The Planning Commission is working on a proposal to pay compensation, according to a specific formula, to power-generating states for any environmental damage suffered in the course of generating power for other states

The Indian government is working on a formula to compensate states for any environmental damage caused by power projects that sell power to states other than the ones in which they are located. The compensation will be paid by the company, agency, or the state buying the power.

"We have realised that one-time compensation does not work. To take care of this, the compensation issue was discussed in the state chief minister's meeting, in the meeting of state chief secretaries and even in the National Development Council. It has been decided that a formula will be devised by the Planning Commission to take care of this," said a government official who did not want to be identified.

The move was confirmed by a Planning Commission official who said that the body was presently working on the proposal. Compensation would be paid into an environment fund and disbursed to the states, the official said.

A number of state governments have been seeking such compensation; some proposed a cess that would be paid on every unit of electricity sold outside the state.

India has 256 billion tonnes of coal reserves, of which around 455 million tonnes per annum (mtpa) are mined. The reserves are concentrated in the states of Jharkhand (28.95% of reserves), Orissa (24.60%), Chhattisgarh (16.2%), West Bengal (11.02%), Madhya Pradesh (7.92%), Andhra Pradesh (6.89%) and Maharashtra (3.76%).

Around 67% of India's total power-generation capacity of 140,000 MW is based on coal, and the power sector consumes 390 million tonnes of the fuel every year. Most of the thermal power generated by plants located in these states is sold to the rest of the country. Power-generating states contend that they should be compensated for the environmental damage they incur as a result of these projects.

Orissa, for instance, has been demanding a 6 paise cess on power. The state has emerged as the power-generation hub of the country with 33,000 MW of additional power expected to be generated by 2012. Orissa has a demand of 2,600 MW, which is expected to go up to 5,800 MW by 2014.

"If the power project developers want to transfer the coal from states like ours and then use it for generation (in plants outside the states), they are more than welcome," Suresh Mahapatra, Orissa's energy secretary said. However, this could increase the cost of power-generation for power companies.

According to Dipesh Dipu, a manager at the audit and consulting firm Pricewaterhouse Coopers: "While the intent to provide for environmental damage by coal-based power-generation may be applauded, charging additionally from a consumer in a different state does not appear equitable. The cost of energy may rise and thus have a negative impact."

Source: www.livemint.com, March 31, 2008