The policy, which will be formally announced soon, is being given final touches by the power ministry before being placed before the cabinet.The other policy initiatives proposed are provision of collateral guarantees by the government/banks for long-term hydel projects, a two-stage formula for the MoU route for selection of a project developer, simplified procedures for transfer of clearances for joint-venture projects and constitution of a hydro development fund.

The power ministry's move to adopt a higher RoE of 19 per cent for hydel projects, which is at a premium of 3 per cent over the earlier 16 per cent RoE for both thermal and hydro IPP projects, is to encourage the private sector participation in execution of hydro projectseither wholly or through joint ventures with central public undertakings (CPUs).

The differential tariff system envisages higher tariff during the peak hours and a reduced tariff during off peak period. This has been done in order to make the power from recent hydro projects saleable.

Moreover, the ministry has also proposed introduction of pooled tariff on weighted average basis in case more than one project is owned and operated by the same investors in the same region. This would neutralise the effect of increasing the tariff of hydro projects.

On selection of the project developer, the national hydel policy note prepared for the cabinet advocates the MoU route over the competitive bidding route. It is felt that this is expected to improve the confidence level of developers and lenders considering the geological risk of the project site.

Currently, the total period from project investigation to obtaining clearances, signing of power purchase agreements and finalisation of the financial package, andthe final commissioning takes 10 to 11 years, which may not be an attractive schedule for a private developer.

To this, the power ministry has proposed that the project investigation and project report preparation be done in the state sector and thereafter the project may be offered for implementation in private sector through the MoU route in two stages.

According to the two-stage approach for the MoU route worked out by the ministry, the developer would review the detailed project report (DPR) and cost estimates in the first stage and implementation of the project in the second stage.

The ministry has also worked out a new simplified procedure to be incorporated in the national hydel policy, for both IPP/JV and CPUs, in case of transfer of clearances, for already cleared projects in the state sector.

Till now there was no clear view on whether the clearances already accorded for the projects for execution in the state sector can be transferred in favour of IPPs or the central PSUs, if the stategovernment agrees to hand over these projects to them.

It was also not clear that the clearances already accorded get annulled on transfer of projects and whether fresh clearances would be required.For this, the ministry has worked out a procedure as per which the forest clearance already accorded can be transferred in favour of the IPP/CPUs provided they adopt the already approved scheme and agree to the conditionalities stipulated therein. The same would hold good for the environment clearances accorded.

The techno-economic clearance (TEC) of the CEA will, however, not be transferred in favour of IPP/CPUs as a matter of formality.

"While it will not be necessary to recast the entire DPR, estimates of cost of both the civil and electrical and economic analysis and financial forecast has to be updated and revised. The revised chapter would be submitted by IPP/CPSUs and examined by CEA and no fresh DPR would be necessary", feels the power ministry.

For facilitating costly survey and investigations,preparation of bankable DPR and for undertaking pre construction activities of new hydel projects, the ministry has also proposed to constitute a hydro development fund with a initial corpus of Rs 750 crore (to be created by way of a budgetary grant).