Blockchain conference -opening remarks

 

https://youtu.be/f2tzpQuVFO0

Indo-Bhutan Hydropower Cooperation

 Indo-Bhutan Hydropower Cooperation[1]

 

1.     Introduction

 

High ranges of Himalayas and steep gradient of glacial rivers of Bhutan make it ideal for hydroelectric project. The basis of energy generation in hydroelectric power plants is the conversion of potential energy of water stored at a height into electrical energy. This happens by first having the water fall to convert the potential energy into kinetic, so that the turbine can capture and convert that energy into mechanical energy. The mechanical energy generated is finally converted into electrical energy by a generator.

 

 

Cooperation in the hydropower sector was envisaged to benefit both India and Bhutan. Both Governments came together and agreements for co-operations were signed after development of stand-alone projects in Chukha, Kiruchhu and Tala. Hydropower projects to generate 10000 MW was planned to be developed till 2020. The model followed for generating power was primarily based on the successful model of Tala hydroelectric Project which is called IG Model (Inter Government Model). As per this model, an authority is to be created for each project and Authority would execute the project based on agreement and protocol to be signed separately for each project. Accordingly, Punatsangchhu-I Hydroelectric Project Authority (PHPA-I), Punatsangchhu-II Hydroelectric Project Authority (PHPA-II) and Mangdechhu Hydroelectric Project Authority (MHPA) were started between 2008-2011.“Chhu” in local dialect is river and these projects are run of the river projects on the respective rivers. DPRs were prepared for these projects and a few more. In PHPA-I and PHPA-II, WAPCOS, a Government of India PSU was appointed as engineering design consultant whereas in MHPA, NHPC was given the consultancy assignment.

Both, PHPA-I and PHPA-II plansof capacity 1200MW and 1,020 MW respectively are built on one of the the prominent rivers of Bhutan namely, Punatsangchhu, which is known as Sankosh River in India, and it eventually draws into the mighty river Brahmaputra. They are both currently under construction. Powerhouse of PHPA-I and other infrastructure is almost complete but dam is currently not built due to geotechnical and other problems, while dam of PHPA–II is almost ready but power-house is currently under construction, after some setbacks, and is expected to be partly operational by the year 2024.

 

As per the agreements, entire cost of the project is to be provided by GoI as loan and grant. In PHPA-I grant amount is 40% whereas balance 60% is given at loan attracting interest of 10% with liberal repayment tenure. In PHPA-II and MHPA grant is 30%. This model is based on the cost-plus model where cost of the project is entirely funded by GoI and selling price of the power is determined as per the broad framework of Central Electricity Regulatory Commission (CERC) for selling price. Delay, if any in execution of the project, adds to cost. Similarly variations in design and material also add to cost to the project. Interests amount during construction is added to the cost of the project for calculation of tariff and repayment of loan purposes. If the project is executed intime then cost of the project is likely to be less and selling price of power will also be less. However, if there is delay or there are technical challenges adding to the cost of the project then the project cost would go up and so will the selling price.

Three mega-projects were started in Bhutan under bi-lateral. Project at  MHPA could be completed and commissioned by 2019. It is generating power and almost entire power is sold to India by the project. Selling price has been negotiated to Rs.4.12 per unit (on cost plus basis) which is purchased by PTC, a PSU of GoI at the fixed rate for peak as well as non-peak demands. Difference in revenue due to committed price is paid to PTC by Ministry of External Affairs, GoI. Other projects of Bhutan sell their surplus power to India and as per the agreement between the countries, surplus power is determined by RGoB which carries different rates for different projects. Thus exported power is sold at different rates which is about Rs.2.50 per units for old projects like Tala, Kiruchhu and Chukha.

 

2.     Evolution of Hydroelectric Sector in Bhutan

 

Initially Bhutan was fully dependent on India for the capital, machinery and manpower. As it went on commissioning the projects, it developed internal capacities, firstly by educating and training manpower in the technical disciplines. With young students getting trained and educated in Indian premier institutions, under technical co-operation, a pool of resource has been created whereby all completed projects are successfully managed by the Bhutanese. Now almost entire executive level is manned by Bhutanese and only a handful of Indians work at senior levels. Since Bhutan has planned really well, almost entire labor force handling blue collared jobs are imported from India whereas Bhutanese focus on white collared or supervisory jobs. 

 

Bhutan is getting liberal capital support from India and untied grants in other sectors for development, which has contributed immensely in capacity and infrastructure development in Bhutan. Apart from the support extended by GoI in development of infrastructure, hydroelectric projects have also taken up road projects, hospitals and schools in and around the project area.  

 

Many other social benefit projects and area development have been taken up by the projects, which has changed the demography of Bhutan. Bhutan still relies on machinery, capital and big contractors from India or other countries, it does not get encouraged to venture into many areas due to its resource constraints including population of just around 7 lacs. 

 

With the commissioning of 720 MW MHPA in August 2019, Bhutan earned more than Rs. 3000 Crores during COVID-19 times through export of electricity to India. It was one economic powerhouse, which saved economy of Bhutan during tough times and Bhutan could manage to close its borders for almost two years with almost negligible movement of Indians for trade and tourists from anywhere and survive.

 

Bhutan is a negative carbon footprint country. With these hydroelectric projects, it is further contributing to increase its carbon credit. With culmination of carbon trading arrangements, economy of Bhutan would be immensely benefitted.

 

3.     Challenges and Way Forward

 

Hydropower project have been developed or being taken up on the strength of DPR prepared by Indian agencies. It takes too much time to finalize the project execution methodology and actual execution takes further more time. Many of the factors conceived in DPR undergo change and there are significant variations noticed while the project is executed. DPR costs often go under revision by 2.5 to 3 times. In the case of PHPA-II, there were geological surprises which have delayed the project and cost has also gone up. The geological challenges could not be seen during the DPR which could have been done with more detailing. PHPA-I is more alarming as the location of the dam as per the initial DPR was changed midway causing huge loss time and cost overruns. Then to make things scarier the changed location of dam has been found to be facing geotechnical challenges. In these case, it clearly emerged that DPR, needs more detailing and project approval to be done quickly. 

 

Once the project is approved and Authority is created in IG model projects, tender of major packages is done by the project authority as per the tender documents prepared at the strength of the old DPR. This leads to huge variations in quantity and even change in design or methodology of execution. At the time of tender, there is a need to review the DPR based on some more detailing to make the execution better.

 

Variations are too rampant and analyzed rates are the only option to arrive at the cost of varied items. These rates are invariably very high as rates in Bhutan is ordinarily high for individual inputs going to such big contracts. Contractors generally bid offering competitive prices whereas analyzed rates are rates prevalent in Bhutan which are high as in hilly areas. Contractual provisions pertaining to variations shall be revisited for the future projects to not allow variations on the market analyzed rates. Rather it may be linked to the Bill of Quantity (BoQ) rates only. 

 

There are not many suppliers or contractors in Bhutan and with restrictions in imports and movement of manpower and material, project ends up paying more to intermediaries without any value addition. There are many entry and exit barriers causing hindrance in the development of hydropower sector. There are provisions of the equal opportunity to the contractors and employees from India in all bi-lateral projects, however it is diluted with time.

 

Entire project is funded by GoI. IG model is based on cost plus, means, more project cost would bring more money and in the end more tariff worked out on the basis of cost-plus method. A new financial model needs to be decided whereby loading of unproductive activities to the project shall not be allowed and cost allocation of land acquisition and cost of manpower shall be shared between project funds from GoI and some funding to be obtained from RGoB. 

 

Cost of the project is the sole factor to decide the selling price of the electricity to be purchased by India. With the example of MHPA, it is clear that the selling price based on excessive project cost and worked out for uniform supply is not sustainable. This price is invariably not viable during non-peak time it is suggested that to bring in discipline in the project and right kind of risk allocation, funding of project need be shared. There is a need to select contractors and management in a professional manner. It is high time the model of funding and management needs to be reviewed to make it more cost effective and beneficial to both countries with proper sharing of risks. 

---

[1]This article covers only the major hydroelectric projects funded by GoI in Bhutan. Views expressed by the author, Dr. Ajay S Singh, ICAS (1994) are personal.

A NOTE ON DATA STRUCTURE IN ASSETS, ACCOUNTS AND GOVERNANCE] (29.05.2022)

1.     Introduction

Government of India and States carry out several development activities apart from maintaining law and order and delivering justice. Large workforce is engaged to carry out these activities. Apart from regular manpower, there are part time employees, contractual employees, outsourced workers or even the outsourced services to discharge these activities. In this process engagement of manpower, and procurement of services is very common. There are procurements done for good and services for establishment and running the developmental activities. Further, payments are released and accounts are maintained which is audited internally as well as by C&AG.

In this process of engagement of manpower, procurements, payments, accounts and audit, there are several software systems used and plethora of database are maintained.  Since states and central government act independently, there are no uniformity in data structure or even processes. Even within the central government organizations, different systems and processes are followed due to historical independence of the organization and lack of concerted effort to create uniform structures. There are several systems like GeM and PFMS being used by all government departments and these have brought uniformity in the processes handled by them. However, there are gaps in backward and forward linkages. In procurement, internal indents are processed by respective departments within its own system or e-office and then final approved indent is uploaded in GeM. Similarly sanctions are processed in standalone systems and final approved sanction is uploaded in PFMS. Similarly scheme related payment processing is done in scheme related software and only payment related data is ported to PFMS for the payment. After payment, data is again taken to the scheme related software. It is often noticed that data structures are not specified in a cohesive manner hence data interoperability is a challenge and it is dealt on case-to-case basis. If data structure is defined for activities carried out by government after a detailed study, then systems would be able to talk to each other and seamless data integration would be possible.

There is a need to improve upon the existing systems of other areas before data integration may be attempted eg. Finance Accounts of the Union, States and the Union Territories with Legislatures, capture information on capital expenditure and depict information on financial assets and liabilities of the Government. However, information on Fixed Assets is not captured in the current cash based system of accounting. Therefore asset data is not readily available in the accounts. In order to create a database for the same, coding of assets and specifying the data structure may be helpful. The Expenditure Management Commission constituted in September 2014 also recommended that the “Government should move towards an IT-enabled e-asset register. While going for e-asset, use of blockchain technology may be tried in asset management as it would bring in transparency, accountability and better disclosure.  

Accounts are prepared on modified cash basis. There is no uniformity in the accounting structure and coding followed by the States and GoI and even civil and non-civil ministries.  If the pattern of accounting codes and their stricture is specified and followed uniformly by all states and GoI then consolidation of accounting data and reporting will become easy and effective. Apart from coding and stricture of accounts, there is a need to follow the generally accepted accounting principles prescribed by the GoI.

2.     Present status in Data Structure in assets, procurement and Accounting etc. 

The existing cash basis of accounting in Government merely accounts for capital expenditure in the Finance Accounts.The existing Statements provides information on both the current and cumulative capital expenditure on both Financial and physical assets of the Governments. There is no predefined data structure or process or reporting leading to data collection being done in a manner which is difficult to collate.

It is seen that complete details of Fixed Assets owned/ under construction/ constructed/ purchased/ acquired by a government entity is not available from the accounts. Further, Fixed Assets like computers, furniture etc., booked under revenue object heads viz., Office Expenses and Other Administrative Expenses are currently not captured as Fixed Assets since it is purchased from revenue budget. In addition, Heritage, Intangible and Leased Assets are not recognized and therefore not included in the Fixed Asset Registers. Further, no de-recognition of asset takes place after the useful life is spent or the asset is impaired. These gaps are to be filled with due coding of assets and digitalization of the process of asset maintenance. 

For the procurement, items are not codified by the departments. However, GeM has codified the items on its portal and entire procurement is being handled through this portal only. Data structure compatibility is not a big challenge as there is a need to have the linkage with the file processing software for backward integration and with PFMS for forward integration. 

For accounting there is 15 digit code followed in GoI. First nine digits are uniformly followed in the States and non-civil Ministries. However for the remaining 6 digits, there is no uniformity and States and non-civil ministries follow different coding pattern and nomenclature.  Sundermurthy Committee had recommended modified coding for accounting to capture multi-dimensional accounting. However, it is still under consideration. Problems of recording of expenses in accounting has been complicated due to observance of different coding pattern and non-availability of centralized directory for the codes. For the civil ministries this directory is maintained by CGA but there are decentralized model followed for approval of codes at States and non-civil ministries. 

3.     WAY FORWARD

Assets:

Since the Fixed Assets in various government entities are of diverse nature, it is difficult to prescribe hard codes for every asset or type of asset. However, broad classification can definitely be done. Broad classification of Fixed Assets as per the prevailing Primary Units of Appropriation (Object Heads) may be prescribed while leaving sufficient flexibility for entities to add additional classes/sub-classes of Fixed Assets keeping in view their nature of operations.  Flexibility within the defined boundaries may be made available to departments and ministries to disclose assets keeping the national security also in mind.  E-asset project of GoI has been envisaged with asset code pattern of UN. This would make the coding structure uniform and consistent with the global organization. 

Procurement:

Backward integration may be facilitated by co-opting the codes and indenting forms in the e-office portal and by developing the system to ensure its integration with GeM. Similarly for the payment, integration with PFMS may be completed to ensure data transition and interchange in a seamless manner. 

Accounts:

15-digit accounting codes are found to be not very effective and they have outlived their utility. Sundermurhy committee has already examined this issue in detail and prescribed coding for multi-dimension accounting. Apart from this, there is a requirement to interconnect the scheme specific software, state treasury and financial management software with PFMS for the smooth and seamless interchange of data. 

A robust IT system for capturing of complete information of assets, procurement and accounting with least manual interface is highly desirable.