Today, I read the EB 44 report and found that DNV’s accreditation has been suspended, it is indeed a big relief that the EB has started taking action on the negligent DOEs. This will teach the other DOE’s to be diligent in their duty, although given the competence level of DOEs, I must say that any apparent improvement in their quality of work would be a nice surprise. 

This PDD i.e. Teesta State 3 hydro, is again a good example of the lack of competence of DNV and their sheer callousness in adhering to the responsibilities entrusted to a DOE by the UNFCCC. 

Forget the PDD, the project i.e. Teesta stage 3 hydro project is fraught with irregularities, environmental and stakeholder issues that have grabbed the headlines of many newspapers in the last 2 years. It is indeed a sad state of affairs, that DOEs don’t do the basic due diligence before web-hosting the PDD. If projects like Teesta, which have severe environmental and stakeholder issues can get CDM registration, there would be no greater shame for the CDM EB and the UNFCCC. Before I dwell further into the PDD and how the facts have been blatantly misrepresented, and stories have been concocted to make the project CDM eligible, let me first bring the attention of the global community to the stakeholder issues surrounding this project.

Environmental and Stakeholder Issues:
1.	People affected by the Teesta power project have been staging a long and losing battle to protect their livelihood and the biodiversity of the region that would get devastated by the Teesta hydro project. Unfortunately, the money and political clout of people who have invested in this project has proven too much for the poor citizens. 
2.	The affected persons have created an organization called “Affected Citizens of Teesta or ACT” to fight for their rights. ACT has been making continuous efforts and has even filed cases in the Indian Supreme Court to protect the natives and affected Citizens and their environment from the harmful effects of construction of such large power projects in the region. The website of ACT is http://www.actsikkim.com/ , it is my sincere submission to the global community and to the CDM Executive Board, please visit the site and see the plight of these people, their never ending tryst and struggle against the might and clout who want destroy the environment and biology of the region for the sake of money. These are the same group of people who are building the Teesta power project. It is really unfortunate that such projects can approach CDM and there is no one that can object to them. 
3.	I will now give a good example of the level of corruption, money and political influence that the Investors of Teesta power project have. Please refer to the weblink:  www.kalpavriksh.org/f1/f1.3/T3%20NEAA%20Hearing,%2028.02.2007.doc that provides a very good account of the irregularities surrounding the grant of Environmental Clearance to the Teesta project. The document in the weblink clearly states that: 
The environmental clearance granted to the project in August 2006, is in violation of the MoEF’s own stipulation while clearing the Teesta Stage V hydroelectric project in May 1999, which stated that: "No other project in Sikkim will be considered for environmental clearance till the carrying capacity (CC) study is completed.". 
However suddenly, MoEF went against its own decision and granted Environmental Clearance to the project. Now, such events are of no surprise to Indians since we know how corrupt the Government officials are, the above case is a very good example of the level of corruption that has gone into this project. It would be interesting to note whether the Project developers can find similar corrupted elements within the UNFCCC and CDM EB. Because, without black money and bribery, there is no way this project can achieve CDM registration. In a way this would be a good indicator, as many Indian developers will then know the price they have to pay to get their non-CDM projects through the CDM process. 
4.	The Khangchendzonga National Park and Biosphere Reserve is located at a distance of less than 1km from the project site, leave alone the environmentalists, even any lay man can understand that devastating impact the project would have on the Khangchendzonga National Park and Biosphere Reserve. The CDM EB may note that the EIA of the report on the basis of the public hearing was held does not even mention this aspect of the project.  
5.	The massive tunneling work involved in the project will result in drying up water resources and drying up of agricultural land. This would render thousands of farmers in the region and their families jobless and without any support of livelihood. This issue and its impact again is not addressed in the EIA report. The CDM EB may please note the sorry state of affairs in the manner in which devious projects like Teesta manage to escape the law of the land, as conscious and responsible citizens, we urge the CDM EB and UNFCCC to step in and prevent this injustice. 
6.	A google search about the Teesta Hydro project stage 3, reveals that there are hundreds of media reports and volumes of information on the net that tell a great deal of the devastating impact that this project would have on the environment and the local inhabitants. I am really surprised that DNV ignored all these and took up the project for validation. DNV, Where is your social conscience ?? Is money the only thing that you guys are after ???

Now let me point out the irregularities in the PDD.
Page 15 to Page 17, Section B.5:
Throughout the PDD, you are referring to the Eastern and Northern region. Let me inform the readers that the state of Sikkim where the project is located, comes under the North Eastern region of India. However the project proponent has very cleverly manipulated the data and presented the alternatives assuming the data of Northern and Eastern region. The catch is that the North East of India is full of hydro potential, in fact there is not a single thermal power plant in the north east, and the only power plants in north-east are hydro projects. The issue is that if only hydro projects are possible in the region, this means that the project becomes baseline and hence ineligible for CDM. The PP is fully aware of this issue, this explains the clever fabrication of information presented in the PDD. 
Page 16, Section B.5., Alternative 4
You write that alternative 4 i.e. continuation of the current situation is the most likely alternative in the absence of the project activity. I hope you understand the meaning of the word plausible, if you don’t I suggest that you read the dictionary first before you write any more PDDs. Seriously, I can’t think of any other reason but a poor understanding of the English language that could have lead to such irresponsible statements that do nothing but scream about your ignorance. 
I hope you know that there is something called as the Central Electricity Authority (CEA) and that CEA has a website. If you go to CEA’s website, you will find that already a lot of power capacity is already under implementation in the north east. You will also find that this entire capacity addition is expected to come from hydro. Now for a moment let us assume that you didn’t know about CEA. The planning commission of India has clearly spelt out in various policy documents that the targeted capacity addition under 11th plan (upto 2012) is 100,000 MW. This has come in hundreds of news and media releases. My request to the DOE is to do a google search on this item; you can’t even count the number of entries you will find. 
How can you still say that no other power projects are likely to come up in the north east or in the eastern region or in the northern region. Are you out of your mind, I can’t possibly think, why in this world would you make a statement that the most likely alternative in the absence of the project activity is the continuation of current situation (no project activity or other alternatives undertaken).
I hope by now you would have realized that your attempt, to build stories about the project’s additionality, has failed. If you have even a remote understanding of the CDM rules, then you would know that your project is not additional. But looking at the quality of your work in the PDD, I think it is better that I explain this in simple terms so that all three of you (PP, Consultant and DOE) understand this clearly.  
You have already discounted that alternative 2(Gas) and alternative 3(wind) in anyway are not realistic alternatives. As you can see, alternative 4 is also not plausible. Therefore there are no alternatives that would have taken place in the absence of the project activity in other words; the project activity itself is the only plausible option. And hence the project is not additional.
Page 17, section B.5.: 
Under step 2-Investment analysis, you have written that your project faces a lot of investment barriers because the additional cost required to mitigate geological risk (very high seismic zone), possibility of geological surprises and installation of power evacuation system significantly increase the cost of your project.
In the same page you write that the cost of your 1200 MW project is 5700 crores. The typical of cost of run of the river hydro projects ranges between 5.5 crores per MW to 6 crores per MW. Now, you have written all sorts of problems that are there at your project site and how your project is more complex and expensive. I am sure you must be thinking, every body in this world is as dumb as DNV. Any school student can work out that your project cost is less than 5 crores per MW. This is significantly lower than the project cost of other hydro projects, what is more amusing that you have written all sorts of stories about how your project cost is higher? 
I urge the CDM EB to take a note of this, can there be a more blatant example of lying ??
Section B.5. Additionality and Investment Analysis
You have written in Section B.5 that you have used the “Tool for demonstration and assessment of additionality”. If you or your CDM consultant has read the additionality tool, I am sure you would be aware that  sub-step 2b, point no.-8 of additionality tool reads:  

“Present the investment analysis in a transparent manner and provide all the relevant assumptions, preferably in the CDM-PDD, or in separate annexes to the CDM-PDD, so that a reader can reproduce the analysis and obtain the same results. Refer to all critical techno-economic parameters and assumptions (such as capital costs, fuel prices, lifetimes, and discount rate or cost of capital). Justify and/or cite assumptions in a manner that can be validated by the DOE. In calculating the financial/economic indicator, the project’s risks can be included through the cash flow pattern, subject to project-specific expectations and assumptions (e.g. insurance premiums can be used in the calculation to reflect specific risk equivalents).”

Now let us go back to the PDD, there is not even a single mention of the assumptions considered for the investment analysis. Even a novice will present the better assumption sheet for the project activity. For any hydro project, assumptions will include, the details of financing including debt amount [456,00 Million, source: http://teestaurja.com/currentstatus6.htm], rate of interest, loan tenure, moratorium etc., estimated energy generation [5183 Gwh at 90% dependable year, source: http://teestaurja.com/aboutproject6.htm http://teestaurja.com/aboutproject6.htm], life of the project activity [normative life for the hydro project is 35 Years], tax rates applicable, Operation and maintenance cost, working capital requirements, escalation on O&M, insurance cost, applicable tax rate for corporate and as per IT act for tax calculation, special incentives  if any for developing renewable power and at last most important parameter applicable tariff as per Power Purchase Agreement [between PTC and Teesta Urja Limited]. 

The expected electricity generation, applicable/expected tariff and financing of the project are the most important parameters that shall be known to the reader for reproducing the analysis and obtain similar results. The project proponent has not considered it important to follow the guidelines setout by CDM-EB in the additionality tool and have assumed that the global stakeholder is just a formality that can be done away with without providing sensitive information that is important to reproduce the analysis and obtain results. This is a serious case of subversion of the rules and procedures laid down by the CDM EB and UNFCCC. I request the CDM EB and UNFCCC to take punitive measure on such fraudulent projects and make an example of such cases so that any future incidences can be avoided. 

It looks like a deliberate attempt to hide the sensitive information required for financial analysis from the general public as project may not be additional in those circumstances. As the project proponent has not followed the guidelines, let alone the transparent manner, the assumptions are missing all together. If the DOE has any sense of professional duty or social responsibility, the DOE would re-web host the PDD after addressing the comments and along with the relevant assumptions and their source and the excel spreadsheet for investment analysis.  

It is also important to note that investment recovery is the only major cost involved in hydro power generation, there is little or no cost associated with operation of the project activity as there is no requirement of fuel in case of hydro power. Given the project cost of Rs.5700 crores, and financing cost of 10.5% (given in the PDD) even with a tariff of less than Rs.1 per kWh, the project would easily generate equity IRR in excess of 14%. I would like to check the tariff of Teesta Power, I would like to bring to attention of the DoE, the Project IRR for the projects with comparable cost of Teesta Power [57,000 million], tariff of INR 2.2 per unit and other normative parameters shall be no less than 16 - 18% and equity IRR will be in much higher range of 24-28%. Since the last 25 years, India has added more than 100,000 MW of capacity under the cost plus tariff regime that allows 14% ROE. Do you still think that the Teesta Power project needed CDM benefit and is eligible for CDM. I urge you to please so some sense of professional ethics in reviewing such projects. 

I will be happy to provide further inputs that would help you uncover the lies and fabrications perpetrated by the project participant.  Shall you require a financial working of hydro power project; feel free to drop an email.  

Page 17, Benchmark, Section B.5.

You have considered a benchmark of 10.5% based on the interest rate charged by REC. You have also shown that your project IRR is less than the interest rate. As far as I know and this can be asked to any bank in the world, no bank would finance a project whose IRR is less than the interest rate. Banks are not fools !

I also know for sure that agencies like REC, PNB and other public sector banks follow very stringent criteria of minimum project IRR of 12% to finance projects. Given that under no circumstances, the IRR of your project exceeds 12%, I really wonder how the project could have received financing from so many public sector banks and that too to the extent of 80% of the project cost. 

Now, you can turn back and argue that you IRR crossed 12% after considering CDM revenues. Everybody knows that CDM is a uncertain event and if banks have financed you on the back of CDM revenues, they would have mentioned this in their board approvals and would have also stipulated this as a pre-disbursement criteria in their loan agreements. I request the DOE and the RIT team members to take a note of this and insist that these documents be made available to them and to the public.

Page 18, Sensitivity Analysis, Section B.5.

The project activity has considered the benchmark as 10.25% after comparing CLR (Commercial lending rate) and PLR (Prime lending rate) which is perfectly acceptable and we hope that the project proponent do not change this benchmark further [upside] during the validation of the project activity. Further during the sensitivity analysis with 10% decrease in hard cost, the Project IRR jumps over the benchmark set by the project proponent. Hence the project is fails to pass the sensitivity test for capital cost.

Electricity generation is the sole revenue stream for the project activity, hence it is logical that the project IRR shall be most sensitive to the generation. It is surprising to note that even with 10% increase in generation the Project IRR gains marginally [From 9.92% to 9.93%], which is increase of 0.1% over the base IRR. Similarly with 10% decrease in generation, the project IRR falls marginally [from 9.92% to 9.91%] that is decrease of 0.1% over the base IRR. What is interesting to note that the power generating station is not sensitive to generation of power at all? I can bet for sure that the sensitivity of the project IRR to generation is much greater than indicated in the PDD [say in the range of 8% to 12 %]. 

The other parameter chosen for the sensitivity is capital cost, decrease of 10% of the capital cost is leading to Project IRR of 11.26% that is over the set benchmark of CLR of 10.25%. The project proponent continues to use the parameters for convenience. Under the sensitivity analysis, instead of comparing the Project IRR with the set benchmark [CLR of 10.25%], the project proponent has chosen to use the PLR as the basis of comparison.

Power Purchase Agreement for the project was signed in July 2006 [source: http://teestaurja.com/currentstatus6.htm] and the board resolution was passed in 19-September-2006. Considering the Power Purchase Agreement for such a large project will contain huge penalty clauses in case of any event of default to avoid non-serious participants as developers. There must be approval from the board on target price for signing the power purchase agreement in the form of board approval. It is beyond belief that the PPA was signed before the approval of the board and put enough doubt in my mind about the authenticity of the resolution [dated 19-September-2006] and consideration of CDM.

The PDD looks like a comedy of errors [one part to the PDD does not compliment the other parts well]. The PDD in section 4a states that 

“The main reason behind the lack of private participation is due to the difficulties in arranging fund for their project. Financial Institutions are not proactive in investing in the hydro power sector due to substantive uncertainties associated in the project execution, low rate of return etc.” 

The debt-equity ratio for the project is 80:20, which is very high. Considering that the debt component of the project is pegged at 80%, it is very difficult to believe that the project faced difficulties in getting finance. 

Most of the run of the river hydro stations have a capital investment in range of 50 to 70 million per MW. The run of river hydro power stations having the PLF in the range of 40-45%, give reasonable returns and running well in India for over decades. What we cannot absorb that the Teesta power project with capital cost of 47.5 million per MW and projected PLF close to 50% is providing return of just 9.92% from the sale of power. Himachal and Uttaranchal states in India have more than 9000 MW of installed capacity and all these projects are developed with capital cost in range of 50 to 70 million per MW and have PLF in range of 40% to 60% and are having reasonable return. 

The power sector in India is a regulated regime where 14% return is allowed to the hydro power generators. The tariff for the Central generating stations that supply power to multiple states is decided by CERC (Central Electricity Regulatory Commission) and the tariff for the state generating stations catering to the state utility is decided by the SERC (State Electricity Regulatory Commission). 

The Teesta Urja power project is developed as a merchant power plant with arrangement with the PTC. It is very evident from the fact that in-spite of the multiple options available for tariff on long term basis, the project proponent have decided against the assured return of 14% and instead signed the power purchase agreement with PTC at the rate that would not have been allowed by the commission. The sale with the trading company does not come in the purview of the commission and hence the project proponent has chosen to sign the bilateral contract with the PTC which by its very nature can offer better tariff. I will explain you why? India is a power deficit in most of the regions and the traders can scout the buyer at very good tariff. The peak tariff that is demanded by the trader is can be as high as 10 INR per unit. The trader is allowed to gain only 4 paisa per unit from the sale of power that will mean that sale of the power by the trader can be converted to tariff after adjustment of the trading margin [4 paisa less than the sale of the power]. The average tariff demanded by the PTC for the last years for the sale of power is in excess of 4.0 INR per unit.

As the project proponent have not used the option of tariff determination by the regulatory commission that provides assured return on equity, it clearly points out that the project proponent is expected much higher return form sale of power to PTC. 

Most important: Your project is going to be a merchant power station that will sell to PTC. In the northern region, peak electricity has been traded at more than Rs. 10 per unit. Tell me any other project in India or in the world that would get this kind of tariff. “And you still call your project as additional”. Note to DOE: Please web host the PPA signed with PTC for public review.

It will also be interesting to note that what amount of power/capacity is contracted with PTC. Most of the merchant power plants keep some part of the total capacity as free that they can supply to the grid as peaking power. The peaking power is very costly and can be sold in the price range of 7-10 INR per unit. Hydro power stations by its inherent ability to vary the load can take the advantage to use their generating stations at peaking stations. The sale of power from the hydro stations that is not contracted for under PPA can be sold as peaking power or as UI (Unscheduled Interchange). India being a power deficit state, cost of peaking power and UI rates are very high during the peak demand period which can be exploited for advantage. Therefore we request the DoE to note the numerous irregularities that are there in the project. We urge the DOE to account for all these factors while assuming tariff for Teesta Hydro Station and re-webhost the PDD along with all the relevant information.

Common Practice test:
Your project is located in Sikkim. The entire electricity generation in Sikkim is hydro; there is not even a single thermal plant in this state. Still you proclaim that your project is not a common practice. 

My request to the CDM EB and to the DOE to please make a note of all these critical aspects and be conscious of the lies and stories that the PP is trying to fabricate to make a case for CDM.

Today, I read the EB 44 report and found that DNV’s accreditation has been suspended, it is indeed a big relief that the EB has started taking action on the negligent DOEs. This will teach the other DOE’s to be diligent in their duty, although given the competence level of DOEs, I must say that any apparent improvement in their quality of work would be a nice surprise. 

This PDD i.e. Teesta State 3 hydro, is again a good example of the lack of competence of DNV and their sheer callousness in adhering to the responsibilities entrusted to a DOE by the UNFCCC. 

Forget the PDD, the project i.e. Teesta stage 3 hydro project is fraught with irregularities, environmental and stakeholder issues that have grabbed the headlines of many newspapers in the last 2 years. It is indeed a sad state of affairs, that DOEs don’t do the basic due diligence before web-hosting the PDD. If projects like Teesta, which have severe environmental and stakeholder issues can get CDM registration, there would be no greater shame for the CDM EB and the UNFCCC. Before I dwell further into the PDD and how the facts have been blatantly misrepresented, and stories have been concocted to make the project CDM eligible, let me first bring the attention of the global community to the stakeholder issues surrounding this project.

Environmental and Stakeholder Issues:
1.	People affected by the Teesta power project have been staging a long and losing battle to protect their livelihood and the biodiversity of the region that would get devastated by the Teesta hydro project. Unfortunately, the money and political clout of people who have invested in this project has proven too much for the poor citizens. 
2.	The affected persons have created an organization called “Affected Citizens of Teesta or ACT” to fight for their rights. ACT has been making continuous efforts and has even filed cases in the Indian Supreme Court to protect the natives and affected Citizens and their environment from the harmful effects of construction of such large power projects in the region. The website of ACT is http://www.actsikkim.com/ , it is my sincere submission to the global community and to the CDM Executive Board, please visit the site and see the plight of these people, their never ending tryst and struggle against the might and clout who want destroy the environment and biology of the region for the sake of money. These are the same group of people who are building the Teesta power project. It is really unfortunate that such projects can approach CDM and there is no one that can object to them. 
3.	I will now give a good example of the level of corruption, money and political influence that the Investors of Teesta power project have. Please refer to the weblink:  www.kalpavriksh.org/f1/f1.3/T3%20NEAA%20Hearing,%2028.02.2007.doc that provides a very good account of the irregularities surrounding the grant of Environmental Clearance to the Teesta project. The document in the weblink clearly states that: 
The environmental clearance granted to the project in August 2006, is in violation of the MoEF’s own stipulation while clearing the Teesta Stage V hydroelectric project in May 1999, which stated that: "No other project in Sikkim will be considered for environmental clearance till the carrying capacity (CC) study is completed.". 
However suddenly, MoEF went against its own decision and granted Environmental Clearance to the project. Now, such events are of no surprise to Indians since we know how corrupt the Government officials are, the above case is a very good example of the level of corruption that has gone into this project. It would be interesting to note whether the Project developers can find similar corrupted elements within the UNFCCC and CDM EB. Because, without black money and bribery, there is no way this project can achieve CDM registration. In a way this would be a good indicator, as many Indian developers will then know the price they have to pay to get their non-CDM projects through the CDM process. 
4.	The Khangchendzonga National Park and Biosphere Reserve is located at a distance of less than 1km from the project site, leave alone the environmentalists, even any lay man can understand that devastating impact the project would have on the Khangchendzonga National Park and Biosphere Reserve. The CDM EB may note that the EIA of the report on the basis of the public hearing was held does not even mention this aspect of the project.  
5.	The massive tunneling work involved in the project will result in drying up water resources and drying up of agricultural land. This would render thousands of farmers in the region and their families jobless and without any support of livelihood. This issue and its impact again is not addressed in the EIA report. The CDM EB may please note the sorry state of affairs in the manner in which devious projects like Teesta manage to escape the law of the land, as conscious and responsible citizens, we urge the CDM EB and UNFCCC to step in and prevent this injustice. 
6.	A google search about the Teesta Hydro project stage 3, reveals that there are hundreds of media reports and volumes of information on the net that tell a great deal of the devastating impact that this project would have on the environment and the local inhabitants. I am really surprised that DNV ignored all these and took up the project for validation. DNV, Where is your social conscience ?? Is money the only thing that you guys are after ???

Now let me point out the irregularities in the PDD.
Page 15 to Page 17, Section B.5:
Throughout the PDD, you are referring to the Eastern and Northern region. Let me inform the readers that the state of Sikkim where the project is located, comes under the North Eastern region of India. However the project proponent has very cleverly manipulated the data and presented the alternatives assuming the data of Northern and Eastern region. The catch is that the North East of India is full of hydro potential, in fact there is not a single thermal power plant in the north east, and the only power plants in north-east are hydro projects. The issue is that if only hydro projects are possible in the region, this means that the project becomes baseline and hence ineligible for CDM. The PP is fully aware of this issue, this explains the clever fabrication of information presented in the PDD. 
Page 16, Section B.5., Alternative 4
You write that alternative 4 i.e. continuation of the current situation is the most likely alternative in the absence of the project activity. I hope you understand the meaning of the word plausible, if you don’t I suggest that you read the dictionary first before you write any more PDDs. Seriously, I can’t think of any other reason but a poor understanding of the English language that could have lead to such irresponsible statements that do nothing but scream about your ignorance. 
I hope you know that there is something called as the Central Electricity Authority (CEA) and that CEA has a website. If you go to CEA’s website, you will find that already a lot of power capacity is already under implementation in the north east. You will also find that this entire capacity addition is expected to come from hydro. Now for a moment let us assume that you didn’t know about CEA. The planning commission of India has clearly spelt out in various policy documents that the targeted capacity addition under 11th plan (upto 2012) is 100,000 MW. This has come in hundreds of news and media releases. My request to the DOE is to do a google search on this item; you can’t even count the number of entries you will find. 
How can you still say that no other power projects are likely to come up in the north east or in the eastern region or in the northern region. Are you out of your mind, I can’t possibly think, why in this world would you make a statement that the most likely alternative in the absence of the project activity is the continuation of current situation (no project activity or other alternatives undertaken).
I hope by now you would have realized that your attempt, to build stories about the project’s additionality, has failed. If you have even a remote understanding of the CDM rules, then you would know that your project is not additional. But looking at the quality of your work in the PDD, I think it is better that I explain this in simple terms so that all three of you (PP, Consultant and DOE) understand this clearly.  
You have already discounted that alternative 2(Gas) and alternative 3(wind) in anyway are not realistic alternatives. As you can see, alternative 4 is also not plausible. Therefore there are no alternatives that would have taken place in the absence of the project activity in other words; the project activity itself is the only plausible option. And hence the project is not additional.
Page 17, section B.5.: 
Under step 2-Investment analysis, you have written that your project faces a lot of investment barriers because the additional cost required to mitigate geological risk (very high seismic zone), possibility of geological surprises and installation of power evacuation system significantly increase the cost of your project.
In the same page you write that the cost of your 1200 MW project is 5700 crores. The typical of cost of run of the river hydro projects ranges between 5.5 crores per MW to 6 crores per MW. Now, you have written all sorts of problems that are there at your project site and how your project is more complex and expensive. I am sure you must be thinking, every body in this world is as dumb as DNV. Any school student can work out that your project cost is less than 5 crores per MW. This is significantly lower than the project cost of other hydro projects, what is more amusing that you have written all sorts of stories about how your project cost is higher? 
I urge the CDM EB to take a note of this, can there be a more blatant example of lying ??
Section B.5. Additionality and Investment Analysis
You have written in Section B.5 that you have used the “Tool for demonstration and assessment of additionality”. If you or your CDM consultant has read the additionality tool, I am sure you would be aware that  sub-step 2b, point no.-8 of additionality tool reads:  

“Present the investment analysis in a transparent manner and provide all the relevant assumptions, preferably in the CDM-PDD, or in separate annexes to the CDM-PDD, so that a reader can reproduce the analysis and obtain the same results. Refer to all critical techno-economic parameters and assumptions (such as capital costs, fuel prices, lifetimes, and discount rate or cost of capital). Justify and/or cite assumptions in a manner that can be validated by the DOE. In calculating the financial/economic indicator, the project’s risks can be included through the cash flow pattern, subject to project-specific expectations and assumptions (e.g. insurance premiums can be used in the calculation to reflect specific risk equivalents).”

Now let us go back to the PDD, there is not even a single mention of the assumptions considered for the investment analysis. Even a novice will present the better assumption sheet for the project activity. For any hydro project, assumptions will include, the details of financing including debt amount [456,00 Million, source: http://teestaurja.com/currentstatus6.htm], rate of interest, loan tenure, moratorium etc., estimated energy generation [5183 Gwh at 90% dependable year, source: http://teestaurja.com/aboutproject6.htm http://teestaurja.com/aboutproject6.htm], life of the project activity [normative life for the hydro project is 35 Years], tax rates applicable, Operation and maintenance cost, working capital requirements, escalation on O&M, insurance cost, applicable tax rate for corporate and as per IT act for tax calculation, special incentives  if any for developing renewable power and at last most important parameter applicable tariff as per Power Purchase Agreement [between PTC and Teesta Urja Limited]. 

The expected electricity generation, applicable/expected tariff and financing of the project are the most important parameters that shall be known to the reader for reproducing the analysis and obtain similar results. The project proponent has not considered it important to follow the guidelines setout by CDM-EB in the additionality tool and have assumed that the global stakeholder is just a formality that can be done away with without providing sensitive information that is important to reproduce the analysis and obtain results. This is a serious case of subversion of the rules and procedures laid down by the CDM EB and UNFCCC. I request the CDM EB and UNFCCC to take punitive measure on such fraudulent projects and make an example of such cases so that any future incidences can be avoided. 

It looks like a deliberate attempt to hide the sensitive information required for financial analysis from the general public as project may not be additional in those circumstances. As the project proponent has not followed the guidelines, let alone the transparent manner, the assumptions are missing all together. If the DOE has any sense of professional duty or social responsibility, the DOE would re-web host the PDD after addressing the comments and along with the relevant assumptions and their source and the excel spreadsheet for investment analysis.  

It is also important to note that investment recovery is the only major cost involved in hydro power generation, there is little or no cost associated with operation of the project activity as there is no requirement of fuel in case of hydro power. Given the project cost of Rs.5700 crores, and financing cost of 10.5% (given in the PDD) even with a tariff of less than Rs.1 per kWh, the project would easily generate equity IRR in excess of 14%. I would like to check the tariff of Teesta Power, I would like to bring to attention of the DoE, the Project IRR for the projects with comparable cost of Teesta Power [57,000 million], tariff of INR 2.2 per unit and other normative parameters shall be no less than 16 - 18% and equity IRR will be in much higher range of 24-28%. Since the last 25 years, India has added more than 100,000 MW of capacity under the cost plus tariff regime that allows 14% ROE. Do you still think that the Teesta Power project needed CDM benefit and is eligible for CDM. I urge you to please so some sense of professional ethics in reviewing such projects. 

I will be happy to provide further inputs that would help you uncover the lies and fabrications perpetrated by the project participant.  Shall you require a financial working of hydro power project; feel free to drop an email.  

Page 17, Benchmark, Section B.5.

You have considered a benchmark of 10.5% based on the interest rate charged by REC. You have also shown that your project IRR is less than the interest rate. As far as I know and this can be asked to any bank in the world, no bank would finance a project whose IRR is less than the interest rate. Banks are not fools !

I also know for sure that agencies like REC, PNB and other public sector banks follow very stringent criteria of minimum project IRR of 12% to finance projects. Given that under no circumstances, the IRR of your project exceeds 12%, I really wonder how the project could have received financing from so many public sector banks and that too to the extent of 80% of the project cost. 

Now, you can turn back and argue that you IRR crossed 12% after considering CDM revenues. Everybody knows that CDM is a uncertain event and if banks have financed you on the back of CDM revenues, they would have mentioned this in their board approvals and would have also stipulated this as a pre-disbursement criteria in their loan agreements. I request the DOE and the RIT team members to take a note of this and insist that these documents be made available to them and to the public.

Page 18, Sensitivity Analysis, Section B.5.

The project activity has considered the benchmark as 10.25% after comparing CLR (Commercial lending rate) and PLR (Prime lending rate) which is perfectly acceptable and we hope that the project proponent do not change this benchmark further [upside] during the validation of the project activity. Further during the sensitivity analysis with 10% decrease in hard cost, the Project IRR jumps over the benchmark set by the project proponent. Hence the project is fails to pass the sensitivity test for capital cost.

Electricity generation is the sole revenue stream for the project activity, hence it is logical that the project IRR shall be most sensitive to the generation. It is surprising to note that even with 10% increase in generation the Project IRR gains marginally [From 9.92% to 9.93%], which is increase of 0.1% over the base IRR. Similarly with 10% decrease in generation, the project IRR falls marginally [from 9.92% to 9.91%] that is decrease of 0.1% over the base IRR. What is interesting to note that the power generating station is not sensitive to generation of power at all? I can bet for sure that the sensitivity of the project IRR to generation is much greater than indicated in the PDD [say in the range of 8% to 12 %]. 

The other parameter chosen for the sensitivity is capital cost, decrease of 10% of the capital cost is leading to Project IRR of 11.26% that is over the set benchmark of CLR of 10.25%. The project proponent continues to use the parameters for convenience. Under the sensitivity analysis, instead of comparing the Project IRR with the set benchmark [CLR of 10.25%], the project proponent has chosen to use the PLR as the basis of comparison.

Power Purchase Agreement for the project was signed in July 2006 [source: http://teestaurja.com/currentstatus6.htm] and the board resolution was passed in 19-September-2006. Considering the Power Purchase Agreement for such a large project will contain huge penalty clauses in case of any event of default to avoid non-serious participants as developers. There must be approval from the board on target price for signing the power purchase agreement in the form of board approval. It is beyond belief that the PPA was signed before the approval of the board and put enough doubt in my mind about the authenticity of the resolution [dated 19-September-2006] and consideration of CDM.

The PDD looks like a comedy of errors [one part to the PDD does not compliment the other parts well]. The PDD in section 4a states that 

“The main reason behind the lack of private participation is due to the difficulties in arranging fund for their project. Financial Institutions are not proactive in investing in the hydro power sector due to substantive uncertainties associated in the project execution, low rate of return etc.” 

The debt-equity ratio for the project is 80:20, which is very high. Considering that the debt component of the project is pegged at 80%, it is very difficult to believe that the project faced difficulties in getting finance. 

Most of the run of the river hydro stations have a capital investment in range of 50 to 70 million per MW. The run of river hydro power stations having the PLF in the range of 40-45%, give reasonable returns and running well in India for over decades. What we cannot absorb that the Teesta power project with capital cost of 47.5 million per MW and projected PLF close to 50% is providing return of just 9.92% from the sale of power. Himachal and Uttaranchal states in India have more than 9000 MW of installed capacity and all these projects are developed with capital cost in range of 50 to 70 million per MW and have PLF in range of 40% to 60% and are having reasonable return. 

The power sector in India is a regulated regime where 14% return is allowed to the hydro power generators. The tariff for the Central generating stations that supply power to multiple states is decided by CERC (Central Electricity Regulatory Commission) and the tariff for the state generating stations catering to the state utility is decided by the SERC (State Electricity Regulatory Commission). 

The Teesta Urja power project is developed as a merchant power plant with arrangement with the PTC. It is very evident from the fact that in-spite of the multiple options available for tariff on long term basis, the project proponent have decided against the assured return of 14% and instead signed the power purchase agreement with PTC at the rate that would not have been allowed by the commission. The sale with the trading company does not come in the purview of the commission and hence the project proponent has chosen to sign the bilateral contract with the PTC which by its very nature can offer better tariff. I will explain you why? India is a power deficit in most of the regions and the traders can scout the buyer at very good tariff. The peak tariff that is demanded by the trader is can be as high as 10 INR per unit. The trader is allowed to gain only 4 paisa per unit from the sale of power that will mean that sale of the power by the trader can be converted to tariff after adjustment of the trading margin [4 paisa less than the sale of the power]. The average tariff demanded by the PTC for the last years for the sale of power is in excess of 4.0 INR per unit.

As the project proponent have not used the option of tariff determination by the regulatory commission that provides assured return on equity, it clearly points out that the project proponent is expected much higher return form sale of power to PTC. 

Most important: Your project is going to be a merchant power station that will sell to PTC. In the northern region, peak electricity has been traded at more than Rs. 10 per unit. Tell me any other project in India or in the world that would get this kind of tariff. “And you still call your project as additional”. Note to DOE: Please web host the PPA signed with PTC for public review.

It will also be interesting to note that what amount of power/capacity is contracted with PTC. Most of the merchant power plants keep some part of the total capacity as free that they can supply to the grid as peaking power. The peaking power is very costly and can be sold in the price range of 7-10 INR per unit. Hydro power stations by its inherent ability to vary the load can take the advantage to use their generating stations at peaking stations. The sale of power from the hydro stations that is not contracted for under PPA can be sold as peaking power or as UI (Unscheduled Interchange). India being a power deficit state, cost of peaking power and UI rates are very high during the peak demand period which can be exploited for advantage. Therefore we request the DoE to note the numerous irregularities that are there in the project. We urge the DOE to account for all these factors while assuming tariff for Teesta Hydro Station and re-webhost the PDD along with all the relevant information.

Common Practice test:
Your project is located in Sikkim. The entire electricity generation in Sikkim is hydro; there is not even a single thermal plant in this state. Still you proclaim that your project is not a common practice. 

My request to the CDM EB and to the DOE to please make a note of all these critical aspects and be conscious of the lies and stories that the PP is trying to fabricate to make a case for CDM.