Panel for tax-free bonds, multilateral funds for hydro power

Government should issue tax-free bonds and arrange funds from multilateral agencies like ADB to provide long-term finance to hydro projects, a Parliamentary panel has said.
"Tax-free bonds, similar to the infrastructure sector, should be issued for the hydro power sector. The government should sincerely find out ways and means to provide multilateral funds from international agencies, viz. World Bank, ADB, etc. For the hydro power sector," Parliamentary Standing Committee on Energy said in its report tabled in Lok Sabha today.
The committee suggested that the provision of providing long-term loans should not be limited to REC and PFC but utmost efforts be made by the government to make the required provisions and persuade other financial institutions and banks as well to lend finances to hydro power projects for longer tenure.

It also suggested long term bonds with sovereign guarantee should be issued to provide long term finances to this sector.
The panel was of the view that the government should explore avenues to provide funds to the hydro power sector by LIC and pension funds and cash rich PSUs of the country should invest in hydro power sector for diversification, as fossil fuels are limited.
The committee also desire that hydro power projects, depending on their importance, may be declared as vital infrastructure and should be extended the required support and benefit to overcome any obstacles in their development.

It also said that the ministry should take necessary action in regard to adopting the practice of treating financial appraisal and financial approval as two distinct stages.

"The activities before the actual start of the construction work should be treated as pre-investment activities. Therefore, the financial appraisal at this stage should be approved as pre-investment activities and not as original cost estimate to adjust cost escalation, if any, so that the need for resubmission of project approval in case of any cost escalation does not arise," it stated.
The committee also said that there should not be retrospective charges like cess on water reallocation of DPR rate projects for want of upfront premium or any other kind of levy which is likely to impact the competence of the tariff of hydro power.

It suggested that the time line of 150 days of Central Electricity Authority (CEA) to accord approval to DPR should be curtailed to not more than 60 days as all pre-requisites are already completed with knowledge and concurrence of various divisions of CEA.
The panel was also in favour of attracting private players for these projects and wanted government to consider hydro projects of over 25 MW as renewable energy plants.