INDIAN INSTITUTE OF TECHNOLOGY ROORKEE

WATER ROYALTY
IN
HYDROPOWER

By:
Swatantra Kumar Karna
M. Tech. , 1st Semester, AHES
Enr. No: 18512019
CONTENTS

• Definition
• Forms
• Legal Provision and Distribution Mechanism
– Nepal
– India
– China
•Positive and Negative Aspects
• Recommendations
• References

2
Definition (Investopedia.com)
Royalty: It is a payment to an owner for the ongoing use
of their asset or property, such as copyrighted works,
franchises, or natural resources.
- Payment made to legal owner of the property by
licensees or franchisees who wish to make use of it
for generating revenue to compensate the owner for
the asset’s use
- Legally binding

3
 Definition contd…

• Water Royalty/ Hydropower Royalty/ Hydraulic Royalty: It is

a payment made to legal owner of the water resource
(often State or Federal Government) by licensees or
franchisees who wish to make use of it for generating power
to compensate the owner for the use of water resource.

Royalty
-Federal
-Provincial
-Local
Governme
nt
Ownership

4
Forms of Royalty

1. Flat rate on the basis of Installed Capacity (Capacity

Royalty)
2. Free energy/Pre-determined percentage of annual energy
sales (Energy Royalty)
3. All of the above

5
Legal Provision and Distribution
Mechanism
1. Nepal (954 MW/
99% Hydro)
- Two Provisions Found
for royalty rates
 Electricity Act, 1992
 Hydropower
Development Policy, 2001

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Legal Provision and Distribution Mechanism
contd.. Nepal
 Provision in Electricity Act, 1992
- Based on Installed Capacity of HPP as well as Annual
Electricity Generation i.e. Capacity as well as Energy
Royalty
- Simple and Primitive Form of Royalty System i.e. No
segregation on scale basis, export/self consuming basis

Up to 15 Years of Commercial After 15 years of Commercial

Operation Operation
Annual Energy Annual Energy
Capacity Royalty Per Capacity Royalty Per
Royalty Per kWh Royalty Per kWh
kW kW
NPR 100 2% NPR 1,000 10%
Difference X 10 times X 5 times

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Legal Provision and Distribution Mechanism
contd.. Nepal

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Legal Provision and Distribution Mechanism
contd.. Nepal
 Provision in Hydropower Development Policy, 2001
- Capacity as well as Energy Royalty
- More Scientific and Practical Method i.e Distinction between
Different Scale/Types of Hydropower Plants, export/self
consuming basis,
- Not Implemented except Super six Projects
(Singati,Khare, Lower Solu, Upper Solu, Maya Khola,
Mewa) Awarded through Competitive Bidding

9
Legal Provision and Distribution Mechanism
contd.. Nepal

- Relaxation For Projects Below 100 MW in Energy Royalty (i.e. < 2 %)

- Increased Capacity Royalty for Projects Above 10 MW

10
Legal Provision and Distribution Mechanism
contd.. Nepal

- Higher Rates of Royalty Compared to non-Export oriented projects

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Legal Provision and Distribution Mechanism
contd.. Nepal
 Distribution of royalties across different administrative
units in Nepal
Government units receiving Percentage of royalty
royalties
Central government 50
Development regions 38
(Ultimately distributed across
districts within the region)
District development 12
committee
Source: Local Self Governance Rules 2056 BS (1999) Third amendment

12
Legal Provision and Distribution Mechanism
contd.. Nepal
 Flow of Royalty Payments

13
Legal Provision and Distribution Mechanism
contd.. Nepal
 Legal Provision in Federal Nepal
- Constitution of Nepal, 2015, Article 57, Clause 5 lists “Royalty From
Natural Resources” under “List of Concurrent Powers of Federation, State
and Local Level”

- Department of Electricity Development, Nepal hasn’t distributed royalty

since last fiscal year and new regulation is awaited.

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Legal Provision and Distribution Mechanism
contd.. Nepal

Royalty Based On PDA between IBN and SJVN Arun-3 Power Development
Company Pvt. Ltd. (as per rates for Export Oriented Project in Hydropower
Development Policy, 2001 )
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Legal Provision and Distribution
Mechanism
2. India (49,382 MW/
14.8 % Hydro)
 Constitution of India
- Entry 17 in the 2nd list of
7th schedule places water
at the disposal of states
which also includes
Hydro-electric power.
 Electricity Act, 2003 (Sec 180)
 Different States have different
policies regarding water royalty

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Legal Provision and Distribution Mechanism
contd.. India
 Provision in Uttarakhand State
- For Projects 5 to 25 MW
- Exemption of Royalty for first 15 years
- From 16th year, 18 % of energy generated would be charged

-For Projects 25 MW to 100 MW

- For 15 years, Royalty at the rate of 12% of net energy wheeled (after
deducting wheeling charges) or supplied directly without wheeling
- Beyond 15th year, Royalty of 18% of net energy wheeled or supplied
directly without wheeling will be made available to GOU free of
charge
- Special provision for deferment of royalty for first 8 years however
deferred royalty recoverable by state from 9th to 15th year with interest

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Legal Provision and Distribution Mechanism
contd.. Uttarakhand India
-For Projects > 100 MW
- Flat 12 % of electricity generated shall be made available free of
cost to state during entire life of the project.

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Legal Provision and Distribution Mechanism
contd.. India

 Provision in Arunachal Pradesh

- 12 to 15 % Energy generated to state government
as Royalty
 Provision in Himachal Pradesh
- 12 % Free power to State + 1% for Local Area Development
Fund

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Legal Provision and Distribution
Mechanism
3. China (3,41,190 MW/
19.2 % Hydro)
 Water Law of the PRC,
2002 and Provincial Laws

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Legal Provision and Distribution Mechanism
contd.. China
 Local Govt. in China has started Collecting Water
Royalty since 1980
 In 1988 Central Govt. adopted Water Law for PRC
- included that power to levy hydraulic charges and
make royalty system is rooted in the Local Level
 Revision in Law in 2002, Central Authority has intervened
periodically to regulate at the national level and to co-
ordinate between regions and federal governments

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Legal Provision and Distribution Mechanism
contd.. China
Province Royalty Rates Province Royalty Rates
(Chinese (Chinese
Yuan/MWh) Yuan/MWh)
Hubei 5 Gansu <5000 MW, 3
Sichuan 5 to 8 >=5000 MW, 5
Yunnan 5 to 15 Jiangxi 3
Guangdong <50 MW, 5 Henan <5 MW, 5
>=50 MW, 7 >=5 MW, 10
Fujian 8 Chongqing 5
Hunan 3 Shanxi 5 to 8
Zhejiang 8 Tibet 2
Guizhou 4 to 15 Xinjiang 3
Qinghai 5 Heilongjiang 10

N.B. 3 Gorges Power Plant Lies in Hubei Province

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Legal Provision and Distribution Mechanism
contd.. China
-There is a huge variation in Royalty rates from province to
province
-Maximum being 15 CNY/MWh in Guizhou and Yunnan
Province with Minimum being 2 CNY/MWh in Tibet
- Royalty Fixed on MWh basis different than kWh energy
generated or Capacity Royalty or Free Energy
- Also Some provinces have differentiated rates for Large
and Small Hydro

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Legal Provision and Distribution Mechanism
contd.. China
 General Method of Distribution
Central - Conservation,
Government Protection and
Treasury Administration of
water resources
- Reasonable
Local Exploitation of Water
Government Resources as
Treasury approved by State
Council

 Special Provision for 3 Gorges

- Allocation and use is jointly decided by Ministry
of Finance and Ministry of Water Resources
- Their decisions have to be approved by state
council

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Positive and Negative Aspects of Royalty

 Positive Aspects
 Source of revenue to the government so has high economic
importance (Eg. In Arun 3 HPP, NRs.107 Billion as royalty)
 Most formalized(Legally Binding) method of benefit sharing (e.g.
Equity Investment, Employment, Community Support Program etc)
 Certainty
 Increases feeling of ownership amongst locals
 Assistance in local/national development
 Can be used for mitigating the negative impacts of projects and
conservation and protection of water resources

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Positive and Negative Aspects of Royalty
contd…

 Negative Aspects
 Financial viability of the project may be reduced
 Quantifying royalty is a hectic task for government body
 Royalty distribution is often questionable

Contd…

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Positive and Negative Aspects of Royalty
contd… Negative Aspects
 Source of Conflict

- Project involving one or more province, districts etc.

https://www.dailypioneer.com/state-editions/chandigarh/water-sharing-dispute-hp-seeks-
royalty-from-neighbours.html

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Positive and Negative Aspects of Royalty
contd… Negative Aspects
- Distribution mechanism
A. To un-related Districts

B. Only to DDCs NOT to the VDCs

 Sometimes royalty are spent for luxury than actual

development need
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Positive and Negative Aspects of Royalty
contd… Negative Aspects
 Royalty in terms of Free energy to the PAP is not fully
utilized
 Difficulties to Project Developer because of poor
distribution system e.g. unnecessary demands from
locals etc.

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Recommendations
 Transparency of Royalty collection, distribution
mechanism with periodic publicizing of amount
collected
 Mechanism for resolving spatial disputes (involving two
or more administrative regions)
 Distribution to project affected regions (VDCs, Local
Level)
 Complementarity with other benefit sharing program
(Some benefit sharing programs can be integrated with
royalty by legal bindings)
 Royalty should be Project specific based on individual
projects financial parameters (e.g. LCOE)
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 References
• Electricity Act, 1992 (Nepal)
• Hydropower Development Policy, 2001 (Nepal)
• http://rmsdoed.gov.np/Core/Report/RoyaltyDetail
• Shrestha, P; Lord, A; Mukherji, A; Shrestha, RK; Yadav, L; Rai, N (2016) Benefit sharing and sustainable
hydropower: Lessons from Nepal. ICIMOD Research Report 2016/2. Kathmandu: Nepal
• Nepal Electricity Authority, Annual Report Fiscal year 2016/17
• Constitution of Nepal, 2015
• Project Development Agreement Arun 3 HPP, 25 Nov 2014
• Investment board Nepal, www.ibn.gov.np
• Kumar, A., T. Schei, A. Ahenkorah, R. Caceres Rodriguez, J.-M. Devernay, M. Freitas, D. Hall, Å.
Killingtveit, Z. Liu, 2011: Hydropower. In IPCC Special Report on Renewable Energy Sources and Climate
Change Mitigation [O. Edenhofer, R. Pichs-Madruga, Y. Sokona, K. Seyboth, P. Matschoss, S. Kadner, T.
Zwickel, P. Eickemeier, G. Hansen, S. Schlömer, C. von Stechow (eds)], Cambridge University Press,
Cambridge, United Kingdom and New York, NY, USA
• Electricity Act, 2003 (India)
• Hydropower Policies and guidelines, by water for welfare secretariat ,IIT Roorkee, February 2008
• Hydropower Development iin Northeast India: Conflicts, Issues and Way Forward, K J Joy, Chandan
Mahanta and Partha J Das
• Hydropower Status Report 2018 -pg 99, International Hydropower Association
• Notification of government of himachal pradesh, dated 2009/11/30,
• http://admis.hp.nic.in/doe/Citizen/SearchUploadDocument.aspx

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 References contd…
• Pierre-Olivier Pineau,, Lucile Tranchecoste and Yenny Vega-Cárdenas: ,Hydropower Royalties: A
Comparative Analysis of Major Producing Countries (China, Brazil, Canada and the United States) :
MDPI/Water
• Hydropower project development in India; issues and way forward by MM Madan;
https://energy.economictimes.indiatimes.com/energy-speak/hydropower-project-development-in-india-issu
es-and-way-forward/1713

• Chhatrapati Singh, Water rights in India

• http://www.cercind.gov.in

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Thank You !

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