Hydro Power Policy May End Tariff-Based Bidding

NEW DELHI: The government has decided to give exemption to private developers from tariff-based bidding for a period up to January 2011. So far, the exemption was available to only public sector companies. The move is aimed at attracting private investments in the sector.

The exemption proposed by the power ministry as part of the new hydro policy, expected to be cleared by the Cabinet soon. “A Cabinet note in this regard has been approved with comments by other ministries and it is in the final stage of drafting,” an official said.

“Tariff-based competitive bidding can not be undertaken for hydro projects in the country due to high levels of uncertainties arising out of construction risks, adverse geological conditions, delays in land acquisition, natural calamities, among other things. Keeping these things in mind, it has been proposed to exempt all the companies from tariff-based bidding in this regard,” an official in the power ministry said.

The Tariff Policy 2006 has proposed that all future procurement of power by utilities will have to be made through a process of tariff based bidding. It has, however, exempted central and state PSUs from the provisions.

Private sector projects would also now enjoy a similar waiver as the policy has proposed that tariffs for such projects would also be determined on cost plus basis by the appropriate regulatory commissions under the section 62 of the Electricity Act.

The exemption would be applicable to only such private developers who obtain the approval of the Central Electricity Authority (CEA), sign power purchase agreements with the distribution companies or licensees and achieve financial closure before January 2011.

Tariff-based bidding, however, would be applicable for all projects to be awarded after 2011. The bidding has already become a norm for thermal power projects. While the policy has proposed booster in the form of exemption from tariff based bidding for next four years, it has put additional responsibility on the developers to bear the cost for getting land allocated for the project.

This additional expenditure would also not form part of the project cost or tariff. However, as a relief the policy has proposed a special incentive by way of up to 40% of saleable energy being permitted for trade as merchant sales.