Tata, Reliance unhappy with power ministry's new project bidding rules

Two of the largest private power producers, Tata Power and Reliance Power Ltd, have raised major concerns over the government’s latest draft of the bidding norms for large-sized power projects.

The concerns from the potential developers of Ultra Mega Power Projects (UMPPs) come ahead of Thursday’s meeting of a ministerial panel to approve the newly proposed guidelines.

The two companies, in similar letters to power minister Jyotiraditya Scindia, have rejected the need for completely replacing the existing Standard Bidding Documents (SBDs) and have recommended only minor tweaking in the existing guidelines. “If the concerns raised are not addressed appropriately, we would not be able to put a competitive bid,” Tata Power Managing Director Anil Sardana wrote.

A key objection is over provisions on passing-on fuel supply risk to consumers. The new SBDs propose capping fuel price at the notified price of Coal India Ltd the state-owned monopoly coal supplier, in case of linked captive mines.

Fuel price in cased of imported coal from overseas captive mine is capped at 90% of global average with four% escalation. The companies have said these caps and escalations do not reflect the actual cost of coal incurred.

“The actual cost may be on lower side leading to windfall profits for the developer or on higher side leading to commercial impossibility for the developer to honor the contract,” Reliance Power Chief Executive Officer (CEO) J P Chalasani said. Also, according to Sardana, the provision would discourage developers to invest in coal mines abroad and structure bids based on market-linked coal prices.

Another key concern is over a proposed Design-Build-Finance-Operate-Transfer (DBFOT) model which allows the developers to purchase the project. “The model is not attractive in current economic scenario where investment in power sector has slowed down substantially and developers are uncomfortable committing capital as a mere contractor,” Chalasani wrote.

The companies have also objected to the numerous possibilities of terminating Power Purchase Agreement (PPA) by procurers.

The draft provides for termination even in the event of payment default by the procurer, making business proposition “very unpredictable and one-sided”, according to Sardana. He also said the qualification criteria set out in the SBDs, recommending short-listing of only top seven bidders for the Request for Proposal (RFP) stage, are very restrictive.

Chalasani also said the new SBD, in its present form, could discourage Reliance Power from participation or offer competitive tariff. The government had notified the existing bidding guidelines in 2006. Since then, over 40,000 Mw of new capacity has come on stream.

The new bidding parameters will determine the success rate of the government’s ambitious UMPP scheme under which nine projects, each of them with 4,000 Mw capacity and around Rs 20,000 crore investment, are to be set up across states.