Private power sector seeks changes in bidding norms for UMPPs

Changes sought include shift from Design-Build-Finance-Operate-Transfer (DBFOT) model of development to Build-Own and Operate (BOO)

The private power industry has proposed changes in the bidding norms for two Ultra Mega Power Projects (UMPPs) planned to be set up in Odisha and Tamil Nadu. The Union Cabinet in the United Progressive Alliance (UPA) regime had approved the new guidelines, which were rejected by large developers, including Reliance Power, Lanco Infratech and Adani Power.

The fresh changes sought by the companies include shift from the design-build-finance-operate-transfer (DBFOT) model of development to the build-own-operate (BOO) model. “The DBFOT framework relegates the developer to the status of a build-operate-transfer (BOT) contractor. Power projects under competitive bidding structure have a risk profile, which differs significantly from the PPP model in the traditional sense,” said Association of Power Producers (APP), in a letter to Power Minister Piyush Goyal.

The industry is also miffed at the power purchase agreement (PPA) document for  UMPPs, which, it says, does not adequately incorporate the government’s earlier decision of complete fuel price pass-through. “The contract attempts to pre-determine the fuel pricing trajectory over the full project cycle by introducing arbitrary price caps and escalation rates,” APP has alleged.

The industry is also unhappy with the technical and operating parameters stated in the PPAs, which “create an adverse regulatory regime compared to the other plants operating in the country”. PPA provisions related to availability, auxiliary power consumption and station heat rate are not only out of alignment with regulatory norms but are also impossible to maintain over the entire plant life of 30 to 40 years, it said.

The new bid documents, including the PPA structure, heightens most risks and adds new ones, according to the industry. “In a sector that already faces viability challenges and financing of future capacity addition is adversely affected by the negative investor sentiment, the capacity addition programme will be massively affected,” APP has warned.

 

The power ministry is planning to bid out the two UMPPs in the current year. The projects are part of a bigger initiative to set uplarge-sized capacities with ready-hand clearances through competitive bidding. The two projects are likely to be set up at an estimated investment of over Rs 42,000 crore.