Abraham committee proposes a price fixation date 30 days before the bid
The single most important parameter for state and central electricity utilities purchasing power from a private generator should be the unit cost at which the power is purchased, according to the high-powered Abraham committee on tariff for competitively-bid projects.
The committee has said that while a standard risk allocation structure can be developed for a project and adopted in the form of a standard power purchase agreement (PPA), the cost of power is a more complex issue, which is the function of the operating parameters of the equipment being used, the financing method proposed by the developer and the return requirement of the developer.
Therefore, the cost of power would be specific to various decisions and preferences of each developer.
However, the utility should select the developers on the basis of the unit cost at which they propose to supply power.
The tariff structure suggested by the committee proposes the selection of the bid on the basis of the least unit cost bid.
A price fixation date is proposed which could be 30 days prior to the bid date. All the bidders, according to the committee, should submit bids for a two-part tariff: a fixed charge portion (say X) and a variable charge portion (say Y).
All bids will be considered to be at the prices prevailing on the price fixation date.
The committee says the other parameters to be considered are: the extent of purchase obligations of the concerned state electricity board (SEB), tariff loading, the portion of the tariff denominated in foreign exchange, the portion of the tariff receiving indexation for Indian inflation, escalation mechanism for the variable portion of the tariff, and incentive structure.
These parameters, according to the committee, are to be provided along with the bid documents so that the bidders may determine the value of X and Y at which the independent power producer (IPP) would be prepared to supply power.
Elaborating on these parameters, the committee says the annual purchase obligation of the SEB should be 85 per cent plant load factor (PLF) in the case of all thermal power projects.
The fixed charges per unit should be calculated with reference to this PLF and any shortfall in availability should be borne by the independent power producer .
On the other hand, backing down by SEB below the level would attract deemed generation payments of fixed charges. Since the SEB is concerned only with the power actually made available to it and not what is actually produced, it is better to specify purchase obligations in terms of net power purchase only.
The committee has suggested a front-loaded tariff in order to provide the bidders with an opportunity to bid in a manner that would meet their needs for returns as well as debt servicing.
For different debt financing pattern, the pattern of fixed cost reduction would be different and the state electricity board would be required to modify it as per the financing requirements.
Beyond the debt repayment period, the fixed cost will have elements for return on equity and the operation and maintenance expenses.
The committee argues that since it is recognised that certain outflows of the project would be in foreign currency, a part of the fixed charge is denominated in dollars. In order to facilitate comparison among bids, the foreign currency coverage should be restricted to US dollars.
A proportion of fixed charge will be escalated each year in order to protect it from domestic inflation.
The protection can be provided on the basis of a suitable weigtage price index which should be notified before bidding (say 75 per cent of the wholesale price index and 25 per cent of the consumer price index).
The committee has proposed that the fuel charge (Y) is escalated each year in accordance with an agreed price index/administered or contracted price, as may be specified in the bidding document.
