Issues with Contracting for Hydropower projects (prepared for a CBIP conclave, but unpublished)

1. CBIP Conclave on Model Contract Documents for Development of Hydropower ProjectsCRITICAL ISSUES IN CONTRACT FORMULATION OF
HYDROPOWER PROJECTS - a trans-national Insight By YOGESH BAHADUR*
CBIP Conclave on Model Contract Documents for Development of Hydropower Projects
CRITICAL ISSUES IN CONTRACT FORMULATION OF HYDROPOWER PROJECTS
- a trans-national Insight
By YOGESH BAHADUR*
Presently consultant in power & renewable energy sector and President, Pentacle Power Marketing & Consultancy Services; he was
President-CEO/Power Business with Best & Crompton and Head of Business Development for VATECH HYDRO/Flovel, Faridabad
earlier. Mr. Bahadur is a graduate Naval Architect & Marine Engineer from University of Michigan, USA.
Introduction
Recalling the early days of hydro privatization in early nineties, when the Department of Non-
Conventional Energy (DNES) made its first transformation towards a Ministry and came to be known as
MNES, I remember a meeting with the Advisor while representing my small hydro manufacturing
company, by name of Flovel, of which I was then a part. One of the main issues was to put an end to
downscaling of large hydro projects to arrive at a technological or commercial understanding of the
subject in its broken down economies of scale. That was the phase when only small hydro could be
conceived for privatization and so came the question. Finally with MNES formation came the definition of
small hydro and it has changed from 3 MW to 25 MW, but not without the remaining question, “How big is
big and how small is small?” in a science, where unit capacity is based on permutations of head versus
discharge and various land related isssues. With definition of MNES changing to MNRE, surely more
ideas ought to be added, such as global warming and its impacts ahead.
So should low head canal have a different definition as against a hilly high head hydro power plant?
There have been numerous debates on the “Standardization” aspect. Those of us from the Turbine
design & contracting sector can truly wink as to what the hullabaloo is all about because our principals
would always put a significant engineering cost while adapting a so called “standardized” design to a
project.
With forming foreign joint ventures then, we had perhaps given some semblance to the MNES desire for
standardization, but were far away from executing multiple orders of a “small hydro industry” with a small
engineering work force and I would tend to ponder, whether had it not been better to develop the turbines
indigenously, because the expenses have been no less.
Even so, deep within I am certain it could never have been possible that way, in a fraternity where
anything internationally borrowed is acceptable, but we have not come to accept that we can learn to
work in an international manner ourselves. And there, my fellow ‘hydrozens’, lies the moot problem of
hydro, be it technology, manufacturing or contracting.
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2. CBIP Conclave on Model Contract Documents for Development of Hydropower ProjectsCRITICAL ISSUES IN CONTRACT FORMULATION OF
HYDROPOWER PROJECTS - a trans-national Insight By YOGESH BAHADUR*
Now down almost two decades, when small hydro has grown by more than 200 private developers, of
whom many have completed and others are in various stages of clearances and project execution, we
have a participative industry encompassing both private and public/government sector. Yet I have seen a
beeline of private sector professionals travelling the globe and many ending spellbound in China, only to
remain as perplexed as ever before once they return to grass-roots of long gestation hydro power
projects.
As such, even when working towards a Model Document for Hydro Contracting, we will have to think
deep down the science and its implications for the future; otherwise we will grope with “how model is
model” just as “how standardized is standardized” and “how big is big”.
Evolution of the Hydro Contract Document
The last decade has been a mixed bag of miracles and miseries for the hydro world and I can only say it
from the eyes of a marketing & contracting professional with a global multinational hydro manufacturing
and contracting company. Even so, the significance might well be lost on say, a middle management
marketing counterpart in public or government sector. One of the main reasons is that he (in public
sector) is not pulled in two opposite directions by the controller of accounts in Europe adamant to have
me build additional risk costs every time there is a bomb blast in India and to deal with head of contracts
of a public sector entity on the other, who asks “so you have done great work in Europe on similar
project….but what have you to show in India?”
This has been perhaps the greatest challenge of this unique but growing breed of multinational and
transnational contracting professionals in last two decades. The fact is that more than 80% of my
partners-in-progress hydro professionals are in or from Public sector wherever they may presently be.
Also it is true that there are equal opportunities presently for contracting personnel in private sector as in
public sector and this shift of Human Resources shall have a definite impact on contracting to where it is
headed.
But before that happens with time, we must look holistically across the country and how the contract
document has developed in recent years. Even now, when I am writing a tender document and forget the
right phrase, I would tend to say “…..shall be as per NHPC clause pertaining to the same”. I have seen
by virtue of my close proximity to their office in Faridabad, how the thinking and adaptation process has
been and how the delays in contract awards have been caused and later in some cases prevented, in
this learning process at the core of hydro power sector. I recall our own and our foreign principals’
frustration when even NHPC would still ask for “fully homologous model tests” for a small hydro project
and found impossible not to use its entire strength of a large hydro project to a small hydro project in
Andaman Nicobar Islands. However, the project was a success and then there were perhaps not as
many large projects on the table as they have now.
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3. CBIP Conclave on Model Contract Documents for Development of Hydropower ProjectsCRITICAL ISSUES IN CONTRACT FORMULATION OF
HYDROPOWER PROJECTS - a trans-national Insight By YOGESH BAHADUR*
Perhaps this proximity in my educative phase and the fact that NHPC officials have headed CBIP and
other private and public groups even after retirement from NHPC, becomes the reason for me to write
this article at the 11th hour of the conference for the benefit of all, especially the new generation of
contracting personnel in both private and public sector.
Yes, firstly the famous NHPC ‘Forms’ section of the contract which gives no room to fudge the truth, but
repetition over and over again has made it a drudgery of sorts. I have also felt that when references and
experience lists become so focused it leaves no room for growth and development within an innovative
organization, which can very well develop new ideas and products if given leeway to experiment. Why
cannot the customer’s contracting think tank give some benefit of doubt to new and entrepreneur
companies in building new ideas and products. In fact they should actually be giving marks for that, if we
are in progressive India which has found water on the moon!
One of the greatest drawbacks of hydro contracting is that we get confused by hydro specific local and
policy issues and start treating the sector like it involved ‘Rocket Science’, rather than to dovetail the local
and policy issues with evolving technology and development of indigenous or “Made for India” overseas
skills and capabilities in hydro engineering practice. Also, the oft repeated phrase that itself secludes
hydro from all else, “but are you from hydro?” is irrelevant when even public sector transfers from thermal
to hydro and vice versa have hitherto been quite normal.
I also recall a quip from a thermal project official from public sector, that thermal sector officers are
smarter than hydro sector. While I would not tend to agree nor disagree with something so generally put,
I do agree that the rate of progress in thermal has been far greater and the crossover bridge to and from
thermal to hydro is essential, but commercial and technical verticals in public & government sector would
have to thinned down significantly to dovetail the two essential elements when formulating contracts.
Many of my fellow ‘hydrozens’ will recall PFC made model contract documents for the R, M & U program
in the ‘90s after much debates, seminars and meetings and with aegis of CEA and MOP. It did trigger the
program and helped some private sector multinationals like my erstwhile employers SULZER/VATECH
subsidiaries as also others like VOITH to emerge as options to BHEL. Even NHPC and the State
Electricity Boards welcomed the private alternatives, since BHEL was a monopoly until then. Even so
after the initial spurt, the R, M & U program has laid dormant, depleted and back to the small contractor
phase as development of contracting documents never happened. Even larger and important hydro
projects of NHPC, UJVNL & BBMB were shelved or put on hold as evaluation aspects looked widely
hazy. Yet we have stood by the lowest bid fixation and cannot define the ‘lowest evaluated bidder’,
because that needs contracting ‘finesse’, especially for innovative areas of R, M & U and some cases of
large and mega hydro in Himalayan or silt-prone regions.
The evolution process of making contract documents, to create models that are flexible and adaptive to
situation and change, rather than ‘language documents’ of ‘standard forms’ that have insinuations of
being gospel is the real challenge in hydropower sector contracting, if it is to rise as popular and powerful
as its thermal or nuclear cousins.
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4. CBIP Conclave on Model Contract Documents for Development of Hydropower ProjectsCRITICAL ISSUES IN CONTRACT FORMULATION OF
HYDROPOWER PROJECTS - a trans-national Insight By YOGESH BAHADUR*
For selection of hydro developers we have tariff based evaluation, fine, but the same used in judging
generating equipment and machinery contractors has not been without raising eyebrows over the many
assumptions that are required as tariff aspect is broken down into smaller elements. Also, we are still
unsure of measurements of efficiency and find it impractical to enforce guarantees. I sometimes feel all
this is still irrelevant, and project owners would have done better if they had worked to reduce their
project costs in simpler way, rather than enforcing so many guarantees on contractors that they hike their
prices for risks involved! In end they have qualified bidders who do not meet their budgets. Either they
must move parliament for hike in costs or delay until a contract-worthy solution is found. In any case, the
project is delayed! Sometimes we have to look beyond pragmatism of modernization & change and resort
to convention – all this means the need for flexibility and not creating bibles in contract modeling.
Lessons from Global Contracting
I recall asking my German counterpart contract manager once, “then how would you award consultancy
and execution of the same project to the same company” pertaining to a hydropower RM&U project in
which the contractors were selected on basis of best and cost economical solutions. In fact, the flexibility
of contracting process (on a global platform, mind you!), gave birth to several SULZER’s innovations in
low head turbine configurations such as Straflo (generator with its hub as turbine inside water path) and
many other unique and innovative concepts, while finding specific solutions for replacement of old
turbines with new within existing civil works. I say this, as I can count lot more more than 25 projects on
canal falls in the country which are not operational for 10 or more years since they were taken up,
because no one can contribute the right techno-commercial idea and within the parameters of SEB
guidelines, the most that I can recommend is to change the entire equipment, which would never be
acceptable and I am sure to be mocked at.
But my question is, will you pay me to find the solution and execute it too. Then we do not have a
contract document to do that…no sir, not for 10 years.
We have to understand the simple logic of a mathematical equation, that the more the ponderables, more
the variables and more the creativity to sequence these variables and variables into multiple equations
and to merge these equations into a simple single and solvable equation….but that takes talent and
ideas and money to back up. So the challenge can we be creative to formulate these contracts which can
be fair to all concerned without asking “have you done it before”, because we have never done it
ourselves. But who bells the cat?
Fortunately, I notice from recent contracts, we are becoming less binding even in new construction large
hydro projects of some private developers while specifying generating equipment…yes, we have all
learnt from our mistakes and even CEA is clear on how to handle the ‘cusp’ in regions when a Pelton
Turbine can be used just as well as a Francis, perhaps with some advantages too in some cases. So
definitely we are improving!
Even so, we are still sure that we have mastered every civil engineering aspect; because with private
sector developers coming in, the civil engineer has become the contract specialist and has given due
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5. CBIP Conclave on Model Contract Documents for Development of Hydropower ProjectsCRITICAL ISSUES IN CONTRACT FORMULATION OF
HYDROPOWER PROJECTS - a trans-national Insight By YOGESH BAHADUR*
flexibility for the E&M contractor, but not to another civil contractor. So we have in some cases desilting
tanks that cost a fortune when perhaps the cost could have been cut and better utilized to find other
solutions and other such situations. We all know that the civil document of a DPR cannot be touched
during contracting phase. But here there is another problem of project authority approval and horse
before the cart and vice-versa scenario. Getting Civil consultants and Civil Contractors to work side by
side in DPR phase can indeed be a challenge, but prevent delay-intrinsic situations when even minor
drawing changes must go through a long process and we have only the CEO in case of a private
developer to be the deciding authority in the end, once the government experts have okayed the DPR
and drawings.
It is such pressures on top management of SPVs and private owners that cause possible catastrophes
(alternatively delays!) if we are over-tenacious in expediting our project but lack knowledge and
contracting skills that have seen mega hydro project successes world-wide. This also calls for training of
top management of private sector companies in phasing out the innings with the skills of a Sachin
Tendulkar; such is the process of project scheduling and contract development.
I see training ourselves through global ideas rather than taking on foreign technology or well learnt
postulates as gospel as the prime area of focus, even as we have developed such ‘model contract
procedures’, but may lack skills to follow them eventually. As such the ‘model’ can at best be a guide.
Adapting the lessons to Contact Models for Hydro
In a nutshell Indian Hydropower has to re-evaluate itself, now that we have learnt something so that we
are not China or any other country-dependent to formulate our own thinking, but have adequate
awareness of how they all succeeded in their countries. China, if you must see has only looked inwards
and has immense faith in its people as a whole, whereas we are no where near accepting that aspect,
even when we boast we have the best engineers in the world. But who is believing them in a nation ruled
by its financial wisdom of short term gains; perhaps lessons that can be drawn from the economic
slowdown, now that even the west has failed!
It would be futile to create model documents with a yet untrained private sector which is still coming to
terms with the specifics of hydro and any day, might well want to run back to comfort of thermal & wind
for some degree of ‘certainty’ in how he must proceed…..the reason that hydro projects, especially in
smaller ranges have become more like property investments than power sector development.
As such, I see contracting as a HRD issue, especially in wake of post recession period when I am seeing
a welcome influx of HR consulting companies wanting to specialize in power & infra. It would be
pragmatic to create forums with hydro expert groups in development of HR ideas for training,
development & placement of personnel. The wide-scale web based networking opportunities are a boon
to professionals and can be made instrumental in such progress to provide greater penetration in shorter
time.
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6. CBIP Conclave on Model Contract Documents for Development of Hydropower ProjectsCRITICAL ISSUES IN CONTRACT FORMULATION OF
HYDROPOWER PROJECTS - a trans-national Insight By YOGESH BAHADUR*
Further Hydro, both in new construction & in cases for Renovation-Modernization, is qualified for carbon
credits under CDM and these issues will have to be incorporated with a eye on each contracting
constituent of the hydro project, because failures not only can cause negative impact with depleting
glaciers and water bodies as also erratic rainfalls as witnessed in very recent times too.
An overall idea to get the hydro (and for that matter the Renewal Energy) sector out from its closet into
mainstream industry in a guided manner can be a role taken by a central body of the government. This
should also address grievances of bidders and developers and prevent present situations that we are left
with no viable bidders in certain categories of hydro projects, such as services, repairs, overhaul where
contracts are still tailored for BHEL (who must concentrate more on larger challenges ahead), unless a
local and smaller contractor who has repaired a shaft seal of a 100 MW project succeeds in proving in his
bid that he has ‘executed’ a 100 MW project. Such provisions will encourage entrepreneurship and
development of new companies, formed by experts from the larger groups perhaps, to build a larger
subcontracting base and hence viable local options for developers and owners of projects both in public
and private sector.
Formulation, execution, understanding and appreciation of contract documents are key to solving all the
hitherto prominent problems of hydropower:
1. Lack of understanding of multiplicity of issues involved from local to technology & finance
2. Development of contracting and subcontracting base
3. Indigenization of manufacturing technologies & enhancement of severely depleted indigenous
manufacturing base progressively over coming years
4. Education & grooming of management & personnel talent within private and public sector
5. Developing new age contracting and engineering personnel in government departments to put
power sector in India on par with the best in the world
6. To reduce the Thermal to Hydro gap by facilitating faster completions and allotment process
7. Enhancing Public Private Partnership and facilitating the two to work jointly towards development
of power & infra within the country.
8. Contribute to arresting climate change and making optimum use of natural resources at our
disposal - while they last and are within man’s control.
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