Case 2

Competitive Bidding- “Not so Competitive”?

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As per Ministry of Power,about 25000 MW of capacity from private players is expected to come up in 13th plan which is a kind of paradox as per current scenario.State DISCOMs are reluctant and skeptical to issue bids,preferring to load shedding and buying from short term power market owing to low rates(CERC’s Short term power market Report :http://www.cercind.gov.in/2013/market_monitoring/MMC_Report_1213.pdf).Moreover fuel sourcing issues related to Coal,gas(Gas Pricing issues and recommendations https://knowpowernews.wordpress.com/2013/03/24/rangrajan-committee-report-on-natural-gas-pricing-and-its-repercussions-on-sector/) have emerged as a road block to the competitive bidding route.
In April 2003,CERC has somehow tried to end the stalemate and allowed TATA & ADANI to go for “Compensatory Tariff hike” but somehow the procuring states are not ready for the same(http://articles.economictimes.indiatimes.com/2013-10-09/news/42864252_1_mundra-project-tariff-hike-tata-power).
Reports of Compensatory Tariff Hike related to ADANI & TATA can be read here :
http://www.cercind.gov.in/2013/Reports/COMREP_%20APL.pdf
http://www.cercind.gov.in/2013/Reports/COMREP_CGPL.pdf

Current Scenario:
Over 52 GW of the projects have been awarded through competitive bidding route (Case 1 and Case 2 Route) http://www.powermin.nic.in/whats_new/competitive_guidelines.htm . No new Power Purchase Agreement has been signed under the purview of Case 2 Bidding since L & T’s 1320 MW plant in Rajpura(Punjab).
Earlier the bid invitation process at Odisha as well as Chattisgarh could not be completed but as per recent notification,Fresh Rfq will be invited for Odisha UMPP http://www.cmie.com/kommon/bin/sr.php?kall=wclrdhtm&nvdt=20130906125251890&nvpc=099000000000&nvtype=TIDINGS

Refer PFC(Power Finance Corporation) for detailed RFP as well as RFQ http://www.pfcindia.com/Content/UltraMegaPower.aspx
In June 2012, bids were invited by UPPCL on behalf of 4 DISCOMs to procure power starting from 2016-17 for 25 years. Developers are not placing aggressive bids due to changed market scenario as fuel supply sourcing issues as well as pricing risks have uprooted in recent times.According to UPPCL bid results, the average tariff quoted was hovering around Rs 5-6/unit.
Key Developments:
-In a move to promote competitive bidding for inclusive growth for the Indian power sector, CERC has adjudicated on ADANI case for requesting a tariff hike.The regulator realised that due to rise in Indonesian coal prices(due to change in regulations), it is quite viable to manage at the same tariff cost.
-Another major development that took place in the recent times was approval of mechanism to pass on the imported coal fuel price “http://www.domain-b.com/economy/general/20130621_consumers.html”. CIL need to sign FSA (Fuel Supply Agreement),according to which shortfall of the coal will be met through imported route on cost plus basis. Meanwhile after several rounds of discussion,MoP finally released SBD for case 2 Projects in September 2013 http://powermin.nic.in/whats_new/pdf/overview_of_the_draft_model.pdf Detailed RFQ as well as RFP can be referred here :
http://www.powermin.nic.in/acts_notification/electricity_act2003/pdf/RFQ_MPPA19092013.pdf
http://www.powermin.nic.in/acts_notification/electricity_act2003/pdf/RFP_MPPA19092013.pdf

Some of the Key points being highlighted in SBD are:
-Bidding will be done on single parameter i.e “capacity charge” (comprises of RoE(Return on Equity,Interest on Loan Capital,Depreciation,Interest on Working Capital, Operation & Maintenance cost ,Cost of secondary fuel,special allowances in case of R & M of a thermal power plant).
-The basic building of SBD is adopting DBFOT Model(Design,Build,Finance,Operate and Transfer)which says the power plants will be transferred to contracting DISCOMs after the completion of the project life.
– Fuel charge will be a pass through component and it will be reflected in the distribution tariff as quoted.
-Incentive will be provided to the developers on improving the Station Heat Rate(The Station Heat Rate of a conventional fossil-fueled power plant is a measure of how efficiently it converts the chemical energy contained in the fuel into electrical energy,usually expressed in Kcal/KWh).
-Land acquisition will be procured by the utility as the concessionaire may face difficulty for getting the land at the aforesaid location.

Future Scenario
With the finalisation of the revised SBD for Case 1,more states will initiate the process of issuing RFPs thereby giving the clarity on SBD.Provisions related to tariff revision and acceptance of Long Term power procurement as compared to short term would also drive states to procure more power.Changing sector dynamics of policies and regulations is a positive sign for the sector and thus making India a more competitive one.

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