CHAPTER!

INTRODUCTION, CONCEPT OF PERFORMANCE &

VIABILITY, SCOPE, METHODOLOGY AND LAY OUT OF
STUDY

"There is no more reason to believe that man

descendedfrom some inferior animal, than
there is to believe that a stately mansion has
descendedfrom a small cottage”
— W J Bryan

1.0 INTRODUCTION

Hydro electric power project constitutes an important segment in the economy. It

has been assigned a place of prime importance in the economic development of

India. It is therefore, vital to ensure that these power projects produce the desired

result continuously to help accelerate the process of bringing about the socio­

economic transformation for emancipation o f the masses in the country. In case of

the public sector hydro electric power project, Government plays an important part

in development of the water potential besides commitment o f large amount of funds

from the national pool of resources. For many reasons, the Government is

concerned with the future economic development and well being of the society.

This is the basic concern, which makes public investment an important economic

activity with significant implication for management o f every sphere of economic

and social life. Many of the activities of the Government spending, particularly in

hydroelectric projects, is related to its investment intention and the policy makers or

the planners of the nation must know and understand the different facets of public

investment decisions and its outcomes.

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in the context of central public sector hydroelectric power projects, Government is

the major—generally the single largest—participant in and organizer of economic

activities. Notwithstanding the differences in the nature, objectives and socio

economic character of the state in different countries, they claim to act and speak on

behalf of the society in general. According to the economist, for every rupee of

power generation there is 12 to 15 times increase of industrial and agricultural

production. In last 2'A years we have generated Rs. 1000 Crores o f additional power,

which means that economy has additionally benefited by Rs.12 to Rs.15 thousand

Crores7. Hence, it is natural that the state would have a great deal of interest in

development of hydro electric projects. A large number of current and future wants

of an economy are Satisfied by the state. The capacity to discharge these tasks

requires investments in men, materials, machines and institutions. Government

policies whether they concern growth, social justice, self reliance, full-employment,

military strength or regional balance depends for their success on size, composition

and characteristics of public investment.

As a business entity, all decisions of public investment in hydro electric power

projects must satisfy the viability criteria of its investment decision, at least

economically, if not front financial point of view. There are two types of analysis

used for measuring performance and viability of the projects:

a) Financial Analysis

b) Economic Analysis

Financial analysis seek to ascertain whether the proposed project is or will be

financially viable in the sense of being able to meet the burden o f servicing debt and
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whether the proposed project will satisfy the return expectations o f those who

provide the capital. The aspects, which have to be looked into while conducting the

financial analysis, are:

a) Investment outlay and cost of the project

b) Means of financing

c) Cost of capital

d) Projected profitability

e) Break even Point

f) Cash flows o f the project

g) Investment worth whileness judged in terms of various criteria o f merit

h) Projected financial position

i) Level o f risk

Economic analysis, which is commonly known as social cost benefit analysis, is

concerned with judging a project from the larger social point of view. Hydroelectric

projects constructed in North Eastern Region falls under this category. In such an

evaluation the focus is on the social costs and benefits o f a project which may often

different from its monetary costs and benefits. Economic analysis deals with2:

1. Direct economic benefit and cost of the project measured in terms of

shadow (efficiency) prices and not in terms o f market prices.

2. The impact of the project on the distribution of income in the society.

3. The impact of the project on the level of savings and investment in the

society.

4. The contribution of the project towards fulfillment of certain merit wants

like self-sufficiency, employment and social order.

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In our subsequent section we will analyze and evaluate the above parameters to

calculate financial as well as the economic rate of return to examine the financial

and economic performance and viability of the projects.

1.1 PERFORMANCE AND VIABILITY OF HYDRO ELECTRIC PROJECTS

Performance evaluation of the projects is an omnibus term. It may embrace physical

or financial dimension. It may include both internal and external evaluation or may

be static or dynamic in nature. Moreover it can be evaluated in terms of quantitative

or qualitative objectives. The performance evaluation concept points out that

measuring of achievements qualitatively in respect of corporate mission, objective,

corporate goals and corporate activities that should be preferred to avoid subjective

statements or generalizations leading to ambiguities. While accepting this, we must

give due credit to enterprise specific features in the course of evaluating its

performance.

In case of evaluation of performance and viability of the hydro electric projects

some specific criteria are needed to be taken care of. These are:

1. Productive efficiency

2. Financial profitability

3. Social profitability

Productive efficiency relates with the physical parameters like plant output, capacity

utilization, generation target, design capacity, cost reduction, energy conservation

etc. If the project satisfies the minimum cut off value, then we may conclude their

operational performance is acceptable and is viable in terms of delivering goods or

services to the economy in comparison to the other firms operating in the same

industry.
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Financial profitability of the a project can measured in terms o f pay back period,

reciprocal o f pay back period, benefit cost ratio, net present value, internal rate of

return on investment etc. If the generation of the cash flows from the project is

adequate enough to make net present value of the project positive or generation of

internal rate o f return is more than its cost of capital or rate o f discount, then the

project is expected to have a positive contribution, by creation o f wealth to the

nation. In this context, the rate of return expected from the project varies with the

risk associated with the project. For example commercial project is having less risk

than the infrastructure project. Again the risk associated in the infrastructure project

is less than the social project. As such, it is obvious that the required rate o f return

in commercial project is less, for infrastructure project it is higher and in case of

social project it is the highest.

Unless otherwise, if these returns are not matched with the minimum required cut

off rate of return, then the project is said to be financially not viable. Pay back

period, which is treated as non discounted cash flow method o f evaluation of the

investment decision of the project, measures how quickly the investment made to

the project can be covered up by the earnings from the project, Shorter is the period

of pay back, belter is its perfotmance and the chance o f viability is more. Similarly

benefit cost ratio is also an effective indicator to measure the benefits from the

project per unit of the investment made in the project. All these above arc

essentially a numerical term, based on which, the evaluator can make a decision

about the investment worthiness in the project.

Social profitability can be measured by social cost benefit analysis, which measures

the socio economic impact of the project on the entire economy, evaluated in terms
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o f th e e c o n o m y - w id e o b je c tiv e s . In c a s e o f f in a n c ia l a n a ly s is o f a p ro je c t,

p a r tic u la r ly o f a p r iv a te in v e s tm e n t, m e a s u r e s th e c a s h o u t flo w s a n d in f lo w s , a n d

th e m o n e y p r o f it a c c r u in g to th e p r o je c t o p e r a tin g e n tity . N o r m a lly , th e p r iv a te

in v e s to r , w h e n d e c id in g o n p e r f o r m a n c e a n d v ia b ility o f a p r o je c t, u s e s th e y a r d s tic k

o f c o m m e r c ia l p r o f ita b ility , r e tu r n o n in v e s tm e n t, f o r w h ic h , h e is in te r e s te d in

m a x im iz in g m o n e y p r o f its s u b je c t to c o n s tr a in ts r e le v a n t to h is in v e s tm e n t. H e n c e ,

o n ly o u tp u ts a n d in p u ts th a t e n te r h is o b je c tiv e f u n c tio n s a r e in c lu d e d in th e

m e a s u r e m e n t o f p e r f o r m a n c e a n d v ia b ility o f p r o je c ts a n d a r e v a lu e d a t p r e v a ilin g

m a r k e t p r ic e , i.e . r u lin g c o m m o d ity p r ic e , w a g e r a te a n d in te r e s t r a te s a r e u s e d in

c o m p u tin g p r o f ita b ility . T h is is b e c a u s e , it is th e s e m a r k e t p r ic e s w h ic h h e p a y s a n d

r e c e iv e s . S o c ia l p r o f ita b ility s e e k s to m a k e th e m a x im u m c o n tr ib u tio n to th e

o b je c tiv e s o f a s o c ie ty . C o m m e r c ia l p r o f ita b ility b y d e f in itio n is c o n c e r n e d o n ly

w ith p r iv a te c o s ts a n d b e n e f its i.e . c a s h o u t f lo w s a n d c a s h in f lo w s re s p e c tiv e ly .

T h e s e n e e d n o t a n d , e x c e p t b y m e a n s o f a r a r e c o - in c id e n c e , w o u ld n o t c o in c id e

w ith s o c ia l c o s ts a n d s o c ia l b e n e f its , w h ic h n e e d to b e e v a lu a te d w ith r e s p e c t to th e

s o c ie ty ’s w e lf a r e a n d n a tio n a l o b je c tiv e .

U n ite d N a tio n s I n d u s tr ia l D e v e lo p m e n t O r g a n is a tio n ( U N I D O ) a n d th e C e n tr e o f

O r g a n is a tio n o f E c o n o m ic C o o p e r a tio n a n d D e v e lo p m e n t ( C O E C D ) h a v e c o m e w ith

u s e f u l p u b lic a tio n d e a lin g w ith th e p r o b le m o f m e a s u r in g s o c ia l c o s ts a n d s o c ia l

b e n e f its . I t m a y b e n o te d , in th is c o n te x t, th a t th e a c tu a l c o s t o f r e v e n u e s f r o m

g o o d s o r s e r v ic e s to th e p r o je c t d o e s n o t n e c e s s a r ily r e f le c t th e m o n e ta r y

m e a s u r e m e n t o f th e c o s t o r b e n e f it to th e s o c ie ty . T h is is b e c a u s e th e s e f ig u r e s a re

g r o s s ly d is to r te d o n a c c o u n t o f r e s tr ic tio n s a n d c o n tr o ls im p o s e d b y th e

G o v e r n m e n t. H e n c e , a d if f e r e n t y a r d s tic k h a s to b e u s e d o f e v a lu a tin g a p a r tic u la r

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payment in terms of cost and sacrifice on the part of the society. Such payments are

easily valued at opportunity cost or shadow price to judge their real impact in terms

of cost to society for the purpose of social cost benefit evaluation. O f course, it is

almost impossible to measure in precise monetary terms, the real costs and benefits

to the society as a result of the project.

The Centre of Organisation of Economic cooperation and Development (OECD) had

given the following methodology of working out the social cost benefit analysis

relating to a project:

a) All financial costs of a project during the construction period and operational

stage should be ascertained.

b) The financial cost so ascertained will have to be converted into social costs. For

this purpose, the financial cost as determined above, should be segregated

between cost incurred in terms of foreign currency and cost incurred in terms of

local currency.

c) The financial cost incurred in terms of foreign currency will be considered as

social cost of equivalent amount without any adjustment.

d) The local currency cost will be classified into three categories.

❖ Tradable items cost

❖ Labour cost

❖ Residual items cost

The computation of social cost of each of the above items is done as follows:
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1.2 TRADABLE ITEMS COST

The tradable items are those items, which are dealt in international market. These

items include most of the commodities except water and electricity, which can be

theoretically traded in the international market. The social cost of tradable items is

determined on the basis o f international prices of the commodities concerned.

1.3 LABOUR COSTS

The computation of social cost of the labour involved in project is done by dividing

the labour force into three categories—skilled, semi-skilled and unskilled. The

social cost of each of these three categories is worked out separately by adopting the

shadow pricing technique. The term shadow price refers to the rate attached to a

factor, which is not the normal or actual price paid for it. While determining the

shadow price of labour, the various benefits and opportunity cost, tangible and

intangible attached to actual cost incurred on a factor are considered. For example,

the shadow price for unemployed person is much lower than the normal prevailing

wage rate.

The social cost of labour, according to shadow pricing technique, are lower than the

total amount of wage paid due to the following reasons:

1. The society gets back a part of the payments made in the form of direct and

indirect taxes.

2. Wages paid to labour generate demand for various goods. This requires

production of goods resulting in economic development of the society.

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3. Wages are paid to the labour for the work put in by them. Working

increases their skill and performance. This, naturally, results in development

of human resources of the society.

4. An industrial or power project causes shifting of manpower from less

profitable and over employed sector to more productive and profitable

sector, resulting in overall better development o f the society.

5. The costs incurred by the industrial project on social security and benefit

schemes, such as housing, schooling, medical facilities etc. are off-set by

resultant social benefits.

6. Employment generation helps in fulfilling the broad social objective of

providing employment for different sections of the society.

1.4 RESIDUAL ITEMS COST

These include those items, which are neither tradable items nor labour costs.

The social cost of these items is ascertained by determining their opportunity cost

depending upon the nature of each item of cost.

e) The total value of social benefits from a project is ascertained by determining the

total tradable value of its finished products. In other words, the social benefits

from a project can be judged with reference to the import value of such goods or

to the detriment, which the society suffers in case they are not produced.

The social cost & benefits that would arise at different point of time, the internal rate

of social return can be computed by applying the discounted cash flow techniques.
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1.5 SCOPE OF STUDY

The scope of study is being limited to evaluation o f various operational, financial &

socio-economic dimensions of the performance & viability o f the central sector

hydro electric projects in North Eastern Region.

These central sector hydro electric projects are:

1. Kopili Hydro Electric Project in Assam (KHEP) 150 MW

2. Kopili Hydro Electric Project Stage-I (Extension) in Assam 100 MW
3. Doyang Hydro Electric Project in Nagaland (DHEP) 75 MW
4. Ranganadi Hydro Electric Project in Arunachal Pradesh (RHEP) 405 MW

Financial performance and viability is normally measured with the help of non

discounted and discounted cash flow techniques such as, the payback period,

reciprocal of pay back period, benefit cost ratios, net present value, internal rate of

return etc. It is high time that these power projects as whole must work on sound

commercial principles in order to ensure operational efficiency, energy conservation

and socio-economic development besides generation of minimum rate of return on

investment. Evaluation of the projects at all levels, which is the key to success of

any business operation and these projects, are of no exception. In the context of

recent technological development and liberalisation o f the economy the researcher

will study the socio economic impact of the projects, determine the economic rate of

return and examine their chance of viability, both financially and economically.

Contribution to the national economy, creation of employment opportunity, benefits

to different section of the society, savings and distribution impact, generation of

social surplus, self sufficiency in power and ultimately economic benefit to the

society, in totality particularly to the national economy will be the thrust areas in this

study.
C E N T R A L P U B L IC S E C T O R H Y D R O E L E C T R IC P O W E R P R O J E C T S IN N O R T H E A S T E R N R E G IO N

INDEX

O COMPLETED PROJECTS

BANGLADESH A ONGOING PROJECTS

O FUTURE PROJECTS

■ STATE CAPITALS

MIZORAM LJ2IO
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1.6 IMPORTANCE OF THE STUDY

Construction o f a hydro electric power project has multi dimensional effect such as

shifting and rehabilitation of low lying villages and township due to creation of

reservoir, displacement of flora and fauna, disturbance o f bio-diversity, change of

ecology and environment. More over comparatively hydro electric projects are

found most eco-friendly and economical in comparison to the other projects using

fossil fuel, hydrocarbon or nuclear fuel. Hydro electricity is treated as clean energy

and its generation is not linked with the issues concerning fuel supply, specially,

when there is price volatility of imported fuel. As against the desirable hydro share

of 40%, the current scheme is only about 25% in India. Irrigation, supply of

drinking water, flood control, navigation, aquaculture, tourism etc. are the fruits of

multipurpose hydro projects beside power generation. Contrary to the benefits

enjoyed by the society, the hydro electric projects require a large amount of funds

from the national pool of resources. In the developing countries like India, this type

o f large investment is possible, only by sacrificing the other alternative investment

projects. As the nature of the projects are highly capital intensive and are having

long gestation period, sometimes due to erroneous or irreversibility of decision on

investment makes the hydro electric project unviable both financially or

economically. The decision-maker or the national planners must know the

performance and viability of such infrastructure projects that has immense impact on

the economy.

The current study attempts to evaluate the performance and viability of the projects

in terms of payback period, benefit cost ratio, net present value, internal rate of

return etc. from the financial as well as economic point of view. On the other hand,
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it will help us to judge the investment worthiness in such hydro electric projects ;in

comparison to other alternative infrastructure or development projects. In specific

cases, it is seen that some projects are found financially not viable, but from the

socio-economic point of view it is desirable to the society. It will also be useful to

study the contribution of this type of projects as a basic infrastructure to the state in

terms of industrial growth, enhancement of quality of life, creation of employment

opportunities and social goals as well as balanced regional growth. In micro level,

study of viability o f operating such hydro electric power projects, performance in

terms o f economic profitability, operational efficiency, social and environmental

implications if any, will be very much useful to take managerial decisions.

1.7 OBJECTIVE OF STUDY

(a) To study the financial performance and viability of projects with the help of

performance appraisal methods: to work out the payback period, reciprocal

o f payback period, benefit cost ratio, net present value and internal rate of

return on investment and examine the findings to draw a conclusion, whether

the projects are financially viable or not.

(b) To study the economic performance and viability of projects: to work out

shadow pricing of inputs and outputs, savings impact, distribution impact,

adjustment for merit and demerit goods and application of the UNIDO

approach to calculate the economic rate of return and access the viability of

the projects economically.

(c) To study the operational performance of projects and measure the

effectiveness of project implementation in terms of Cost Performance Index

(CPI), Schedule Performance Index (SPI) and recommend measures for

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improvement of performance and profitability, while making the policy

decisions for organisational effectiveness, operational efficiency and

effective utilisation of resources in the context of emerging scenario of

recent technological development and liberalisation of Indian power sector.

1.8 DESIGN AND METHODOLOGY OF STUDY

Traditional approach to project control and evaluation involves a comparison of

actual cost with the budgeted cost to determine the variance. Effective control over

a project requires a systematic performance analysis. For analysing the performance

at work package or cost account and higher levels of work breakdown structure we

employ a method of analysis which takes into account the value of work that has

been done. In the traditional method of analysis the evaluator measures the actual

progress against the predetermined schedule and actual cost against the budget

estimate. This does not enable him to know systematically whether the expenditure

incurred is in consummate with the progress. The performance analysis seeks to

remove this subjectivity by employing an analytical frame work based on

1. Budgeted cost for work scheduled (BCWS)

2. Budgeted cost for work performed (BCWP)

3. Actual cost for work performed (ACWP)

4. Additional cost for completion (ACC)

Cost variance, scheduled variance in cost terms, cost performance index, scheduled

performance index, estimated cost performance index are the indicators of the

project performance analysis.

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Inadequate project formulation, deliberate over estimation of benefits and

underestimation of costs, inadequate implementation planning, timely availability of

fond, judicious tendering and procurement methods are also to be analysed.

In the present milieu, besides the production and distribution of goods, and services

economically, the society expects a great many o f other services and measures to

come from a project. The expectations imposed by statutes or regulations, leads to

several obligations on the project enterprise. A close look at the social and

environmental obligations or restraints on the enterprise shows that they are the

needs and expectation of the community around it and therefore they have to be

fulfilled for the project to be socially acceptable. Hence it become absolutely

imperative that an assessment be carried out of the impact made by the project as

regard to all four aspects:

❖ Social impact

❖ Environmental impact

❖ Financial impact

❖ Economic impact

For evaluation of social impact, the guidelines recommended by the World Bank,

other international financial institutions while sanctioning the financial aid is taken

care of. Guidelines on rehabilitation and resettlement(R&R), land acquisition

methods, payment of compensation package, code of practice o f safety standards &

occupational health of the projects during implementation and operation is followed.

For evaluation of environmental impact, World Bank has published occupational,

health and safety standards for industrial sector, and checklists of environmental

considerations for project analysis. Questions that should be rationally considered

for assessing the environmental effect (Environmental Impact Assessment) of

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various projects specially in power sector is studied at length. Long term measures

during finalisation of plant location, layout, design, and operational facilities,

environmental clearance and recommendation o f Ministry o f Environment and

Forests (MOEF) etc. are taken into consideration in this study. Short-term

measures for safeguarding the environment from pollution during operational phase
\

as adopted in World Bank publications are also followed.

For evaluation o f financial impact, value o f various parameters are taken into

consideration:

❖ Cash outflows during various years as the outcome o f the capital expenditure of

the project. Actual investment in the fixed assets, net investment in working

capital and all other expenses incurred in connection with the project including

initial investment.

♦♦♦ Cash inflows during various years depending on the actual value of outputs and

other income of the enterprise.

NPV (Net present value) & Internal Rate of Return is calculated from empirical

computation with the help of project appraisal techniques approach to examine the

positive and negative financial impact on the projects. Alternatively current internal

rate of return is calculated to evaluate the performance of the projects. Commitment

of funds to this type of capital project is often irreversible and cost of erroneous

decision is normally very high.

Economic Impact of the project is derived from social profitability analysis or what

is more commonly known as Social Cost Benefit Analysis (SCBA).

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1.9 SOCIAL COST BENEFIT ANALYSIS (SCBA)

Social Cost Benefit Analysis (SCBA) is a methodology developed for evaluating

investment projects from the point of view o f the society (on economy) as a whole.

Used primarily for evaluating public investment (though it can be applied to both

private and public investment) social cost benefit analysis has received a lot of

emphasis in the decade of 1960 and 1970, in view of growing importance of public

investment in many countries, particularly in developing countries, where the

resources are very scarce and governments are playing significant role in the

economic development.

In the context of planned economics, SCBA aids in evaluating individual projects

within the planning framework, which spells out national objectives and broad

allocation of resources to various sectors. In other words, social cost benefit

analysis is concerned with tactical decision making within the framework of broad

strategic choices defined by planning at micro level. The perspective parameter

provided by the macro level plans serve as the basis of cost benefit analysis which is

a tool for analysis and appraising individual projects.

U 0 UNIDO & LITTLE-MIRRLEES APPROACH

Towards the end of the nineteen sixties and in the early seventies two principal

approaches for social cost benefit analysis has emerged: The UNIDO method

approach and Little Mirrlees approach. The UNIDO method of project appraisal

involves five stages.

1. Calculation o f financial profitability of the project measured in market

prices.
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2. Obtaining the net benefit of the project measured in terms o f economic

(efficiency) prices.

3. Adjustment for the impact of the project on savings and investment.

4. Adjustment for the impact of the project on income distribution.

5. Adjustment for the impact of the project on merit goods and demerit goods

whose social value differ from their economic values.

The basic issues related to shadow pricing, concept of revenue, tradability, taxes,

subsidies, consumer willingness to pay, externalities and merits and demerit goods

are discussed in the appropriate section.

1.11 LITTLE-MIRRLEES APPROACH

There is considerable similarity between the UNIDO approach and L-M approach.

Both the approaches call for:

1. Calculating accounting (shadow) prices particularly foreign exchange

savings and unskilled labour.

2. Consideration of the factor of equity

3. Use o f discounted cash flow analysis

But it differs in respect of:

1. UNIDO Approach measures cost and benefits in terms o f domestic rupees

where as L-M approach measures it in terms o f international prices.

2. UNIDO Approach measures cost and benefit in terms of consumption where

as L-M approach measures it in terms o f uncommitted social income.

3. The stage by stage analysis is recommended by UNIDO Approach focuses

on the efficiency savings and redistribution consideration in different stages,

where as L-M approach tends to view these considerations together.

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The additional aspects that lead to economic impact o f a project different from its

financial impact are as follows:

1. Some items which arc regarded as costs while preparing the projected

income and cash flow statements from the point o f view o f the company

will no longer remain as costs, when looked at from the point o f view of the

society.

2. Some items, which are not usually recognised as cost from the point of view

of the firm, may have to be specifically recognised as cost from the point o f

view o f the society.

3. Benefits to the rest o f the economy that are likely to be caused by the project

are not recognised for financial evaluation unless they are expected to result

in an increase in revenue to the company sponsoring the project.

But in Social Cost Benefit Analysis (SCBA) for economic evaluation even these

external indirect benefits are recognised. '

1.12 POST COM PLETION AUDIT OF PROJECTS

It is needed to review the projects from the standpoint o f process, methods,

organisation, technology, practice, resources and users o f the end product of

completed projects. It will consist of analysis and evaluation of:

1. Project management process

2. Management tool & methods

3. Organisational structure and effectiveness

t
4. Quality o f the project results

5. Budget perspective
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6. Progress & contract

7. Time & cost over run

8. Value addition and generation of social surplus

9. Internal rate of return, net present value, economics o f scale etc.

Various factors responsible, controllable or uncontrollable, for handicap of the

functioning o f the project with respect to the target set by the project sponsoring

authority are analysed in the lines o f World Bank assisted projects audited by the

operation evaluation department.

The data are collected from both primary and secondary sources. Primary data are

collected through questionnaire, interview etc. The sample survey is conducted

from all section of the society, who is aware and well conversant about the situation.

The methods employed are direct personal investigation and indirect oral

investigation. The sample consists of project officials, engineers, government

officials, economists, scientists, project managers of the executing & sponsoring

authority, leaders of non governmental organisations, representatives of the land

affected person, employees and the beneficiaries i.e. the consumers.

ft#

In the direct personal interview, the field officers are given special attention to

reveal the ground realities about the problems and prospects during execution.

Officials of finance department are interviewed for getting information about the

latest financial status, income, expenditure and realisation of revenue after

commissioning the project. A specimen questionnaire is designed to obtain relevant

information and is tried to measure the effectiveness on different target groups.

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Secondary data are also collected as already discussed under the heading of review

of literature in detail above. Latest reports and bulletins from the statutory bodies

like Central Electricity Authority, Central Water Commission, Central Water Power

Research Institute, North Eastern Council etc. are downloaded from their respective

official websites. Libraries of North Eastern Council, Gauhati University, Tezpur

University, Assam Institute of Management, North Eastern Hill University are

visited for research purpose.

Comparison in tabular form, statistical techniques required for quantitative analysis

and interpretation o f results etc. are incorporated in appropriate place.

1.13 HYPOTHESES TO BE TESTED

The purpose of hypotheses testing is not to question the computed value of the

sample statistic but to make a judgement about the difference between the sample

static and a hypothesized population parameter3. In hypothesis testing, we must state

the assumed or hypothesized value of the population parameter before we begin

sampling. In this context, to test the performance and viability of hydro electric

power project, internal rate of return of the project is treated as most critical

indicator to judge the performance and viability o f the project and its contribution to

the national economy. If the computed value of internal rate o f return both financial

and economic is found to be less than its cut-off value, then we may conclude that

the project performance is not good and it will not be viable. Here we are making a

formal statement of our hypotheses. The research work is proposed to test the

following hypotheses: -

A. Financial performance & viability

H0: IRR=12%[The null hypothesis (Ho) is that the internal rate o f return is equal
 21

to 12%, i.e, the cost of capital]

Hi: IRR<12%[The alternative hypothesis (Hi) is that the internal rate of return is

less than 12%, i.e. the cost of capital]

H 2: IRR>12%[The alternative hypothesis (H2) is that the internal rate of return is

higher than 12%, i.e. the cost of capital]

B. Economic performance & viability

Ho'. EIRR=12%[The null hypothesis (H o) is that the economic internal rate of return

is equal to 12% ]

Hi: EIRR<12%[The alternative hypothesis (Hi) is that the economic internal rate of

return is less than 12% ]

H2 : EIRR>12%[The alternative hypothesis (H2) is that the economic internal rate of

return is higher than 12% ]

If the computed sample result fails to support the null hypothesis we may conclude

that Hi or H2 is true. Again if, the result goes in favour of H 2, then we may conclude

that the project is economically or commercially viable as the case may be,

otherwise the project is not viable.

1.14 LAYOUT OF THE THESIS

The thesis is organized in seven chapters.

Chapter l. Introduction, concept of performance & viability, scope, methodology

and lay out o f study.

Chapter 2. Review of literature.

Chapter 3. Project appraisal methods and its application in evaluation of financial

performance and viability of hydro electric projects.

Chapter 4. Economic analysis of hydro electric projects-UNIDO Approach.

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Chapter 5. Evaluation o f operational performance o f hydro electric projects-

An analytical approach.

Chapter 6. Benefits & difficulties o f hydro electric projects in North Eastern

Region — A field study & analysis.

Chapter 7. Summary o f findings, conclusion and recommendation.

NOTES AND REFERENCES

1. Statement made by Sri Vikram Mahajan, Union Minister of State for Energy, Government

of India in his address on Proceedings of All India Seminar on Project Management in

Power Sector, 8-9lh November 1982.

2. Guide to Practical Project Appraisal-Social Benefit Cost Analysis in Developing Countries,

UNIDO, 1978.

3. Statistics for Management: Richard I. Levin & David S.Rubin — Prentice Hall of India Pvt.

Ltd., New Delhi-1. 1992