A decision has also been taken on reducing the normative availability factor from 90 per cent to 85 per cent for projects that will come up in the the Himalayan range.

Other measures incorporated in the final policy draft, to be placed before the cabinet soon, includes levying of a 5 paisa per unit developmental charge on hydro power generated by state and central schemes towards the hydro development fund.The developmental charge will contribute Rs 365 crore annually to the hydro development fund's kitty. It will be used for carrying out pre-construction activities and investigation surveys on hydro sites, before offering them to the private sector.

Giving details on tariff changes made under the new policy, officials said at present there is a two-part tariff formulation. The first part is a capacity charge covering the return on loan capital and depreciation. The second part, which is an energy charge, takes into account the return on equity at 16 per cent, operation and maintenance charges, tax on income and any other variable charge.

The energy charge is calculated by dividing the total energy by the design energy or the normative energy.

In contrast, the government has, under the revised policy, decided to introduce a differential tariff system. It proposes to allow a higher sale rate for generation during the peak period at 125 per cent of the normal sale rate. This implies that if the normal sale rate is 100, it will be 125 under the revised norms, giving an effective increase of 25 per cent.

The energy at all other times would be allowed a sale rate based on the existing method of computation.As regards the secondary energy, which is over and above the normative design energy, an option was earlier given to a generating company to negotiate a sale rate with electricity boards, subject to a ceiling rate of 10 per cent return on equity. However, under the revised policy, the sale rate of secondary energy will equal the normal sale rate, instead of limiting the benefit to a maximum return on equity up to 10 per cent over the life of the project.

"This will improve the revenue generation of hydro projects and will compensate for the supply of free power to the `home' state, reckoned at 12 per cent of the installed capacity," officials said.

On the power-sharing formula, the policy says the formula as applicable to the central power projects shall not apply to the new joint venture schemes to be taken up with the private sector.

After giving the home state its share of 12 per cent free power, all other terms and conditions will be on commercial lines.

On the availability factor of 90 per cent, officials said this was being viewed as too high, specifically for projects executed in the Himalayan range where there is regular occurrence of high siltation.

"Under the new policy, it is proposed to change the normal availability from 90 per cent to 85 per cent for projects in the Himalayan region and 87.5 per cent for projects in the southern peninsula," officials said.No change, however, is proposed in the rate of incentives and disincentives, according to which, for every 1 per cent increase in availability beyond the normative availability, an incentive of 0.7 per cent return on equity is allowed and for availability less then the normative availability, the return on equity is decreased by 0.7 per cent for every 1 per cent drop.