Govt may continue with cost-plus tariff till 2016

To compensate developers of delayed hydropower projects, the government could continue with a cost-plus tariff regime till 2016. This means the utilities will get to charge a price that factors in their cost and a certain return. A decision to this effect was taken by a task force on hydro project development held on 29 October, according to documents reviewed by Mint. India's efforts to build large hydroelectric plants have run into trouble. Many projects have been delayed due to construction risks on account of contractual and land acquisition problems, geological issues and natural calamities. A power sector review panel headed by Prime Minister Manmohan Singh had earlier said that a "long time was being taken for environment and forest clearances, and there was a need to shorten the time frame for grant of the clearance". The relocation and resettlement of affected people is another issue which has thwarted many projects. A case in point is NHPC Ltd's 3,000MW Dibang hydropower project in Arunachal Pradesh. Its foundation stone was laid in January 2008, but a public hearing, required by law before an environmental impact assessment report is prepared, couldn't be held due to local opposition. State-owned firms have traditionally been building such plants on a cost-plus basis, and have been lobbying the power ministry for an extension of the present regime. "We are evaluating whether we can apply competitive bidding, or extend the present regime. We will float a cabinet note shortly for the same," said a top power ministry official who did not want to be named. The government is worried that the share of hydropower in India's electricity generation has fallen from 40% to 25% in the past 20 years. Hydropower accounts for 37,328MW of the country's 167,278.36MW power generating capacity. India plans to add 16,501.17MW by 2012. Such a move will have a direct impact on state-run NHPC Ltd, North Eastern Electric Power Corp. Ltd, Satluj Jal Vidyut Nigam Ltd, and Tehri Hydroelectric Development Corp. Ltd (THDC), besides private sector firms. However, the Central Electricity Regulatory Commission is in favour of a competitive system from 2011. According to the power ministry's tariff policy of 2006, competition is key to keeping prices in check through a reduction of capital costs and greater operational efficiency. "The debate has not concluded. If the present system is continued, whoever is currently benefiting will continue to benefit," said R.S.T. Sai, chairman and managing director of THDC. "Even new projects can be awarded during the period." The government had set a target of adding 20,359MW of power generation capacity this fiscal, but scaled it down to 18,600MW. India has commissioned a capacity of 7,059MW so far in the current fiscal.