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Kinetic Energy

Power Minister seems keen to get hydel projects going.

By Balaji Chandramouli        Print Edition: Sept 23, 2007

An overhauled nine-year old hydel policy, which has been in abeyance for two months now, is expected to become operational soon. Reason: Power Minister Sushil Kumar Shinde, who has otherwise let the bureaucracy lead the policy initiatives, is now aggressively pursuing it, say officials. If the Union Cabinet gives it the nod, too, the gainers would be Reliance Energy, GMR, GVK, DS Constructions and Jaiprakash Industries.

Due to the existing policy regime, which doesn't seem to excite lenders, all these private majors have hydel projects languishing in the North East. Interestingly, though, the discord is not with the hydel policy per se, but with the National Electricity Tariff policy, which was formulated shortly after the new Electricity Act was enacted in 2003.

The tariff policy states that power generation projects must be awarded on a competitive basis, where the qualifying criterion is the electricity tariff.

Sushil Kumar Shinde
Power Minister Shinde: Talking tough
However, federalism seems to have got the better of states rich in hydel resources-the entire North Eastern region, Himachal Pradesh and Uttaranchal have bid out projects on terms that offer better returns for the state. That means the state's get power from the project at zero tariff, an upfront premium for developing the project, or an equity stake in the project.

Since the Central government's policy does not allow such terms, the hydel projects bid out by a state will not get statutory clearances from agencies like the Central Electricity Authority (CEA). And, in its absence, the project will not comply with the law of the land.

Notwithstanding this reality, several private players have gone ahead and bagged lucrative hydel projects. In a recent case, GMR paid as much as close to a crore of rupees per megawatt as 'signature bonus' for a 300 mw project in Himachal Pradesh. This amount, which is nearly 20 per cent of the capital cost of the plant, does not go towards determining the tariff.

Arunachal Pradesh, on the other hand, has bid out projects on the basis of the quantum of free power that the promoter is willing to offer as well as the equity content in the project. But "in the absence of compliance with the law of the land, lenders are not willing to fund the project," says an official with a leading hydel company.

The Union Power Minister is now getting impatient and so are the companies that have bagged thprojects. Will Shinde be able to make a strong enough commercial case to demolish issues of federalism? We'll just have to wait and watch.

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