Power plants to bid on ‘efficiency’ for new projects

Our Bureau Siddhartha P Saikia New Delhi | Updated on August 23, 2013


Fuel cost to be pass-through; independent engineer to supervise core functions

The power project developers would bid for new projects on their efficiency levels and any increase in fuel cost burden would be passed on to the consumer.

An empowered group of Ministers (eGoM) headed by the Defence Minister A K Antony on Friday gave its go-ahead for the latest standard bidding documents (SBDs) that would be applicable for projects where the fuel source is determined in advance, known as case-II.

This would facilitate award of 4,000 mw each ultra mega power projects (UMPP) in Tamil Nadu and Odisha.

“There are many clauses that would be fruitful (to power developers) such as pass-through of fuel cost,” said Jyotiraditya M Scindia, Minister of State (Independent Charge) for Power.

It is to be seen if companies come ahead to bid for new power projects. The only operational UMPP in the country run by Tata Power at Mundra has reported losses for rise in coal prices.

On the other hand, Reliance Power has approached the regulator for hike in tariff for the project bagged by the firm.

The Government has brought several changes in the new bidding norms such as there will be a single parameter for competition, which is ‘capacity charge.’

In the earlier model, a bidder had to give nearly 54 price quotes spread over 25 years. Since, the fuel cost is made pass-through now; there would be no quotes for fuel charges. The capacity charge would be linked to depreciation and loan repayment. At the same time, it will be linked to the inflation index.

In addition, an independent engineer would oversee some of the core functions of the projects. The core functions would include reviewing if the station has been set up as per the laid specifications, supervising testing and commissioning procedure and any other clause where the utility may face financial liability.

The new norms also changes the projects from a build-own-operate (BOO) model to design, build, finance, operate, and transfer (DBFOT) structure.

In a DBFOT model, the project developer will not have ownership of the land and the plants. This also means that lenders will not get security on the land or the project assets.

The Government has assured that it would recommend to Reserve Bank of India to facilitate funding for the power projects.

The project developers would also have to buy their equipment from domestic suppliers such as BHEL, L&T and Alstom-Bharat Forge, among others.

The Minister of Heavy Industries and Public Enterprises, Praful Patel, has urged the Government to make it mandatory for UMPPs to source equipment locally.

The UMPPs would have to sale at least 80 per cent of the electricity produced on long-term agreement to discoms. The Government proposes to keep free 15-20 per cent of the capacity in each project for merchant sales.

Published on August 23, 2013

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