The power ministry is preparing a booster dose of financial incentives and easier green norms to energize the hydel sector that would also prop up 136 private projects, including those by companies aggregating a capacity of 40,000 mw, or enough power to light up 8-10 cities of Delhi's size.
A panel set up by power minister Jyotiraditya Scindia has recommended excise duty exemption for cement, steel and equipment used for constructing hydel projects. It has also suggested waiver of service tax on construction activities. These exemptions are expected to substantially reduce project costs and subsequently the electricity tariffs. Hydel projects cost more than thermal plants and take longer to build. They also face geographical uncertainties during construction besides threats from local activism.
All these make hydel projects unattractive in terms of higher tariffs and other associated risks. As a result, promoters are left struggling to tie up funds. Lower capital costs are expected to improve tariff and make hydel projects more attractive.
To further boost project economics, the panel recommended giving all hydel projects "renewable" status. At present, only plants with a capacity of up to 25 mw are considered renewable projects and enjoy easier funding norms and other fiscal incentives. With renewable tag, all hydel projects would enjoy greater funding leeway, which has emerged as a major roadblock.
The panel also suggested simplifying bid documents to avoid disputes with contractors over terms of contracts. Disputes over bid terms have emerged as a major problem holding up hydel projects, which slows down the pace of work and pushes up costs. At present, some Rs 10,000 crore worth of claims are pending with hydel companies over such differences.
The panel has also suggested simplifying the contract document to mitigate risks associated with construction of hydel projects that call for deviations, compare the available information and terms used in tender documents and transparent mechanisms to settle rows without involving litigations.
In the same vein, the panel also suggested a tariff-based bidding system similar to thermal projects. Hydel projects are at present bid out on the basis of a cost-plus formula, which does not lay down a clear, transparent evaluation criteria.
In many cases, states award projects on the basis of upfront premium paid by developers or quantity of free power, rather than competence and efficiency.
Other major recommendations include allowing trading of power from hydro projects to increase viability of projects and delinking approval of terms of reference (ToR) for environmental clearance from forest clearance.