Why Wait 40 Years to Own Power? Part-II

(This news article is two-part series. Part-II is published today. Part-I can be read here.)

The debate over Jammu and Kashmir’s hydropower resources is entering a new and perhaps more consequential phase. For years, the argument centred on projects already operating under NHPC ownership and whether some of them, particularly Salal, Uri-I and Dulhasti, should be transferred or bought back. The question now extends to projects being built today and the ownership arrangements that will govern them for much of this century.

Three new projects, Sawalakot, Uri-I Stage-II and Dulhasti Stage-II, have been entrusted to NHPC under a 40-year Build, Own, Operate and Transfer, or BOOT, arrangement. Together, they will add 2,356 megawatts of installed capacity, with Sawalakot accounting for 1,856 MW, Uri-I Stage-II for 240 MW and Dulhasti Stage-II for another 260 MW.

The agreement for Sawalakot was signed in December 2021, while those for Uri-I Stage-II and Dulhasti Stage-II were signed in March 2026. Under the arrangement disclosed by the government, these projects are to be handed over to J&K after 40 years from the commencement of commercial operations.

There is an obvious improvement here over an arrangement with no defined transfer mechanism at all. Nevertheless, it produces a striking contrast. While there is currently no proposal to take back the existing 2,250 MW of NHPC capacity, another 2,356 MW is being developed under a structure in which NHPC will own and operate the projects for four decades before transferring them to J&K.

There may be sound technical and financial reasons for structuring these projects in this manner. Large hydropower stations require enormous upfront capital, engineering expertise and the capacity to absorb construction and operational risks. Those considerations should form part of any fair assessment.

Yet they do not eliminate the larger economic question: if these assets are being built today on the rivers of Jammu and Kashmir, why must J&K wait another 40 years before acquiring an ownership stake in them?

Four decades cannot be viewed simply as a contractual waiting period. It represents an economic lifetime during which a power project generates electricity and revenue, repays debt, depreciates, produces operating surpluses and creates the financial capacity for further investment.

A child entering school around the time one of these projects begins commercial operations could be approaching retirement when the asset is finally transferred. By then, much of the economic history of the project will already have been written.

The value of a BOOT arrangement therefore cannot be assessed merely by asking whether J&K eventually receives the physical asset. We must also examine the distribution of the economic value generated before that transfer takes place.

Ownership determines not only whose name appears on an asset register. It influences where profits and retained earnings accumulate, who controls reinvestment, whose balance sheet becomes stronger and who acquires the capacity to use the income from one productive asset to finance another.

A project transferred after 40 years may still possess considerable economic value. But a future transfer cannot be regarded as equivalent to participating in the financial value generated throughout those four decades.

Megawatts Must Create Capital

Kashmir has traditionally discussed hydropower through the language of generation and potential. We calculate how many megawatts our rivers can produce and how quickly that potential can be harnessed.

That remains important, particularly in a region that continues to experience serious winter electricity shortages. But the economic discussion needs to go further by asking how much productive capital those megawatts can create within Jammu and Kashmir.

I have previously argued that the ambition to move towards approximately 11,000 MW of hydropower generation should not be viewed simply as an engineering or generation target. Its real economic significance will depend on whether plentiful electricity helps create industries, cold chains, food-processing facilities, digital services, tourism infrastructure, manufacturing, electric mobility and other productive sectors within Kashmir.

For an economy whose horticulture sector repeatedly struggles with storage, transport and processing constraints, reliable and competitively priced electricity can support a much larger value chain. The same applies to tourism, services, small manufacturing and emerging digital industries.

The economic journey of a river should therefore not end when its water passes through a turbine. Electricity generation should be the first stage in a much longer process of capital formation, investment, employment and value addition.

Ownership forms an important part of that process. If Kashmir’s rivers generate electricity but the capital generated from that electricity accumulates largely outside the local economy, J&K remains primarily a supplier of the natural resource. If ownership, equity, reinvestment and value addition increasingly move into the local economy, the same rivers can become the foundation of a broader economic transformation.

This is why the proposal once advanced by the Kashmir Chamber of Commerce and Industry remains relevant even though the institutional circumstances have changed.

KCCI’s argument was that large central investment in hydropower should not merely result in centrally owned assets. Public investment associated with Kashmir’s natural resources should, wherever feasible, help create equity and productive capital within the local power sector.

The exact mechanism would obviously have to be redesigned for today’s legal, regulatory and financial environment, but there is no reason why the underlying principle cannot be examined afresh.

Where immediate transfer of existing projects is considered impractical, J&K’s power entities could potentially acquire equity participation. Negotiated acquisition of stakes in mature projects could be examined alongside profit-sharing arrangements and joint ventures for future projects. Another possibility would be to convert a portion of future public investment into J&K equity, while a dedicated power-sector investment fund could use hydropower receipts to accumulate stakes in new generating assets.

Structured buy-back mechanisms based on depreciated asset values should also remain open to examination where they make financial sense.

No single model should be prescribed before its costs are properly calculated. The objective should be to establish a credible pathway through which a region providing the natural resource can gradually become an owner of the productive assets built around that resource.

Revisiting Buy-Back Principle

The earlier discussions over Salal, Uri-I and Dulhasti are relevant in this context because the J&K Cabinet Sub-Committee did not proceed on the assumption that the State would necessarily have to pay the original construction cost of mature projects. It explored buy-back on the basis of depreciated value.

This is an important distinction. A hydropower project that has operated and generated revenue for decades cannot be valued in the same manner as a newly commissioned station. Capital has already been invested, the asset has depreciated, and much of the original debt may have been serviced, while the project may still possess decades of productive life.

The economically meaningful approach would therefore be to determine the present value of the asset, the liabilities that would accompany its acquisition and the cash flow it could reasonably generate during the remainder of its life.

Only after those numbers are available can one answer whether J&K can afford to acquire a project and, equally importantly, whether it can afford not to acquire it.

The second half of that calculation is too often missing from the debate.

The latest Assembly figures provide a useful starting point. Over five years, J&K received ₹5,537.32 crore from six NHPC projects through water usage charges, free power and the Local Area Development Fund. During broadly the same period, the projects reported approximately ₹22,195 crore in operating revenue and about ₹11,023 crore in combined profit before tax.

It bears repeating that NHPC’s profit cannot simply be treated as money that would otherwise have gone into the J&K treasury. A local owner would have faced expenditure, liabilities, taxation, maintenance costs and financial risks of its own.

Nevertheless, these figures demonstrate the scale of economic activity associated with the assets and make it reasonable to ask what even partial local ownership could have meant for J&K’s financial position.

Had a share of the operating surplus been retained through ownership or equity participation, it might have strengthened the local power sector’s capacity to finance new generating projects, modernise transmission and distribution, reduce its dependence on borrowing and invest in other productive infrastructure.

These possibilities should not be presented as foregone certainties, but they deserve to be quantified. That is precisely what is meant by calculating the opportunity cost of non-ownership.

Kashmir’s Power Paradox

The issue becomes more striking when viewed against J&K’s continuing electricity shortages.

The latest Assembly data cited in the material put total installed generation capacity, including NHPC projects, at 3,539.70 MW. Yet the government has also reported a winter power deficit of around 2,300 MW, with actual availability substantially below average winter demand.

This is the paradox at the heart of Kashmir’s hydropower economy. A region endowed with enormous hydroelectric potential remains dependent on electricity purchased from outside its own generation system and continues to experience severe shortages during periods of peak demand.

Physical generation within the geographical boundaries of J&K does not automatically translate into financial strength for its own power sector. That is why the ownership question cannot be separated from the electricity question.

A stronger local power-sector balance sheet could help finance new generation, transmission, distribution, storage and modernisation. It could also support the broader economic strategy needed to turn reliable electricity into industrial and commercial growth.

The discussion should therefore move beyond the six existing NHPC projects and examine the much larger hydropower expansion that lies ahead. If Jammu and Kashmir is moving towards harnessing approximately 11,000 MW of hydropower potential over the coming years, success cannot be measured simply by adding up the megawatts connected to the grid.

At every stage of that expansion, policymakers should examine who is financing the projects, who will own the resulting assets, how operating surpluses will be distributed and how much of the capital created by those projects will remain within Jammu and Kashmir. The ownership structure will also determine who acquires the financial capacity to make the next round of investments and whether today’s hydropower expansion helps create locally owned productive assets tomorrow.

If the local benefit remains confined mainly to water usage charges, free power and some contracting activity, Kashmir will continue to provide the resource while retaining only a limited share of the productive capital created from it.

The outcome could be very different if future hydropower development progressively gave J&K greater equity participation and allowed earnings from electricity to be reinvested in local infrastructure, enterprises, industry and new generating capacity. Hydropower would then cease to be merely a source of electricity and government revenue and could become an engine of wider economic development.

Building Genuine Resource Dividend

This requires a broader understanding of what a resource dividend should mean for Kashmir. It should not be confined to seeking a larger royalty, another percentage point of free electricity or an enhanced annual payment, important though each of these may be.

A genuine resource dividend would convert natural-resource wealth into durable productive assets. Revenue generated by power assets would create equity, equity would support investment, investment would help create industries and employment, and successful enterprises would generate further capital for reinvestment.

That is how natural-resource wealth becomes an economic base rather than merely a revenue stream.

The alternative is a system in which Kashmir’s water generates electricity and electricity generates substantial revenue, while most ownership and accumulated capital remain outside the economy from which the original resource comes.

The difference between the two models is fundamental. One treats Kashmir primarily as the location of a natural resource; the other seeks to make it a participant and, progressively, an owner in the economic system created around that resource.

The government’s disclosure that there is presently no proposal to take back existing NHPC projects should therefore be treated as a statement of current policy rather than the end of the economic discussion.

The historical record shows that ownership was repeatedly considered by J&K governments and institutions. The Rangarajan process examined transfer, the Cabinet Sub-Committee considered buy-back at depreciated value, and KCCI proposed that central hydropower investment should create equity within the State power sector.

What is required now is neither rhetoric nor assumption but a transparent financial assessment of these options.

Every major NHPC project in J&K should be independently valued. The public should know the depreciated value of each asset, its remaining economic life, the revenue and profit generated during its years of operation, the benefits already received by J&K and the realistic cash flows that could be expected in the future.

Once those figures are available, the existing model can be compared with alternatives involving transfer, equity participation, joint ownership or structured buy-back. Only then will it be possible to calculate the true economic cost, or benefit, of remaining outside the ownership structure.

Rivers Should Create Assets

Kashmir’s rivers cannot be regarded merely as sources of water usage charges. They constitute a potential capital base capable of supporting economic activity far beyond electricity generation.

The ₹5,537 crore received during the past five years is real and significant, but it should not become the ceiling of the conversation. The larger objective should be to create an economic structure in which the value produced by Kashmir’s water progressively strengthens Kashmir’s own productive capacity.

This was implicit in KCCI’s earlier proposal to transform central investment into local equity, and it remains central to the argument for examining the transfer or buy-back of mature NHPC projects. The new 40-year BOOT arrangements make the question more urgent because they determine not merely who will own these assets decades from now, but who will accumulate the financial benefits during much of their productive lives.

Forty years from now, the new projects may indeed pass to J&K. Economic policy, however, cannot be concerned only with what Kashmir receives at the end of those four decades. It must also consider what the region earns, retains, reinvests and builds during that period.

There is little doubt that Kashmir’s rivers can generate thousands of megawatts. The more consequential question is whether they can also generate locally owned capital, new enterprises, employment and a stronger economic base.

Ultimately, the true measure of hydropower wealth is not simply the electricity generated by a river, but how much lasting economic value remains in Kashmir after that electricity has been generated and sold.