compliance Review Panel (CRP), has taken the complaint seriously for an audit and is in the process of reviewing adherence to the safeguards and guidelines of the Asian multilateral giant. It is worth noting once more that even the ADB has an investment of US $450 million in Mundra.
This clearly shows that the CGPL finds itself in serious human rights’ violations of the people inhabiting the region. The CRP review process is currently on and their findings are awaited most eagerly. The really surprising question however, is why would the CGPL go in for an expansion of units when it is yet to sort out these urgent issues? What fuels this surprise further is the financial health of the project, which we turn attention to now.
Switching over to the financial impracticality of the project, the coal that fires the plant comes wholly from Indonesia. After a decision by the Indonesian Government to link mineral exports to market rates in September 2010 and taking effect in 2011, importing coal has become dearer. The immediate logical implication of this is a restructuring of the tariff rates from the one that helped bid for the project in the first place. That was exactly the route undertaken and based on some riders that the Central Electricity Regulatory Commission (CERC) extended, including sharing profits earned by Tata’s Indonesian mining companies, sacrificing one per cent return of equity (RoE) and lowering auxiliary consumption of 4.75 per cent, further brought down the effective compensatory rate to 47 paise (US $ 0.01) per unit. As a result of this compensation, the retail rate from the CGPL for consumers in the five procuring states of Gujarat, Rajasthan, Haryana, Punjab and Maharashtra is expected to rise by 0.4 – 1.8 per cent.
This might come as a relief, but is clearly not, since four of the five states benefiting from the electricity generated at the plant, plan to legally challenge the move by the regulator to let CGPL pass on increased fuel costs on power purchasers. Maharashtra, Gujarat, Haryana and Punjab have taken an in-principle decision to approach the Appellate Tribunal for Electricity (APE) against the order by the CERC. These states are pondering filing separate petitions against the compensation extended to CGPL. An official involved with a long-drawn legal and regulatory battle, on conditions of anonymity, said, “The states are approaching the ATE on a major issue of sanctity of the PPA (power purchase agreement) signed by these for 25 years. CERC’s order will ensure that financial condition of buyer utilities will further deteriorate.” In a very recent development, Tata Power even signed the option of selling 5 per cent of its stake in its Indonesian coal mine to the Bakrie Group at US $250 million to reduce its debt.
What is this, but a drivel of sorts, where everything from the beginning seems to be heading the wrong way and where any attempt to straighten things out only lands the CGPL between the devil and the deep sea, or between the blades of a scissor? Then, why the perseverance by CGPL to make further promises when even the ones it made in the beginning failed disastrously? Is it enough to expand generational capacity to address the deficiency between supply and demand, even if it takes burning fossil fuels and the dirty coal? There isn’t much of an alternative in the thoughts of growth-led development pundits. With the country poignantly poised at an economic downturn and living on a daily basis getting costlier and costlier, whatever energy is generated is beyond affordance for the millions of citizens anyway. Then why not choose for cost-effective renewable sources that at least don’t kill by smoke; for the buzzword today is “coal kills” and there is no denying that. For the people at Mundra, as am sure with people all over the coal and thermal-power belts, their lives are getting darker by the day and whatever electricity is produced at the plant at whatever gain or loss; for the former is a myth while the latter a reality, makes nothing brighter for them.