Whittling away at NPV costs What is the right compensation for forest lands that are converted to non-forest use? How can this be calculated? Increasingly, one finds that project proponents are mounting a range of arguments to plead for the reduction of, or outright exemption from bearing such costs. Kanchi Kohli reports. 27 July 2007 - Many development and industrial projects in India require diversion of forest land to erect dams, operate mines, construct industries or build roads. Any project proponent, government or private must apply for forest clearance before the Ministry of Environment and Forests (MoEF), before this conversion of land can take place. This proposal is to be submitted via the Forest Department of the state government in question, and is heard by a Forest Advisory Committee, which then grants - or rejects - the clearance that is sought. If clearances are given, then compensation for the lost forest land is also to be decided by the ministry and the regulators.
In this framework, in theory, regulation and oversight are built into the approvals process, and as a result, environmental protection should go hand in hand with industrial development. But in fact, what we find is that year after year forests have been diverted, submerged, or felled, and continue to do so. Judging by the outcomes alone, clearly there is not an adequate compensatory mechanism for the loss of forests.
What is the right compensation for forest lands that are converted to non-forest use? How can this be calculated? Can the loss of forests be compensated for in monetary terms alone? Is it appropriate to actually valuate forests economically? What about cultural and spiritual associations of people with forests, or the livelihoods associated with these areas? How can these be compensated for?
The establishment of CAMPA
This discussion on valuation of forests has been taken up in the Supreme Court of India as part of the Interlocutory Application (I.A.) No.566 of 2000 in the T N Godavarman Thirumulpad vs. Union of India (Writ Petition (civil) 202 of 1995). This is a matter related to the utilisation of funds for compensatory afforestation, and determining a net present value for the diversion of forest land for non-forest use.
Five years after the issue was taken up in the Supreme Court, the bench comprising of Y K Sabharwal, Arijit Pasayat and S H Kapadia passed a detailed order on 29 September 2005 on the valuation of forests. While recognising the importance of forests in sustaining life, the order attempted to address several questions, some of which are: should the user agency not be required to compensate for the diversion of the forest land in the light of the consequential loss and benefits accruing from the forests? If yes, should the user agency be required to make a payment of Net Present Value (NPV) of such diverted forest land? What should be the guidelines for NPV and how can the NPV be calculated and determined? Should some projects be exempted from this? (See: www.forestcaseindia .org for full order. Also see this earlier article). The court order defines NPV as, "the present value (PV) of net cash flow from a project, discounted by the cost of capital".
The 29 September 2005 order traces the evolution of the case from the year 2000 onwards. The genesis of the matter was in the discussions in the court around the lack of compliance of the compensatory afforestation efforts in return for forest lands being lost due to diversion for non-forest use. On the direction of the court, the MoEF developed a scheme in 2002, which was commented upon by the Central Empowered Committee (CEC), a monitoring body of the court on forest related matters. The CEC's recommendations were largely accepted by the MoEF. The CEC had observed in its recommendations that, in addition to funds realised for compensatory afforestation, NPV shall be recovered from the project proponent/user agency seeking diversion of forest land for non-forest use. NPV would be calculated at the rate of Rs.5.80 lakhs per hectare to Rs.9.20 lakhs per hectare of the forest land lost, depending upon the quality and density of the land diverted for non-forest use.
In 2004, the Compensatory Afforestation Fund management and Planning Authority (CAMPA) was notified for the purpose of management of money towards compensatory afforestation, NPVs, and any other funds recoverable in pursuance of the court's orders.
A series of exemptions sought
Ever since payment of NPV became mandatory, project proponents have filed a number of applications in the Supreme Court and the CEC asking for exemptions or reductions in the amount to be paid as NPV. In a number of instances, these requests were from public sector units (PSUs). Here are a few instances representing a diverse set of cases:
· At a hearing on 16 December 2005, the advocate for South Eastern Coalfields pleaded before the court that the company is a PSU and a sum of Rs.600 crores is a very large amount to pay. He argued that the PSU could deposit the money, if the amount were lower. The court did not agree to this request. However, ordered that responses in the case might be filed by the respondents of the case.
· On 5 May 2006, one of the matters listed for hearing had the main contention that the Indian Army may be exempt from the payment of NPV. The then counsel for the MoEF, A D N Rao pointed out that that the army often takes over large amounts of land, however uses only 10 per cent of it; presumably this meant that even when forest land was given to the army, only a small portion of it would be converted to non-forest use. It was suggested in the court by the amicus curiae (friend of the court) that the issue needs examination; this was agreed to by the Supreme Court bench and the Ministry of Defence was allowed to carry out the activities in question with an exemption from NPV compensation.
· At a hearing on 14 July 2006, the advocate for Power Grid Corporation of India argued on the issue of payment of NPV for paying of a 765 KV line running across the Chambal River . He highlighted that only 4 kilometers of the entire transmission line will be going through forest land. Therefore the NPV for the diversion of forest land should be 5 per cent of the cost of the line passing through forest land, and should not be determined by looking at the entire project cost. The matter was referred to the CEC for further detailed examination. It was also argued that no trees would be cut; only pruning will be done to facilitate clean passages for the lines.
· On 8 December 2006, among other matters, the case of the National Highway Authority of India's (NHAI) construction of a bypass to the city of Kota was considered. The NPV in this case had been calculated as Rs.25 crores. The counsel for NHAI argued that this construction involved the building of a bridge over River Chambal, and forest land is being used only for the two ends of the bridge. Therefore the entire cost of the bridge should not be taken while calculating the NPV. The court held an opinion that the details of the amount of NPV applicable is an issue for discussion in the larger NPV matter being deliberated upon, and not specifically for this case alone.
· On 9 March 2007, the court considered a case related to the construction of a reservoir and pipeline involving the Chambal Ghariyal Sanctuary. The project proponent highlighted that they were being asked to pay 5 per cent of the total cost of the project as the NPV for the diversion of the forest land. But, they argued, the construction involved only 1 kilometre of the forest land, and therefore the calculation should done keeping that in mind, i.e. 5 per cent of the construction cost which is within the sanctuary area. The court granted this request, as an exceptional case.
· More recently, at a hearing on 10 July 2007 before the CEC, representatives of the North Eastern Electric Power Corporation (NEEPCO) used a judgment in the Narmada Bachao Andolan (NBA) in the Supreme Court seeking exemption from payment from NPV. While the specific judgment was not deliberated at the hearing, the CEC simply asked NEEPCO to refer to the 26 September 2005 order, and sought explanation as to why the company should be exempt from the payment of NPV. They referred to the case of the Lower Subansiri hydro electric project in Aruanachal Pradesh where National Hydro Power Corporation has paid an amount of Rs.300 crores as NPV. More specifics were sought in writing from NEEPCO.
The progress of each of these cases to date is too voluminous to present here. These examples, however, represent the different arguments that have been used in the court to get one's way around the payment of NPV. Further, it is noteworthy that each situation has been argued differently at different points of time. If a range of arguments can be mounted against the need for NPV, then the very purpose of establishing costs for such diversion of land becomes diluted, and it remains to be seen how the court rules on such diverse claims.
The Supreme Court has set up a committee under the Chairpersonship of environmental economist Dr. Kanchan Chopra of the Institute of Economic Growth to establish in a detailed manner how NPV can be calculated. The committee has submitted its report, but this is yet to be discussed in court. For the moment, however, the September 2005 order still holds, and surely project proponents are having to face up to costs they would previously have ignored.
One shortcoming noticed in nearly all the arguments so far is that the value of forests is being determined in purely economic terms. A simple economic value allows project proponents to pay off huge amounts, or increasingly, develop fine arguments to scuttle the need for such payment. Many other considerations are invariably lost: the assessment of loss of the spiritual association with various patches of forests that communities have had over generations; the evaluation of how much life forests that are being diverted support or would do so in the future; the habitats of wildlife in these forests; and so on. Sadly, such principles rarely have a place in development policy and planning in India today, leave alone the legal arena. ⊕