ISLAMABAD, July 19: Private investors, especially foreign financiers, have rejected the restoration of 4.7 cents average tariff for hydel power projects recently offered by the government and called for its indexation since 1995, when the original policy was announced.

If the demand is met by the government, the tariff for hydel projects would come to about 6.5 cents per unit, still much lower than 14.5 cents per unit being offered to some thermal power projects. Pakistan has over 40,000 megawatts of hydel power potential but it remains untapped because of the government’s focus on costly thermal power.

On April 14, the government had restored a power tariff of 4.7 cents per unit for hydel projects originally offered under the 1995 policy but reduced subsequently to 3.3 cents per unit in 1997. The 1997 decision had forced a number of companies to leave the country.

As a result, the government had been unable to materialise even a single hydroelectric power project in the private sector despite the hydel sector’s competitive advantage in terms of lowest project costs, negligible fuel cost, cheapest tariffs, longest period of power generation and shift of project ownership to the government by comparison with high-cost power projects based on fuel oil, diesel, gas or wind.

In the past two months, the government has been contacting investors, who had abandoned their investments, and trying to convince them to return and restart their projects at the originally-committed rate of 4.7 cents per unit. They offered to accept the 4.7 cents per unit as base tariff and index it with inflation and other factors since 1995.

“The capital costs of power projects have increased manifold since 1995. For example, cement and steel prices have increased by more than 100 per cent and fuel price that is to be used for project construction has also gone up manifold,” said an official. “They (investors) want this to be indexed with the base price of 4.7 cents,” he said, adding that the resultant tariff would come to about 6.5 cents over the project’s 50-year lifespan.

“Even this is cheaper than expected tariffs of thermal projects and their continuous surge in cost in terms of fuel price that is a pass-through but the government would need to take bold steps,” said the official, adding that no one was ready to explain the situation to the president as some heads could roll on this issue.

The average power tariff for gas-based projects had been increased to more than eight cents, fuel oil to 13 cents and diesel projects to 15 cents and Wapda had also stopped setting up hydel projects on its own. The tariff for wind-powered projects was estimated to be about nine cents. The 1995 Power Policy had offered an upfront average tariff of 4.7 cents per unit.