On 12 January 1995, the government announced a liberalized tariff norm for hydro projects. The government also clarified on certain issues such as earning of rate of return by the premium raised by the company and internal resources invested by the existing company for setting up of the project.
With a view to encouraging greater participation of private sector in hydro power generation, certain incentives have been allowed for hydro projects which are commissioned after 1 January 1997. These include incentives for higher machine availability and for secondary energy. There is hydrology protection for initial seven years besides higher operation and maintenance provisions. Besides, provision has been made for availing advance against depreciation with a view to meeting the debt service requirements of the project promoters.
Hydro power plants were so far using norms fixed for thermal plants for calculating return on equity. According to the latest guidelines announced on 12 January 1995, return on equity for hydro plants will be 16\% at 90\% plant availability. An incentive for better performance at 0.7\% higher return on equity for every additional percentage increase in availability over the optimum level of 90\% has also been included. Further, premium charged by the hydro companies on issue of equity shares as well as free reserves used for funding the project will be treated as paid up capital for determining the 16\% return on equity.
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