Day-3, Mr. Vimal Kirti Singh, IAS


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Day-3, Mr. Vimal Kirti Singh, IAS

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Day-3, Mr. Vimal Kirti Singh, IAS

  2. 2. AGENDA  Background and Context  Guiding Principles  Experience of Competitive Bidding  Challenges faced in competitive bidding  Case Study  Key Learning
  3. 3. BACKGROUND AND CONTEXT  Electricity Act 2003 emphasizes promotion of competition in electricity market  Competitive procurement of electricity is planned to reduce cost of power and facilitate development of power market  Section 61 and 62 of Act provides for tariff regulation and tariff determination for generation, transmission, wheeling and retail sale of electricity by appropriate commission  Section 63 of Act states, “Notwithstanding anything contained in Section 62, the Appropriate Commission shall adopt the tariff if such tariff has been determined through transparent process of bidding in accordance with the guidelines issued by the Central Government”. Indian Electricity Act, 2003 aspires to create a liberal framework for the development of the power sector – “ An Act to consolidate the laws…for taking measures conducive to development of electricity industry, promoting competition therein, protecting interest of consumers and supply of electricity to all areas…”
  4. 4. GUIDING PRINCIPLES  Tariff Policy under the Act aims at:  Promote competitive procurement of electricity  Facilitate transparency & fairness in procurement process  Protect consumers’ interest by facilitating competitive conditions in procurement of electricity  Implementation of competitive bidding to encourage private sector investment  Reduce capital cost, promote efficiency in operations and enable competitive pricing of electricity  Competitive Bidding Guidelines:  Bids invited by power procurers under  Case I Bidding  Case II Bidding  PPA signed for 25 years; yearwise tariff to be quoted by the bidders
  5. 5. CASE I AND CASE II BIDDING  Case I bidding:  Flexibility in Location, technology or fuel  Developer to select any location and any type of fuel  Developer to obtain all clearances, build transmission lines, obtain long term access and connectivity  Fuel risks of availability of fuel, price of fuel, transportation cost, foreign exchange, taxes, duties to be taken by developer  All risks loaded on the project developer  Price discovery is relatively on higher side  Case II bidding:  Location, technology or fuel is specified by Procurer  Attractive price discovery due to advance action by procurer  To acquire land and to undertake Preliminary studies of coal mining blocks  In principle, environmental clearance for project and mining blocks as well as other statutory clearances  Power is sold at the bus bar of power station, no requirement of transmission lines by developer
  6. 6. EXPERIENCE OF CASE I BIDS: PPA SIGNED State Quantum (MW) Date Developer Levelized Tariff (Rs /kWh) Gujarat (Bid 1) 1000 Sep 2006 Adani 2.89 Gujarat (Bid 2) 200 Dec 2006 Aryan Coal 2.25 1000 Adani 2.35 Gujarat (Bid 3) 1000 Dec 2006 Essar 2.40 Haryana 300 Nov 2007 PTC - GMR 2.88 1425 Adani 2.94 Maharashtra 1320 Feb 2008 Adani 2.64 300 JSW 2.72 684 Lanco 2.72 Maharashtra 200 Aug 2009 GMR 2.88 450 IndiaBulls 3.27 1200 Adani 3.29 Rajasthan 1200 Aug 2009 Adani 3.25
  7. 7. EXPERIENCE OF CASE I BIDS: PPA SIGNED State Quantum (MW) Date Developer Levelized Tariff (Rs /kWh) Gujarat 1010 Jan 2010 KSK Energy 2.35 800 Shapoorji Pallonji 2.80 1000 Essar Power 2.80 Bihar 450 Jan 2010 Essar 3.06 Karnataka 430 Jan 2010 Thermal Powertech 3.77 200 Meenakshi Energy 3.80 600 JSW Energy 3.81 400 East Coast Energy 3.89 400 NCC 3.89 Bihar 300 Apr 2011 Essar 3.69 260 GMR 3.69
  8. 8. EXPERIENCE OF CASE I BIDS: UNDER EVALUATION State Quantum (MW) Date Developer Levelized Tariff (Rs /kWh) Uttar Pradesh 300 Sep 2012 NSL 4.47 390 PTC – Aryan Coal 4.89 423 Lanco 5.07 350 RKM – Power Gen 5.09 1000 KSK Energy 5.44 361 PTC – Moserbaer 5.73 800 Navyuga 5.84 Rajasthan 195 Sep 2012 PTC – MCCPL 4.51 311 PTC – DB Power 4.81 100 Lanco 4.94 200 PTC – Athena Power 5.14
  9. 9. MOVEMENT OF CASE I BID TARIFFS 1.79 2.78 3.17 3.69 5.25 - 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00 5.50 6.00 2006-07 2007-08 2009-10 2011-12 2012-13 Weighted Average Levelized Tariff for all Case I bids per year Levlized Tariff (Rs / kWh) Upward trend in Case I bid tariff due to increase in risk perception on fuel supply, fuel cost, payment guarantee
  10. 10. EXPERIENCE OF CASE II BIDS: PPA SIGNED Project Quantum (MW) Date Developer Levelized Tariff (Rs /kWh) Tata Mundra UMPP 4000 Apr 2007 Tata Power 2.26 Sasan UMPP 3960 Aug 2007 Reliance Power 1.19 Krihnapatnam UMPP 4000 Oct 2007 Reliance Power 2.33 Tilaiya UMPP 3960 Dec 2008 Reliance Power 1.77 Jhajjar – Haryana 1320 Mar 2008 China Light and Power 2.99 Talwandi Sabo – Punjab 1980 Jun 2008 Sterlite 2.86 Karchana – UP 1320 Nov 2008 Jaypee 2.84 Bara – UP 1980 Feb 2009 Jaypee 2.89 Nabha – Punjab 1320 Nov 2009 L&T 2.89
  11. 11. MOVEMENT OF CASE II BID TARIFFS 2.03 2.40 2.89 1.50 2.00 2.50 3.00 2007-08 2008-09 2009-10 Weighted Average Levlized Tariff for all Case II bids per year Levelized Tariff (Rs/kWh)
  12. 12. CHALLENGES IN COMPETITIVE BIDDING  Tariff to be quoted by the bidders for 25 years  Period of 25 years too long for project developers to assess the uncertainties with respect to fuel availability, fuel costs, cost escalation etc  Case I bids require project developer to obtain all clearances, land acquisition etc.  Delay in land acquisition, approvals and clearances result in stretched project timelines  Scope of limited cost escalation in contracts dents investors’ confidence in projects  Bid Tariffs trending upwards due to:  Uncertainty in fuel supply and fuel prices  Developers incorporating delay risks in tariff
  13. 13. CHALLENGES IN COMPETITIVE BIDDING  Uncertainty in Fuel Supply and Fuel Prices  Linkage based projects:  Coal Supply varies significantly  Only 50%-60% of coal requirement available thro’ linkage; balance coal to be procured from other sources at much higher rates  Captive Mine based projects:  Developers failure in preempting challenges in land acquisition, obtaining approvals and clearances  Regulatory Changes posing further challenges to developers  Imported Coal based projects:  Major regulatory changes in countries of export  Absence of any provisions in contracts to safeguard project developers as well as procurers against the major changes in fuel costs
  14. 14. CHALLENGES IN COMPETITIVE BIDDING  Delay in Land acquisition, Clearances and Approvals  Inadequate preparation of projects creating information asymmetries and competitive distortion  Absence of provisions in contracts for dealing with project implementation delay due to inability of either party  Absence of proper mechanism and indexation for cost escalations due to unforeseen circumstances
  15. 15. CHALLENGES IN COMPETITIVE BIDDING  Power from UMPPs (Case II bids) being supplied to a group of procurers  Highly difficult to arrive at consensus on disputes arising between procurers and developers  Delay in decision making resulting in delayed project implementation  Absence of electricity from planned projects resulting in purchase of power from other sources driving power procurement cost upwards and hampering financial health of procurers  Decision making during project execution suffers due to a variety of reasons  Procurers, mostly Govt. entities, are bound by public procurement policy leaving little flexibility  Collective decision making in cases like UMPPs is a major challenge  Lack of benchmarks and indexation to deal with cost variations in the PPA
  16. 16. CASE STUDY: TILAIYA UMPP (1/2)  Tilaiya UMPP:  One of the four UMPPs envisaged by Govt. of India to meet power deficit in the country  Tilaiya UMPP, an integrated power project based on domestic coal from Captive coal mines  Project awarded to Reliance Power through International Competitive Bidding process in Aug 2009  25 years long term PPA signed with 18 Procurers from 10 States  Electricity to be supplied at Levelized tariff of Rs. 1.77 / kWh  Under the UMPP regime, Procurers responsible for:  Land acquisition for power plant and coal mine  Water allocation  Power evacuation systems  Major clearances like Forest Clearance, Environmental Clearance
  17. 17. CASE STUDY: TILAIYA UMPP (2/2)  Current Status:  Land Acquisition still under progress with developer claiming huge increase in land cost and rehabilitation and resettlement cost  Delay in clearances and approvals for the coal mine impeding development of the project  Developer claiming pass-through available under the PPA clause of Change in Law insufficient to compensate for the actual increase in cost due to change in law  Slow Progress in the project implementation
  18. 18. KEY LEARNING  Basic framework of Competitive bidding in line with the intent of providing affordable power and introduce transparency and accountability in the sector  As 25 years is too long to factor in uncertainties, mid term reviews –say every 5 years – of tariffs to be provided for  Modifications required to incorporate mechanism to appropriately compensate developers for fuel side uncertainties  Appropriate Provisions / indexation to be provided in contracts for unanticipated events / uncertainties  Wide post-bid variation in conditions like fuel supply, fuel prices, capital costs etc makes firm capacity and energy price bid impractical in current times  Crucial role of Public sector in Case I and Case II projects:  Complete readiness of projects prior to bidding for early fructification of envisaged projects  Continuous monitoring by procurers to avoid any slipups by developers
  19. 19. CONCLUSION  Procurers’ interests will be served better by ensuring the completion of the projects on time and making available the competitively priced power. This will result in  Reduction in average power purchase cost of the state  Triggering large scale economic growth coupled with substantial local development  Key to achieve this:  Complete readiness of project inputs prior to bidding for early fructification of the projects  Continuous monitoring by procurers and central agencies to avoid any slipups by developers  A comprehensive PPA with inbuilt protections for both the parties, well prepared to deal with uncertainties, defined automatic compensation mechanisms to deal with deviations in a fair manner  Set up Inter-Ministerial Group for resolving problems involving various ministries (similar to the CCI)
  20. 20. THANK YOU