Power finance: Financial institutions in India's hydropower sector - A report by SANDRP, Urgewald and IRN

This report published by SANDRP, Urgewald and International Rivers Network (IRN) provides a brief background on India's power and financial sectors and illustrates the issues at stake by giving examples of two important power projects in India, the Dabhol project and the Maheshwar project.

The next part of the report describes the role that the domestic and international financial institutions have played and continue to play and the controversies that have been associated with the functioning of these institutions in the implementation of the hydropower projects in India.

The report emphasises the importance of the role of NGOs and civil society movements in making these institutions accountable to the common people whose lives are affected by the projects/ interventions.

The report highlights the situation in India:

• A review of India's power sector situation shows that the country has a power shortage and the power supply continues to be unreliable and of poor quality, and many rural communities have no access to electricity. Evidence also indicates that lack of generating capacity is not the main problem. The problem is that power in India is produced, transmitted, distributed and consumed inefficiently.
• However, India’s power sector strategies have barely touched upon these inefficiencies and gaps. They have not been based on a balanced assessment of all options and comprehensive least-cost plans, but aim at and have failed at creating a maximum amount of new generating capacity.
• The financial flows for hydropower projects have turned into a maze. Many international and domestic financial institutions interact, using a variety of different financial instruments, and in many cases lending through intermediaries rather than directly.
• Experience has indicated that accountability suffers in the cases where funds are lent indirectly and many a times funding agencies cannot simply rely on the lending policies and appraisal capacities of their partner institutions. Evidence indicates that many a times these partner institutions have policies that do not take into consideration the local needs and the social and environmental needs of the area under consideration.

The document argues that:

• Financial institutions need to accept that they have a social and environmental responsibility and a need for accountability to the public of their own. 
• Indian NGOs and movements have an important and active role to play in the context of these developments:
  • By drawing attention to the social and environmental impacts of such projects
  • Representing the voices of the affected who many a times tend to be unheard in the whole process
  • Through making significant efforts to strengthen their knowledge about how such institutions work, and about how civil society can monitor and engage them.
• Internationally, NGO networks should continue to monitor export credit agencies, commercial banks, and bilateral institutions, and should press for these institutions to abide by internationally accepted standards when they fund particular projects, including power plants.