Calcutta, Oct. 10: The Union power ministry has initiated talks with banks and financial institutions, including the State Bank of India, IDBI, ICICI Bank and Bank of India, to work out a model of payment security for large hydropower projects.

The ministry is also planning to introduce a tariff-based competitive bidding system for hydel electricity projects across the country. If this happens, then the state governments would lose their discretion in allocating large hydropower projects to private firms through the negotiated route.

On their part, private firms would have to sign long-term power purchase agreements for at least 25 years to address the concerns of financial institutions regarding payment security.

Further, the agreement for allocating the projects could be cancelled if the firm does not meet the implementation schedule.

Senior officials of IDBI said, “In a thermal power plant returns are guaranteed. But, till date, we are not sure about the hydel power plants. All the banks and financial institutions are currently carrying out a close study of the hydel power projects in the country.”

However, banks and financial institutions have accepted that the country needs a balance between hydel and thermal power to bring in stability in the entire grid.

In fact, lending to the power sector for new projects has started to look beyond government guarantees. Power projects which are not in a position to arrange for a state government guarantee can now provide charge on assets as an alternative payment mechanism system.