ISLAMABAD, Sept 12: The government has decided to redraft its power policy to remove a number of contradictions and legal complications and to improve it in favour of investors.

Called ‘policy rearrangement’, the move comes when the country is facing serious power shortages but apparently gives second priority to cheap hydel energy.

A total of 28 major amendments would be made in the existing policy. This would really encourage oil-based thermal projects, exclude alternative sources of energy out of the power sector management and further reduce the role of National Electric Power Regulatory Authority (Nepra) in tariff setting.

A senior official told Dawn that the board of directors of the Private Power and Infrastructure Board (PPIB) deliberated upon these amendments in detail on Monday. The ministries of finance and water and power were directed to work out financial impact of the policy shift so that a case could be submitted to the cabinet for approval and announcement.

The discount rate for hydropower projects — currently a neglected sector — is being reduced from 12 to 10 per cent to bring it on a par with thermal projects. The rate, which is the weighted average cost of the project financing, is used for tariff levelisation over the whole life of the project.

In return, however, the new policy would offer higher capacity purchase price (CPP) in the overall hydel projects tariff which is currently restricted between 60-66 per cent of the levelised tariff because the capital cost of the hydropower projects is much lower than operating costs.

In another major shift in policy and on the advice of the CitiBank Group, investors would be allowed indexation of foreign currency costs, including operation, maintenance, insurance and other expenses, on the benchmark of foreign inflation on the basis of the US consumer price index (CPI) and would keep on increasing every year for 25-30 years.

The existing policy did not provide escalation to cover dollar inflation.