ISLAMABAD, Aug 28: The government has decided to re-open for negotiations a benchmark power tariff of 3.1 cents per unit for private hydro-electric power projects because of refusal by international financial institutions to fund projects with unviable rates of return, sources have told Dawn.

The sources said the government would approach foreign sponsors of four hydropower projects with total generation capacity of 1,010mw and estimated investment of about $2 billion for renegotiation of their respective tariffs.

A majority of the independent power producers (IPPs) had given up their investment plans following the Water and Power Development Authority’s refusal to offer more than 3.1 cents per unit to the 740Mw Kohala power project, the 84Mw Matiltan project, the 86Mw Rajdhani project and the 97Mw New Bong power project.

Sources said that because of a low benchmark tariff, the government and Wapda failed to develop any hydropower project in the private sector during the past 15 years while promoting costly thermal projects.

The sources said President Gen Pervez Musharraf expressed concern this week and reprimanded Wapda and power ministry officials for shying away foreign investors in the sector, whom he had been persuading to invest in the country.

The president, during a presentation by Wapda, reportedly expressed the view that while the government had to pay heavy foreign exchange cost for oil imports, the bureaucracy discouraged investment in development of indigenous, cheap and natural energy resources, the sources said.

He said the 1995 power policy had offered the sponsors a tariff of 4.7 cents but Wapda pressured them to renegotiate and offered them 3.1 cents per unit. Two project sponsors agreed and failed to achieve financial close and two put off their investments.

The sources said a strategy was being finalized under directives of the president and the prime minister to bring back old investors and present them as success stories to new investors for attracting investment in the development of indigenous resources and reducing foreign exchange drain on fuel imports.

As the first step, the Private Power and Infrastructure Board (PPIB) has asked the sponsors of the New Bong project to approach Wapda to renegotiate its tariff, after which a formal case would be taken to the Economic Coordination Committee of the cabinet for approval of a revised tariff.

The government has been informed that international lenders, including the Asian Development Bank and the Islamic Development Bank, had refused to finance the project, to be located downstream Mangla Dam, owing to unviable tariff.

The company failed to achieve a mandatory financial close before starting civil work and requested the government to allow it escalation in tariff. It has now demanded a power purchase rate of 5.2 cents per unit. “This is the first private sector investment in the hydropower sector and we want to encourage them by meeting their genuine demands,” an official said.