Power ministry proposes financial incentives for Hydel projects

The power ministry is preparing booster package for 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.

A panel set up by power ministry 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.

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.

Source: ToI