Plan panel is out with the draft energy policy

At a time when the power ministry is yet to issue the tariff policy, the draft policy in particular has several recommendations on how to reduce the cost of power, including linking the internal rate of return (IRR) on total capital employed bearing a ‘‘reasonable’’ relationship to the long-term government bond coupon at the time of approval.

Briefing reporters on the draft policy, Kirit Parikh, Member Planning Commission, confirmed that this energy policy is not necessarily in conformity with some of the policies being pursued by some of the line ministries and that this document gives the broad direction in which the country’s energy policy should move. Recognising the fact that power tariffs in India are among the highest in the world, the policy says it needs to be ensured that ‘‘all generation and transmission projects started in the XIth Plan and beyond should be competitively built on the basis of tariff-based bidding under a prescribed price cap’’.

The policy then adds that where cost-plus cannot be avoided and where payments are guaranteed by the Government of India, the effort should be to link the IRR to the long-term government bond coupon.

In fact, it advises the government that they should go in for bulk global bids to get the best possible rates. The policy says ‘‘standardise the unit size and invite global tenders for 20-30 units to get substantial bulk discount’’.

On the crucial issue of kickstarting reforms in the distribution sector, where experiences of privatisation in Delhi and Orissa have not been satisfactory, the draft policy suggests a margin-based bidding process that provides incentives to distributors but at the same time ensures costs (tariffs) are kept within reasonable limits.

According to the policy ‘‘distribution should be bid out on the basis of a distribution margin or paid for by a regulated distribution charge determined on a cost-plus basis, including profit mark up’’.

While the policy recognises the need for a separation of regulatory responsibility from the ministries, it also advocates the need for the government to ‘‘seed the capital markets to develop market-based instruments that effectively extend the tenure of debt available to power projects to say 20 years’’.

This, according to the policy, ‘‘will reduce the capacity charge in the earlier years and spread it more evenly over the life of the project’’.