- Teesta Stage III dam — one of the biggest hydropower dams in India — was entirely wiped out by last year’s devastating glacial lake outburst flood (GLOF).
- Hydropower projects, often despite their documented environmental and social costs, are labeled as “renewable” and “green” energy investments.
- As the Teesta Stage III dam is about to be rebuilt, the accountability of financial institutions towards environmental, social and climate harm engendered by projects and activities they finance, comes into question.
- The views in the commentary are that of the author.
A year has passed since disaster ravaged the Teesta river basin in north Sikkim. On October 4, 2023, a glacial lake outburst flood (GLOF) in Lhonak Glacial Lake wreaked havoc on the Teesta basin in Sikkim and West Bengal. It destroyed villages, homes, and livelihoods and reportedly claimed over a hundred lives. The Sikkim Urja Limited-run Teesta Stage-3 dam (Teesta III hydroelectric project) — one of the biggest hydropower dams in India with 1,200 MW electricity generation capacity – was entirely wiped out by last year’s devastating glacial lake outburst flood (GLOF). While further downstream, the Teesta V dam was rendered inoperable and has not generated power since then.
As the Teesta III dam is about to be rebuilt, public sector development finance institutions REC Limited (earlier known as the Rural Electrification Corporation) and the Power Finance Corporation are reportedly going to bankroll the reconstruction. This investment plan raises serious concerns because it seems to ignore the web of climate risks, financial and ecological costs and harmful socio-economic impact associated with the project. It also raises a crucial question – What should be the accountability of financial institutions towards environmental, social and climate harm engendered by projects and activities they finance?
Financing big infra in a vulnerable landscape
The communities affected by the 2023 GLOF have not received compensation for their losses, and many continue to live in relief camps.
The Teesta stage III disaster was not entirely unexpected. Local communities impacted by the dam had long been pointing out the dangers of building massive infrastructures in a climate vulnerable, ecologically sensitive area of north Sikkim. Building a big dam could render floods and landslides more deadly. They were additionally opposed to the dam because its construction involved alteration and destruction of parts of the mountains, forests and the flowing river, a geography which has a sacred place in local belief and culture. Yet, the hydropower project was constructed.
As early as 2000, a government landslide committee had recommended prohibiting construction along riverbanks, based on research into tectonic plate activity in the area. Meanwhile, the ongoing melting of Himalayan glaciers has given rise to rapidly increasing and expanding glacial lakes, many held back by unstable natural barriers known as moraines, posing significant risks. Warnings about GLOFs have been highlighted well in advance, including in the Human Development Report 2001: Sikkim. Scientific evaluations of the Teesta Valley revealed that many settlements and infrastructure in north Sikkim, located along the river’s course, are highly vulnerable to these catastrophic floods.
Despite these warnings, financial institutions such as the Punjab National Bank, Canara Bank, Bank of Baroda and non-banking investors such as the India Infrastructure Finance Company Limited, India Renewable Energy Development Agency, Power Finance Corporation and REC Limited had made loans available at different points in the lifecycle of the project.
Now that the GLOF and the attendant destruction has come to pass, it raises the question — Should not there have been greater circumspection on part of financiers before pouring more money into the highly vulnerable project?
The recent report by the Central Water Commission highlights the massive expansion of glacial lakes in the Himalayas. Their volumes increase at a lethal pace as glaciers succumb to the warming environment, as temperatures rise due to industrial activity-induced climate emergency. A larger chunk of these expanding lakes falls in Sikkim, which bodes ill for the people and ecology of the Himalayan state and those living downstream, and for the existing and planned large hydropower and connectivity infrastructure.
In the immediate aftermath of last year’s disaster, Chief Minister P.S. Golay of Sikkim Krantikari Morcha, a partner in BJP-led NDA at the union level, had condemned what he called “corruption” and profiteering by contractors and promoters, even promising a full investigation. Now, just a year later, the government has decided to disinvest its entire 60% stake in Sikkim Urja Limited, selling it off to Greenko Energies Private Limited, wholly owned by Green Energy Holdings, a company incorporated in Mauritius, amidst allegations of non-transparency and lack of accountability by opposition parties. M. Rajshekhar in his two-part story for the Carbon Copy has extensively documented the operational and financial mess of Teesta Stage III that had resulted in contractors and private shareholders profiting at the cost of the state exchequer.
Financial concerns are flagged in the public domain. Can financial institutions and their credit decisions remain unaffected and indifferent? The answer, sadly, is yes.
Public finance is devoid of public accountability
As stated in the credit rating report of Sikkim Urja Limited prepared by Acuité Ratings and Research Limited, Sikkim Urja Limited (SUL) claims it is expecting an insurance amount to partly cover the loss it sustained owing to the destruction of the dam component during the GLOF of 2023. IFFCO Tokio leads the group of insurers for the project. In addition, SUL expects to receive 1,500 crore rupees (Rs. 15 billion) from Haryana Power Purchase Centre, official forum of Haryana based electricity distribution companies, for alleged violation of power sale agreement to buy power from Teesta stage III, a case which precedes the GLOF.
Teesta Stage III had already soaked far more public money than was initially planned. Initially budgeted at 5,705 crore rupees (Rs. 57.05 billion), by the time operations began in 2017, costs had ballooned to over 14,000 crore (Rs. 140 billion), most of which came from public sector banks and development institutions funded by our savings.
The Reserve Bank of India has been bringing out copious guidelines on incorporating ‘climate related financial risks’ for financial institutions, looking at climate related disasters such as GLOF’s from a rather limited financial risk perspective. The ground reality as evidenced in financiers’ endless appetite for funding climate vulnerable hydropower infrastructure in states such as Sikkim, shows the long distance which India’s financial sector has to cover to address the environmental, climate and socio-economic fallout of its funded projects.
At what point do we demand real public accountability, which incorporates both environmental and social oversight, and financial safeguards to ensure that public money entrusted with financial institutions is invested responsibly?
In times of crisis such as these, the financiers, insurers and investors conveniently remain away from the spotlight. Therefore, they escape bearing their share of responsibility towards the social and environmental harm caused by their investment. The absence of institutional accountability, safeguard mechanisms in Indian financial institutions is becoming stark with every such big infrastructure disaster.
Read more: [Explainer] What is glacial lake outburst flooding and how does it affect the Himalayas?
Are the investments really ‘green’?
Ironically, some of these big hydropower infrastructure investments could be classified in India as ‘green’ or climate-friendly. In 2021, the NHPC Teesta-V power station was awarded the Blue Planet Prize by the International Hydropower Association (IHA) during the World Hydropower Congress in 2021. This award was condemned by community activists as an attempt to depoliticize ongoing protests against dams on the Teesta River and to push for further dam construction in the Dzongu area in north Sikkim.
Despite its well documented fallouts, hydropower is officially accorded ‘renewable’ status as a source of ‘clean’ energy. This allows hydropower a crucial place in India’s attempt to reduce its dependence on fossil fuel – oil, gas and coal – based power, without taking into account its high social and environmental costs.
An urgent need to regulate financing
The critical question that all this raises goes beyond profit and loss. The affected citizens of Teesta call on the Sikkim government to decommission both the NHPC Stage V and Stage III dams. They cite the enormous toll these projects have taken on their communities and local ecosystems. They’ve pointed out how dams like these amplify the effects of natural disasters, turning floods and cloudbursts into lethal, widespread devastation.
It is high time that institutions financing big infrastructure in such contexts incorporate an impact risk perspective – i.e. taking into account and avoiding social, environmental and climate harms that could result from their investments. This perspective calls for going beyond simply viewing such consequences from a financial risk lens, and urges financial institutions to develop internal thresholds, inspection and grievance mechanisms.
The author is a researcher associated with the Centre for Financial Accountability.
Banner image: Gazadoba Barrage on the Teesta River in West Bengal. Image by International Rivers via Flickr (CC BY-NC-SA 2.0).
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