The quality of hydrological data in India is often poor. If projects do not have to bear the hydrological risk, they would be content to use low quality data by erring on the higher side. Private players are able to exploit this loophole and base their project costs on misleading data. Current regulations represent a 'cost-plus' approach to setting tariffs. In such an approach, the tariff is based on the recovery of all the costs incurred by the generating company, plus an assured profit.
On the face of it, it may seem reasonable to presume that an investor should recover his costs of establishing and operating his power plant, but in practice this can lead to cost-padding. Investors, certain that the approach to tariff-setting will cover their costs, can inflate their costs artificially, so as to be able to claim a higher tariff and thus siphon off funds.
So I request the environmental agencies working in this field and the power ministry to work towards greater transparency in hydroelectric sector when it comes to deciding project costs and fixing tariffs.
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