Case Study – Dulhasti Power Plant

The Dulhasti hydro-energy power plant is a run-of-the-river plant on the Chandra River which is a tributary of the Chenab River located in northern Indian provinces of Jammu and Kashmir. Dulhasti is the first hydropower utility of India and the best example of a project management tragedy. In 1989, the Dulhasti project contract was first assigned to a French consortium promising to complete in 57 months and with a budget of $ 50 million. Despite their request for revising the price, the Indian government refused their request and gathered organizations for a second bidding process. The French consortium’s offer was accepted with a lower cost among the European competitors. It is published in India’s news portal that “The Cegelec-Alstom-led French consortium, DSB, which was initially awarded the construction contract in 1989, pulled out and stopped work in August 1992”. [1] In 1996, the project was then undertaken by another Norwegian company, Jaiprakash-Statkraft Anlegg JV which had problems with hiring workers from other states. [2] It is stated in Indian news that even though; the cost was initially estimated at $50 million, by the end of the century, Rs 5,228 crore ($1 billion) had been spent on the project. [3]
There were a couple of reasons for why this project failed over time. The plant was intended to be built on an inappropriate location considering the geographical, political and economic challenges. The lack of infrastructure followed by political issues was a particular challenge in the Dulhasti Power Plant case study. First, it is stated in Infraline Energy reports that “The rock and ground water conditions encountered were much more severe than what was envisaged and the progress was often stopped or hampered due to presence of cavities/shear zones”. [4] Second, the region was lack of the necessary transportation such as roads, rail lines. For this reason, the supplies and raw materials including cement, wood, stone and steel had to be transported with cargo aircrafts and helicopters at huge costs. Third, the location of this project pit the Pakistani armies against Indian armies located in the region to keep the peace. It became necessary to provide security to the region meaning additional and excessive costs required. After all, the unit cost of power to be generated had to be increased by %500 resulting in an inefficient power plant. The key point to understand the harsh geographical conditions is that we cannot easily estimate what we will find out when we dig into the ground. We may either find out that the land is very appropriate or unstable for the base of the project. These conditions often result in additional money, equipment and worker. It may also be required to revise the project. It becomes hard to estimate the cost and the time required to complete the project. In Dulhasti project, additional costs were included by time because of the geographical, political and economic challenges mentioned above. Favoring the lowest bids for project construction is an advantage for setting a budget. The government ensures that the project will be cost effective. However, it has a significant disadvantage. As seen in Dulhasti project, such contracts are flexible and allow the contractors to increase and decrease the budget according to different conditions. Therefore, it is not always a fixed price contract. In Dulhasti project, the fixed price contract led the French consortium to underbid in order to get the project. Fixed price contracts don’t allow government fix the price, in fact, force the government increase the costs when they encounter problems. The government tries to renegotiates a new price with the winner before they go for a second bidding. In Dulhasti case, the French consortium did not agree with the government and second bidding was processed. As French consortium quit from the project, the government assigned another company to project. This also led to additional higher costs.

References
1. http://www.projectsmonitor.com/detailnews.asp?newsid=8865
2. http://news.oneindia.in/2008/04/26/pm-dedicates-390-mw-dul-hasti-power-project-to-nation-1209204316.html
3. http://news.oneindia.in/2008/04/26/pm-dedicates-390-mw-dul-hasti-power-project-to-nation-1209204316.html
4. http://www.infraline.com/(S(uce1tp45gxvpxfesfsrtihmr))/power/hydro/Centre/DulhastiHEP.aspx