Hydro Power Project Financing in India - Are We There?

Hydropower has been recognised as the power generation alternative of the future, and the government has embarked on an ambitious programme to add hydropower capacity in the country. The push also stems from the fact that the hydropower to thermal power mix, that ought to be at 40:60, is today languishing at 27:73. With the requirement of funds extremely large, the government is exploring all forms of funding, including project financing for the hydropower sector. Project financing is a form of financing whereby the project relies solely on the cash flows from the customers to meet the debt servicing, operational expenditure and profit element. Despite all the initiatives of the government, project financing for hydropower has failed to take off. There are a variety of reasons for this; starting from policy level issues to credit risk of the SEBs, to implementation level issues and the higher tariff issues. This article attempts to analyse some of these issues and their possible resolutions. One of the solutions that this article presents is tariff rationalisation of the hydropower tariff by charging levellised tariff throughout the life of the project. A Tariff Rationalisation Fund would look at meeting the shortfalls and would be serviced Through surpluses generated in later years. Another idea that this article looks at is the constitution of an expert agency to prepare a shelf of approved projects. This agency takes all the project approvals in the company name, and when the project is handed over to a company for implementation, the agency is reimbursed for all its costs.