The ministry of power has finalised a new set of policy guidelines for allocation and development of hydel projects by the private sector. This it has done after being concerned over hasty procedures being adopted by states in giving private developers hydel projects to develop. The new norms will have states following the same system for private players as the one they adhere to for the public sector.

As a result, private developers executing hydel projects will also be extended a special dispensation of five years for tariff scrutiny by the central power regulator. Currently, PSUs enjoy this dispensation and only after January 2011 would the PSUs get their tariff determined on the basis of competitive bidding. The new guidelines will also require state governments to award projects to private companies based on their promoters’ financial capability.

A Cabinet note of the ministry said a host of states rich in hydro potential were allocating projects to private developers on considerations other than tariffs or costs of projects. The projects are being allocated by states in lieu of the huge benefits offered by private developers, such as higher free power to home states (over and above 12 per cent), free equity to host states, upfront premium and higher returns.

“This mode of allocating projects on considerations other than tariff and allowing merchant sales is not conducive to the optimal development of the hydro sector,” said the Cabinet note. Moreover, the benefit of low-cost generation, which should come to consumers by way of hydel power being a cheaper source of energy, is getting diluted by allowing these hydro projects to function as merchant power plants,” said the note.

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