The power ministry has proposed a key change in the national tariff policy that would make it mandatory for private players to participate in bidding for the allocation of hydro power projects. The move is aimed at creating a level playing field between private and public sector companies and keeping in check electricity tariff by restraining private players from offering upfront premium to state governments to bag projects.
The policy change, part of a Cabinet note being finalised by the ministry, would introduce a transparent system of bidding for projects. It is also expected to alter the valuation of a host of private sector companies such as GMR, GVK, Jindal Power, Jaiprakash Hydro. Some of these players have bagged projects from state governments offering better financial terms than envisaged under the national hydro policy.
Tariff-based bidding has become mandatory in the power sector from January 6 this year but private players are still exempted from bidding for hydro projects. Although public sector companies such as NHPC, THDC, SJVNL have been given partial reprieve by the Central Electricity Regulatory Commission (CERC), the Cabinet approval to the new policy will give a definite time frame within which these companies will need to gear up for a competitive environment.
At present, hydro projects are offered to companies under a memorandum of understanding (MoU) route. Under this, companies are expected to offer host states some free power and sign power purchase agreement with other beneficiary states. Under the new hydro policy, projects are also allowed to sell up to 40% of their capacity under the merchant route in the market.
“The extension of deadline for tariff-based bidding for hydro projects will be a good development. It is very difficult to assess the time and cost of hydro projects as there are a lot of uncertainties during the project stage,” NHPC chairman ABL Srivastava said.
“It (tariff bidding) will bring a lot of transparency in the whole process. Hydro sector which has been lagging behind will get a boost,” PwC principal consultant Charudutta Palekar said. In the process of finalising the new policy, the Centre will also initiate dialogue with state governments to take them on board on the new policy. Support of the states is essential to start the process of tariff-based bidding in the hydro sector. In the past, state governments have been found to be the biggest hurdle to disturb the level playing filed between public and private sector companies in the hydro sector. Some states also offered projects where DPRs were prepared by public sector companies to a private sector entity offering better financial terms.
“We plan to make bidding mandatory for hydro projects from Jan 6, 2016,” an official in the power ministry told FE.
The changes while preparing grounder for a competitive environment in the hydro sector is expected to adversely impact future prospects of companies like Reliance Power, Lanco, LNG Bhilwara and Jaiprakash Hydro that have bagged several projects in Arunachal Pradesh, Himachal and Uttarakahand by offering upfront premium and additional free power to the state governments. Hydro PSUs are not allowed to pay upfront premium for the allocation of projects. As a result, they have lost many projects to private players. States have been allocating projects on the basis of upfront premium as they want to optimise their revenues from water resources. The country currently produces about 37,367-mw hydro power out of total installed capacity of 1,69,749 mw. While there is enormous potential for hydro generation, environment and displacement issues along with land acquisition have created hurdles. While the private sector has envisaged capacity addition in this sector, it is still dominated by PSUs such as NHPC.
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