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The new tariff-based bidding regime for awarding power projects to developers, implemented less than a year ago, is beginning to look untenable.
With an increasing number of private project developers across both the power generation and the transmission sectors threatening to go back on the tariffs they had quoted while bidding, the Government and the regulators are faced with the need to re-examine, and possibly modify, the competitive bidding format.
Broad-based indexation
One of the options under consideration is a broad-based indexation of fuel costs to the variations in global prices for future projects that are to come up using imported coal or gas. In the last six months, Reliance Infrastructure has sought relief for two transmission links it had bagged through the competitive bidding route, citing delayed clearances and higher input costs. Reliance Power has stopped work on the 4,000-MW Krishnapatnam Ultra Mega Power Project (UMPP) citing higher fuel costs on account of revised imported coal prices. Tata Power is now seeking higher tariffs for its Mundra UMPP, citing higher cost of coal sourced from Indonesia.
In all, 16 UMPPs and 14 Inter State Transmission schemes have been identified for development by the private sector via the competitive bidding route. Of these, bidding of four UMPPs and six transmission projects has been completed. “There is a rethink on the methodology followed to award project through the tariff-based bidding route, at least for future projects,” a Government official involved in the exercise said.
Under the current tariff-based bidding format, a project is awarded to the developer that puts in the lowest levellised tariff quote for a 25-year period. According to a Tata Power executive, “With around 40,000 MW of capacity planned to come up using imported coal as fuel, the only solution would be to evolve a way to pass on the higher price of fuel though tariffs.”
Repercussions
The worry now is that even if one of the projects that have been awarded so far is allowed to rework the tariffs quoted at the time of bidding, this might open the floodgates for other developers to call for revisions in their original tariff bids.
The Government had mandated that from January this year, all power to be procured by distribution utilities would come up via the competitive bidding route. The decision effectively disallowed future generation and transmission projects to enter into power purchase agreements based on the current ‘cost-plus', regulator-determined tariffs. The move was expected to bring in transparency in the award of projects and drive down tariffs. A rollback for transmission projects was announced midway through the year.
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