In October 2002, the Supreme Court upheld a plan by the Centre to constitute a Compensatory Afforestation Management and Planning Agency (CAMPA) for managing funds provided to compensatory afforestation programmes. Agencies diverting forest lands for other uses would need to pay the Net Present Value (NPV) of the diverted lands to the respective State governments, which in turn would transfer the funds to the CAMPA.

To ensure that the determination of NPV is robust, the court also ordered the establishment of an expert committee within a month of its judgement. This group would identify and define the parameters based on which the value of various categories of forest lands should be estimated, formulate a practical methodology to differentiate between the bio-geographical zones of India for estimation of the values; determine who should pay the costs of restoration and/or compensation with regard to each category, and also determine which projects deserved to be exempted from payment of NPV. (read more here) This was a path-breaking judgment, as until then, under the provisions of the Forest Conservation Act, 1980, only the commercial value of trees felled was considered, but now the Court was asking the project authorities to take into account much more - the loss of the ecological contribution of the forest land diverted or submerged by the project. In case of hydroelectric projects with a capacity of more than 10 MW the project authorities were also required to pay for Catchment Area Treatment costs.

The Supreme Court appointed the expert committee on 26 September, 2005. The committee - headed by Kanchan Chopra of the Institute of Economic Growth, Delhi - submitted its report in May 2006. The methodology proposed by the committee for calculating NPVs of forest lands in various projects depends on a number of biophysical, legal, ecological and social parameters. Taking Himachal Pradesh as a case study, the committee recommended an NPV rate in the range of Rs. 4.14 to Rs. 7.69 lakhs per hectare for various forest circles.

The committee in its report has assigned an inviolable status to Protected Areas. For other areas, it has laid down a methodology for determining the value of the areas; this includes ecological goods and services provided by the forest ecosystem - timber, non timber forest produce, firewood, fodder, grazing land, tourism, carbon sequestration, flood control, biodiversity, nutrient cycle and much more. Although grounded in ecological economics, the exercise remains confined to the loss of ecological services due to forest-land submergence or diversion only. But hydropower development projects also generate negative impacts on downstream basins and drainage.

Within the broad methodology proposed by the committee, however, there is considerable room for widely different views, from conservationists on one side, and project developers on the other. Already, there are indications emerging that some hydropower corporations, which have until now been free to ingore the true cost of the large submergences resulting from their projects, are busy burning the midnight oil to find ways to lower the NPV rates. At a workshop organised by The Energy Research Institute (TERI) on 8 February, 2007, payments for the diversion of forest lands were discussed, in specific reference to hydropower development. The workshop was attended by high level officials from National Hydroelectric Power Corporation (NHPC), National Thermal Power Corporation (NTPC), North-East Electric Power Corporation (NEEPCO) and Ministry of Power.

The workshop was organised to present the findings of a study undertaken by TERI at the request of NHPC, to develop case studies of the costs and benefits of two selected hydel projects - the Bhakra-Nangal Project (reservoir type) and the Uri Project (run-of-the-river type). But strangely for an academic exercise, the document being discussed was not shared with the participants; instead attendees were told that the study itself was the property of NHPC. This was reiterated subsequently in email correspondence as well; Anirban Ganguly declined to share the report, saying that "TERI was contractually obliged not to share it".

That caveat set the tone for what followed. A number of the ideas put forward during the workshop would effectively reduce the NPV rates for project developers, or otherwise reduce the payments that would need to be made. Some examples:

• TERI's concept note argues that "NPV of forest land diverted (alone), in whatever way determined, should not be the basis of payments. What is relevant is a comparison of the NPV of the project and NPV of forest land diverted so that (net) environmental/social gains of the project can be reasonably offset against the ecological services lost due to forest land diversion."

  On the face of it this sounds fair enough - if a project has some benefits, those should be considered too before any penalties for converting forest land are imposed. But should the costs and demerits of the projects - such as the loss of downstream flows, the impacts thereof on aquatic species, the livelihood lost - be added to the penalties similarly? For the studies TERI carried out, Ganguly admitted that no such calculations had been done, owing to the limited time available for such an examination.

• The definition of 'forest' was challenged as 'historical', and instead an 'ecologically defined forest' was sought to be used as the basis for payments. This definition would be based only on forest cover and not forest lands as they are presently classified. Under the current definitions, "the penalty is charged on land that is part of a river bed, a desert or a non-vegetated hill slope as long as the land is notified as a forest". Is everything other than vegetation to be ignored? Ganguly once again cited the lack of time as a factor in TERI's report: "our view is that there are a range of ecological services associated with any ecosystem; only some can be meaningfully quantified" with the available knowledge and time.

• A third argument was that if hydro power developers were forced to bear multiple costs - such as providing 12 per cent of the electricity free to the host state, bearing the costs of Catchment Area Treatment, etc. - then fewer developers would find these projects 'desirable'. This is circular logic, which first defines the desirable level of hydro power generation without considering its full costs, and thereafter argues that any inclusion of the costs would undermine the desirability!

Whether such ideas will eventually determine the extent of payments to be made in large projects undertaken on forest lands, remains to be seen. Certainly, companies are willing to fund research to argue their preferred interpretation of the methodology used to calculate compensation. Environmentalists and affected communities are likely to contest this, and seek a more balanced approach to forest management.