Kashmir’s Rivers and Price of Non-Ownership Part-I

(This news article is two-part series. Part-I is published today.)

Two recent disclosures in the Jammu and Kashmir Legislative Assembly, when read together, tell us something important about the way we have come to look at Kashmir’s hydropower resources.

The first disclosure tells us how much Jammu and Kashmir has received from six major hydropower projects operated by the National Hydroelectric Power Corporation, or NHPC. The second says there is presently no proposal under consideration to take these projects back or bring them under greater J&K ownership.

On the face of it, these may appear to be separate administrative statements. In reality, they revive a question that has remained unresolved for decades: should Kashmir measure the economic value of its rivers merely by the revenue it receives from them, or should it also calculate the value of owning the assets that turn those rivers into electricity, income and capital?

According to figures placed before the Assembly, six NHPC stations with a combined installed capacity of 2,250 megawatts generated ₹3,582.06 crore in water usage charges for Jammu and Kashmir between 2021-22 and 2025-26. The monetised value of the 12 per cent free power and one per cent Local Area Development Fund during the same period amounted to another ₹1,955.26 crore, taking the total direct financial benefit to ₹5,537.32 crore over five years.

This is certainly a substantial amount, particularly for a region with severe fiscal and developmental constraints. But receiving revenue from an asset is not the same as owning that asset, and it is this distinction that needs to return to the centre of the hydropower debate.

The six projects are Salal, Uri-I, Dulhasti, Sewa-II, Uri-II and Kishanganga. Taken together, their financial performance gives some indication of the scale of economic activity associated with hydropower generation in Jammu and Kashmir.

During the same five-year period, these projects reported combined revenue from operations of approximately ₹22,195 crore, based on annual figures supplied by NHPC, while their combined profit before tax was approximately ₹11,023 crore.

These figures need to be interpreted carefully. It would be incorrect to suggest that the entire revenue or profit reported by NHPC would automatically have accrued to J&K had these projects been locally owned. Ownership brings capital costs, debt servicing, depreciation, taxation, operation and maintenance expenditure, transmission arrangements and a range of other financial and technical liabilities.

Yet that qualification strengthens rather than weakens the case for a proper economic assessment. What has never been adequately placed before the public is a counterfactual calculation showing what J&K’s financial position might have been had some of these projects passed into local ownership after their major capital and financing costs had been recovered.

Such an exercise would need to calculate the operating surplus that could reasonably have remained within the J&K power sector after meeting all legitimate expenses and liabilities. It would then have to examine how much of that surplus might have been reinvested in generation, transmission and distribution, or used as equity for the next generation of power projects.

Without such an assessment, it is impossible to establish the full economic opportunity represented by ownership or, conversely, the long-term cost of remaining outside the ownership structure.

Ownership Part of Policy

The latest Assembly disclosure is particularly striking because the idea of transferring NHPC projects to Jammu and Kashmir is hardly new. Nor was it historically confined to those challenging the constitutional or political relationship between J&K and New Delhi.

The demand was raised by elected governments, ministers, mainstream political parties, business organisations and, significantly, the Kashmir Chamber of Commerce and Industry. During Prime Minister Manmohan Singh’s tenure, the possibility of transferring existing NHPC projects was formally examined, and the Rangarajan Committee recommended the transfer of Dulhasti to the then State.

A Cabinet Sub-Committee constituted by the J&K government subsequently examined the circumstances and terms under which projects had been entrusted to NHPC. It recommended pursuing the return of Salal, Uri-I and Dulhasti, including through a buy-back mechanism based on depreciated value.

The historical significance of this process should not be underestimated. It demonstrates that ownership was once regarded as a legitimate economic and fiscal policy issue rather than an impractical or marginal demand.

In 2013, the J&K government informed the Legislative Assembly that it had handed its Cabinet Sub-Committee report to NHPC and was seeking information on depreciated values and assets required to pursue the buy-back of Dulhasti, Salal and Uri-I. The same report stated that NHPC had realised ₹3,834.59 crore from these three projects between 1997-98 and 2012-13.

There were, however, institutional complications. The Central Government told the Rajya Sabha in April 2013 that it had not, at that stage, received a formal buy-back offer from the J&K government. The historical record therefore reflects both the seriousness with which the issue was pursued within J&K and the institutional obstacles that prevented it from reaching a conclusion.

What that record does not support is the idea that ownership was never a realistic subject of policy discussion.

The Kashmir Chamber of Commerce and Industry went a step further. Instead of limiting its argument to the return of existing power stations, it sought to change the manner in which future investment in Kashmir’s hydropower sector was structured.

In an economic memorandum submitted during the Manmohan Singh period, KCCI pointed out that of the Prime Minister’s ₹24,025.55 crore package, projects worth ₹16,061.35 crore were to be implemented through NHPC. The Chamber proposed that this amount should instead be provided as equity to the State sector, enabling public investment to create productive assets within J&K rather than merely expanding central ownership. KCCI also argued for the transfer of Salal and Uri along with Dulhasti, whose transfer had already emerged from the Rangarajan process.

The importance of that proposal lay less in the precise figures than in the economic principle behind it. If large amounts of public money were being invested in projects built on Kashmir’s water resources, KCCI asked why that expenditure could not also create equity and long-term productive assets for Kashmir’s own power sector.

This is the difference between expenditure and capital formation. A grant can meet an immediate requirement, but once spent it does not necessarily leave behind an income-generating asset. Equity in a productive power project, by contrast, can continue to generate revenue for decades, strengthen the balance sheet of the local power sector and potentially provide the financial base for further investment.

The KCCI proposal was therefore not simply a demand for more money from New Delhi. It was an argument for changing the nature of that money, from assistance that could be consumed into capital that could continue producing economic value.

Ownership Changes Equation

For too long, Kashmir’s hydropower debate has revolved around royalty, free power and water usage charges. These are important benefits and should not be dismissed. For a financially constrained region, every additional source of recurring revenue matters.

However, ownership has a much deeper economic significance because a hydropower station is a long-lived productive asset. Besides producing electricity, it generates recurring cash flows, strengthens the balance sheet of its owner and can provide the financial base for additional borrowing and investment. Earnings from one project can help finance another, while accumulated assets can support expenditure on transmission, distribution and modernisation.

Most importantly, ownership creates the possibility that a larger share of the economic surplus generated from a natural resource remains within the economy from which that resource originates.

This is why the ₹5,537.32 crore received over five years, while important, cannot by itself settle the debate. The larger issue is what J&K’s power-sector balance sheet might look like today if it had progressively acquired ownership in mature hydropower projects and reinvested part of their earnings.

A financially stronger local power sector might have possessed greater capacity to invest in new generation, improve transmission and distribution and reduce dependence on purchased electricity. It might also have been able to use hydropower earnings as equity for new infrastructure and productive investment.

These possibilities cannot simply be assumed, but neither should they be ignored. They can be tested only through detailed financial analysis.

The most useful step now would be for the government to commission, or publish if such work already exists, an independent financial assessment of every major NHPC project operating in Jammu and Kashmir.

For each project, the assessment should establish the original construction cost, subsequent capital expenditure, debt and financing costs, accumulated depreciation, operation and maintenance expenditure, annual electricity generation, revenue from power sales, profits before and after tax, water usage charges paid to J&K, the value of free power, transmission expenses, remaining book value, estimated depreciated buy-back value and remaining economic life.

It should then project the likely cash flow over the remaining viable life of each station.

Such an exercise would allow two meaningful figures to be compared. One would show what Jammu and Kashmir has actually received under the existing ownership arrangement. The other would estimate what J&K might reasonably have retained under alternative ownership structures after accounting for all the costs and liabilities that ownership entails.

This need not become an ideological contest between Srinagar and New Delhi. It should primarily be an accounting exercise based on verifiable figures, because only those figures can establish whether ownership would make economic sense and on what terms.

Recovering Forgotten Argument

The history of the Rangarajan Committee, the J&K Cabinet Sub-Committee and the KCCI proposal is worth revisiting because each approached the same underlying problem from a different direction. They sought ways to ensure that development of Kashmir’s hydropower resources created assets for Jammu and Kashmir rather than limiting the region largely to payments generated by assets owned elsewhere.

That distinction becomes even more important when we consider what is coming next. Three new projects with a combined capacity greater than the six existing NHPC projects under discussion are now being developed through a Build, Own, Operate and Transfer model.

Unlike some of the older projects, these new assets are eventually supposed to pass to J&K. The difficulty is that the transfer will take place only after 40 years of commercial operation.

The economic question has therefore changed but has not disappeared. If Kashmir must wait four decades for ownership, we need to understand what happens to the enormous economic value created during those four decades and whether there is a way for J&K to participate in that value before the final transfer takes place.

That is the question to which the next stage of Kashmir’s hydropower debate must turn.