Hydro power PSUs in a policy jam
Noor Mohammad
Posted: Thursday, Jul 08, 2010 at 0131 hrs IST
Updated: Thursday, Jul 08, 2010 at 0225 hrs IST

Delhi: Hydro power, traditionally the preserve of the public sector, is fast turning to be an area where only private players can survive. Unable to face stiff competition from private companies who snatch away projects from them by offering better deals to the state governments, hydro PSUs like NHPC and SJVN are looking at diversification into solar & wind power and geothermal energy to stay afloat.

The problem is primarily a policy hurdle: central PSUs are not allowed to offer “extra free power” and upfront premium when they bid for projects, besides being barred from selling a portion of the electricity generated as merchant power in the free market. Private players are not constrained by such policies and the state government which allocates hydro projects, often finds their terms attractive.

States are asserting their right over how they want to harness their hydro resources and are increasingly allocating projects based on criteria like upfront premium and extra free power in a bid to optimise their revenues. Hydro PSUs like NHPC, SJVN and Tehri Hydro Development Corporation are constrained by policy guidelines against offering such terms. As a result, they are losing projects to private players.

Under the National Hydro Power Policy, host states are entitled to 12% free power from hydroelectric projects. However, private players are offering upfront premium and extra free electricity while competing with PSUs for hydro power projects. PSUs constrained by rules cannot match them.

“States are allocating hydro power projects to private players offering terms like upfront premium and extra free power. That prompts us to diversify into new business areas,” said HK Sharma, chairman, SJVN.

NHPC was recently asked by the Arunachal Pradesh government to prepare detailed project reports (DPRs) for Subanshiri Middle and Subanshiri hydro electric projects in the state. The central utility agreed to undertake preparation of DPRs on the understanding that it would be allocated these projects. But subsequently, the state government allocated these projects to private developers. NHPC sought power ministry’s intervention to persuade the state to return these projects to it, but to no avail.

SJVN had offered 17% free power while bidding for the Arun-III hydroelectric project in Nepal recently. But it had to increase the quantum of free power to 22% to match the terms offered by a private player for the allocation of the project. In India, however, it would not have been able to do so.

However, Kuljit Singh, an energy expert with global...