Jammu & Kashmir has a hydropower potential of the order of 20,000 MW against which only about 1500 MW has been harnessed so far. The Government of Jammu & Kashmir (GOJK) has decided to encourage generation of power through small hydropower sources of energy and has framed a policy so that the development of this sector serves  as an engine to achieve the objective of promoting the all-round development of the region.
 
1.2  The objectives of this  policy, inter  alia, are to attract investors for  the  development of  the State’s water resources  in   an environment friendly manner and to generate  revenues  for the State from development  of its  hydel  resources  while  ensuring  project  viability.
 
2.       OPERATIVE PERIOD  AND PARTICIPATION :

 2.1        This policy shall be in operation from the date of its publication as notified by the Government Order. All projects awarded under this policy will be governed by this policy for their entire duration.     
 
2.2        All Hydropower projects / stations estimated to have an installed capacity of  above 25 MW, as notified by the Jammu & Kashmir State Power Development Corporation (J&KSPDC) from time to time, shall be eligible under this policy.
 
2.3       Jammu & Kashmir Government invites any non-GOJK agency to bid for identified projects for the development of this sector. These will be termed as Independent Power Producers (IPP). This would include any of the private sector entities, central power utilities, state governments or any other government entities and their joint ventures.
 
3.      PREQUALIFICATION :
 
3.1       There shall be a pre-qualification by the GOJK of the bidders for the projects in the State based on (a) financial capacity to mobilize the required resources and bring in or raise their equity contribution; and (b) past experience with development, construction and operations of hydro projects or other power sector experience. The   applicants  will  have  to  qualify on both   these  counts  to  be  pre-qualified for   the  competitive  bidding  process  for  project  allotment. The applicants will be graded and listed based on the balance sheets, annual reports and other reported evidence of financial and technical capacity.
 
3.2       The weightage to be given to financial capacity, technical capability, past experience and other relevant attributes of the applicants, the sub-categories of these attributes to be evaluated and their inter-se weightage, the guidelines for evaluation and the passing score on attributes /in aggregate required for pre-qualification shall be specified in the bid documents inviting bids for pre-qualification.
 
4.           PROJECTS: 

4.1        The Projects available for development with indications of estimated capacities shall be notified from  time  to time  by the J&KSPDC.
 
4.2     The J&KSPDC will undertake to prepare the pre-feasibility studies in a time bound manner. The evacuation   requirements including details of nearest sub-station will be specified in the pre-feasibility studies.
 
4.3      The  GoJK  shall  stipulate  for  each project,  as   part  of the  bid  conditions, a maximum number of years for    completion of the project   implementation  i.e. outer  limit  for  project  completion which  would   be  binding  for all  bidders.            
 
4.4      The projects shall be offered for a period of forty  years from the date of  the award at the end of which they shall   revert to the Government of Jammu & Kashmir or extended further on mutually agreed terms as per the decision of the Government of Jammu & Kashmir
 
4.5      The private land, if any, required for the project shall have to be acquired by the IPP at their own cost.  If it is Government land, it will be given on lease for a period of 40 years. All necessary assistance in this regard will be provided by the Power Development Department/Corporation. The construction of approach roads, water and power supplies etc. shall be the  responsibility of the IPP.
 
4.6     In case of canal fall schemes, the availability of water in the canal will be subject to irrigation demand, and the IPP does not have any right for additional water for power generation. The decision of Irrigation Department in this regard will be final and binding.
 
4.7     The project assets would be maintained by the IPP in a condition that would ensure a residual life of the project at the rated capacity of at least 30 years at any point of time. During the 10th, 20th and 30th year of   operation, as well as during the last year of concession. The GOJK or one of its appointed agencies would carry out a mandatory inspection of the project site to ensure that the project assets are maintained to the required standards to ensure the specified generation capability and residual life of the plant.
 
4.8     If such inspections find that the plant capacity and/or life are being undermined by inadequate maintenance, the GOJK would be entitled to seek remedial measures from the IPP. If the IPP fails to comply with the requirements, the GOJK would have the right to terminate the concession by payment of compensation to be computed as follows. The termination compensation value would be based on estimated net cash flows to equity shareholders for the next ten years or residual period of concession, whichever is less, discounted at a suitable rate. Both the estimate of cash flows as well as the discount rate would be approved by the J&K PDD/J&K SERC which will also factor the costs of refurbishment, renovation, repairs, etc. required to bring the project assets to the standards specified.
 
5.    PROCESS OF ALLOTMENT:

5.1        The projects shall be advertised in order to seek bids.
 
5.2      Applications in response to the advertisement should be accompanied by a non-refundable draft of Rs. 5.00 lakhs only (Rupees five lakhs) payable to Jammu & Kashmir Power Development  Corporation  (J&KSPDC).
 
5.3        All bidders will be subject to pre-qualification as provided in paragraph 3. All pre-qualified bidders will be provided with the pre-feasibility studies prepared by the J&KSPDC.                                                                                                                          
5.4        Bids shall be invited for premium payable upfront to the Government of Jammu & Kashmir per MW in the case of each project/site, subject to a minimum threshold premium of Rs 5.00 lakhs only (Rupees  five lakhs) per MW. Bids received beneath the threshold premium will be rejected.
 
5.5        Projects will be allotted to the bidder making the highest bid. 

5.6        The successful bidder shall be required to deposit the premium/other amount due within  a  reasonable  period  of  receiving  intimation    regarding   his   bid    being successful. The exact time period shall be specified in the bid documents for invitation of bids. The successful bidder may be permitted to provide 50% of the bid amount in excess of  the threshold as a bank guarantee encashable at the time of actual or scheduled financial closure, whichever is earlier.
 
5.7        If more than one bidder bids the identical premium per MW for any site/station, a gradation list based on pre-qualification criteria described above shall be the basis for allotment.
 
5.8        In case any project fails to attract any acceptable bid despite being bid out at least twice, the GOJK may consider allotting the site to a GOJK agency.
 
6.          SALE OF POWER: 

6.1        The IPP/ bidder can contract to sell power to any HT consumer within Jammu & Kashmir, to local grids within Jammu & Kashmir which are not connected to J&K PDD’s main grid, to   any consumer outside the State, or to the Jammu & Kashmir Power Development Department (J&K PDD).
 
6.2        Sales to the J&K PDD will be mutually negotiated. 

6.3        All sales will be approved, as may be required, by the Regulator.

 7.         WHEELING CHARGES: 

7.1        The infrastructure and facilities of J&K PDD will be made available to all IPPs for wheeling the generated energy.
 
7.2       Wheeling charges for wheeling the generated energy to third party consumers or outside the State will be as determined by the J&K SERC. However, for those projects which are bid out prior to the determination of this rate by the J&K SERC, the wheeling charge (for the entire concession period) would be 10% of net energy supplied at the interconnection point.
 
7.3       No wheeling charges are applicable in case of sale to the J&K PDD, or to local J&K PDD  grids within Jammu & Kashmir.
 
7.4        The J&K PDD will prepare a standard “wheeling and banking agreement draft” consistent with this policy statement. This will be made   available prior to any bidding for projects.
 
8.         GRID INTERFACING/TRANSMISSION LINE:
 
8.1        The IPP shall   be responsible for laying  lines  for  connectivity   to  the  nearest  grid  sub-station at the appropriate voltage which will be 132 KV or higher depending on the capacity of the power station and the distance from the power station to the Grid sub-station.
 
8.2        The J&K PDD will determine the specifications of the evacuation facilities required including the inter-connection point and voltage and the same would be specified in the project information document provided with the application form.
 
8.3        For  certain  projects  where the evacuation costs  are  very high,  the  Government of   J&K  may  agree  to finance a part   of  the  costs, the quantum   and terms  of  which  shall  be  made  available  as part  of   the pre-bid  information.
 
8.4        For  certain  projects  where  the  infrastructure  costs  like  access  roads,  bridges  etc.  are  very  high,  the Government  of   J&K  may  decide  to  share  such  costs  with the  IPP.   The  likely  extent of  Government of J&K sharing of  infrastructure  costs  would  be  indicated  as  part  of the pre-bid   information.
 
8.5        IPPs  would  be  free  to  structure  the  evacuation  facilities  in  a  different  company, if they   so  desire.
 
9.          DESPATCH: 

9.1        Priority will be accorded for despatch into the grid by these IPPs ahead of merit order and any other source of supply, subject to any overall restrictions on the proportion of power that may be bought from such sources, which may be imposed by the Government/Regulator in the interest of keeping the overall cost of power purchase within reasonable limits.
 
10.       TAXES  &  ROYALTY:

10.1    On all projects governed by this policy, for  the  first  5  years,  no  royalty  shall  be  charged. For   the next  ten  years,  royalty  at  the  rate  of  15%  of  net  energy wheeled (after deducting wheeling  charges)  or  supplied  directly  without  wheeling  would  be  charged.  Beyond  the  15th   year of  operation,  a royalty  of  18%  of net  energy   wheeled  or  supplied  directly  without  wheeling  will  be  made  available  to  the  GOJK  free  of  charge  by  all  IPPs.
 
10.2      No  further  levies,  taxes and charges  other  than  those  stipulated  in  this  policy  would  be  levied  by  the State  Government and  its   agencies  or  the  Regulator  on the  IPPs  governed  by  this  policy  for  a period  of   ten years  from  the date  of  this  policy.
 
11.      INCENTIVES BY STATE GOVERNMENT:
 
11.1         No entry tax will be levied by the State Government on power  generation, transmission equipment and building  material for projects.
 
11.2     Small Hydel Projects shall be treated as an industry and few incentives available to industrial units in backward areas shall also be available to these units including toll tax exemption.
 
11.3     Income accruing from micro-hydel power project shall be exempted from income-tax as per the Government of India policy in vogue for backward areas.                                  
 
11.4     As part of bid conditions, GOJK could offer select projects, which give socio-economic benefits to the State in the long run, an option to defer royalty payments for  the next  three years of project operation with the condition that the deferred royalty shall be valued at the weighted average sales realization per unit of input power fed into grid system at 132 KV and  above.  The  deferred  royalty  would  be recovered from the project company by GOJK from the 9th to the 15th year and will attract interest at the rate of 12.5% per annum applicable at six monthly intervals on the total outstanding amounts. The project company would have the option to avail of such deferment or have the flexibility to structure partial royalty deferment or for shorter periods with quicker repayment, if it so desires, within six months of achieving financial closure. The deferred royalty dues to GOJK would be secured by a charge on the assets and cash flows of the IPP which would, however, be subordinated to the charge of senior lenders and working capital bankers to the IPP.
 
12.      TRANSFER OF ALLOTMENT:
 
12.1      Free transfer of shares will be permitted in the companies allotted projects as per the procedure laid down.
 
13.       TIME LIMIT FOR EXECUTING THE PROJECT:
 
13.1      IPP shall prepare and submit the detailed project reports and all other information and make the necessary applications for obtaining the statutory clearances and approvals of the State and Central Governments and the Regulator (as applicable) after carrying out the required confirmatory surveys and investigations as per prevailing regulations/ norms within 36 months from the date of allotment.
 
13.2      The IPP shall be responsible for ensuring completeness of all submissions to concerned authorities. Failure to do so within the stipulated time frame shall be treated as non-compliance with the requirement stipulated in this paragraph.
 
13.3      The IPP shall achieve the financial closure within 12 months from the date of receipt of all statutory approvals and clearances given by the State and Central Governments. Financial closure would imply firm commitments for financing the entire project, with all pre-disbursement conditions having been fulfilled and the loan documentation being complete.
 
13.4      The Government of  J&K  shall  stipulate for each  project, as part  of  the  bid  conditions, a maximum number of years for completion  of  the project  implementation.  The  project shall  be   made  operational within  this time  frame.
 
13.5      The failure to reach any of the milestones mentioned above will result in automatic cancellation of the allotment of the site and forfeiture of upfront premium amounts. No compensation would be payable to the IPPs in such instance.
 
13.6      Failure to reach the milestone as above would result in a liability to pay a penalty by the IPP to the GOJK, computed at the equivalent royalty revenue that would have been payable to the GOJK had the project met the milestone. In case the project enjoys an exemption from royalty in the initial years, the duration of royalty exemption would be reduced by the period of delay.   If  the  project  has  failed  to start construction even  after the lapse of time frame in para 13.4 as  above, it  would  result  in  automatic  cancellation of site and forfeiture of  any  upfront  premium  amount.  No  compensation would  be   payable  to the IPP.
 
13.7      The IPP may surrender the allotment back to GOJK if on completion of the DPR, within the stipulated time-frame, it has grounds to establish that the project is not techno-economically viable. On such surrender the bank guarantee provided by the IPP in lieu of upfront premium would be released and any premium amount paid in excess of the threshold premium of Rs. 5 lacs/MW would be refunded to the IPPs by the GOJK.
 
14.       ROLE OF J&K PDD AND J&KSPDC:
 
14.1      The J&K PDD will be responsible for preparing the standard wheeling and banking agreement draft, determination of evacuation requirements and overseeing banking, despatch and royalty arrangements.
 
14.2      The J&KSPDC will be responsible for preparation of pre-feasibility studies, carrying out the bidding process and monitoring of the development of allotted projects/delivery as per time schedules.
 
14.3      The J&KSPDC will not participate in the bidding process. However, after the allotment, upon request from the IPP, the J&KSPDC may consider participating as a minority partner (with less than 50% shareholding interest) or perform certain tasks for the bidder on a consultancy basis. Such participation would be independently negotiated between J&K SPDC  with the IPP and is not mandatory on the part of J&KSPDC.
 
15.       REGULATORY OVERSIGHT:
 
15.1     Aspects of this policy that require regulatory approvals from the concerned Regulator would be subject to such approvals being  given and would apply in the manner approved by the Regulator.
 
16.       DUE DILIGENCE:
 
16.1      The applicant / IPP shall be responsible for carrying out due diligence with regard to his  compliance responsibilities under various applicable Central/State/other laws, rules and regulations and ensure compliance with the same.