ISLAMABAD, Dec 9: The government has decided in principle to offer a new incentives package soon to independent power producers (IPPs) by allowing them dual-fuel projects , import of liquefied natural gas, federal guarantees and relaxation in taxes to avert a power crisis in the country, notwithstanding expected higher tariffs, it is learnt.

The sources said Prime Minister Shaukat Aziz was given a presentation on the subject last week after he had asked the ministry of water and power to formalize the incentive package by resolving regulatory issues with the National Electric Power Regulatory Authority.

The package, a copy of which was made available to Dawn, also includes a separate transmission lines policy for participation of the private sector on a large scale because it required huge investments.

The package will also include exemptions from income tax for dual-fuel and oil fired plants and subsidize the tariffs of initial coal-based projects. The government has been informed that gas is available only in a very limited quantities for new projects, the availability being only for three to four years after completion and that too only on a nine-month per year basis.

To resolve this issue, the government will encourage the sponsors to set up projects based on dual fuel i.e. gas and oil, which it says is not the best solution on account of diverse technical and financial issues but is the only solution in the present circumstances.

However, there are some fundamental differences in Nepra's proposed market structure and the federal government's interpretation of the 2002 power policy which would be ironed out at the meeting on Thursday.

These issues include the term of power purchase agreement, the period of multi-year tariff, the government guarantees for contractual obligation of its entities, construction of transmission lines for new IPPs etc.

The package proposes that until the competitive market structure is successfully implemented and tested for a reasonable period, interim arrangements should be introduced until 2012 for new projects.

These include long-term power purchase agreements for a period of 35 years, 25 years and 15 years for hydel, coal and gas based projects respectively. The multi-year tariff has been proposed to be for the similar period and the federal government should provide guarantees accordingly.

The package also envisages purchase of power from new IPPs on long-term basis by the National Transmission and Dispatch Company (NTDC) instead of Discos because of their poor financial health.

The NTDC would also construct new transmission lines with the involvement of the private sector through a separate transmission lines policy. The package proposes to make binding on the Nepra to accept lowest tariff bid received through international competitive bidding and approved by the economic coordination committee of the cabinet.

Hydel and Coal Projects: It will be the responsibility of the respective provinces and the power purchasing agency to develop infrastructure on a fast track basis. Similarly, power purchaser will be responsible for construction of transmission liens up to the power project.

The package also proposed to offer comparatively higher tariffs to the hydel power producers in view of their higher capital cost because low tariffs offered by the Wapda have scared away investors in the hydel sector and the government has to repeatedly rely on costly thermal power on an emergency basis.