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AUG 26 2013

Power producers to get more time to recover costs under Case-II bidding

  • Economic Times, ET Bureau / Hyderabad
  • Created: Mon 26th AUG 2013

Power producers such as NTPC, Tata Power, Lanco, Jindal, AES will get an extended 40-years time against the proposed 25 years earlier to retain control over projects they develop under Case-II bidding norms where fuel source and location of the power plant is determined in advance.

This, and the mandatory sourcing of equipment from local sources are among a list of major changes proposed in the new standard bidding documents for such projects that got approved by an empowered group of ministers (EGoM) headed by the defence minister A K Antony on Friday.

The changes have also been made to keep tariffs for large plants and ultra mega power projects low by giving developers more time to recover the complete fixed costs. The provision for mandatory sourcing of equipment from local manufacturers, which was included in the SBD at the instance of the ministry of heavy industries, would help bolster the new order books of BHEL and L&T.

These companies have been facing strong competition from Chinese firms despite an import tariff.

Till now projects were developed on a build,own,operate (BOO) model, however, under the bidding guidelines this will change to a design, build, finance, operate and transfer (DBFOT) model. This means power plants would be transferred to the contracting discom at the end of their project life, usually 25 years.

"We have given 5 more years to take care of the normal construction period of a power project, 25 years of useful life of such plants and an extended 10 years to ensure developers are rewarded (to recover fixed cost in extended period) for ensuring efficiency, safety and quality maintenance operations," said a power ministry source.

Sources said the EGoM did not accede to the pressure from power project developers and bankers to change the controversial DBFOT model for the development of large power plants under the new SBD but relaxed the provisions a bit by extending the tenure to prevent these projects from getting high tariff quotes and problems in financing.

"This is good change as it will give us more leg room to bid aggressively on tariff. As the power plant would now be given to us on lease, it is always better that we run it for a longer period to reap maximum benefit," said an official of leading power sector company.

Sources said the bankers' concerns on the new DBFOT have also been addressed as they will continue to have first right over the assets of the power plant even if it gets transferred to discoms.

Moreover, in the event of a default by developers, lenders and discoms could terminate its contract and find new entities to run the plant.

Under the new SBD, bidding will now be undertaken a single parameter, which is `capacity charge.' The fuel cost has been made pass-through ensuring the projects against risk due to volatility in global fuel prices. 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. Developers would also have to buy their equipment from domestic suppliers such as BHEL, L&T and Alstom-Bharat Forge.

The SBD provides for the minimum qualification criteria, project details such as useful life, type of fuel, capacity and the terms and conditions for contractual agreement between the selected developer and the discom.

SBD was first issued by the power ministry in 2005 and has been successfully used in the past to contract large-scale thermal power plants, especially the now well-known UMPPs.

The new SBD is expected to start the process of bidding for two UMPPS this year - Cheyyur project in Tamil Nadu and Bedabahal in Odisha.


Odisha Tamil Nadu NTPC Ltd Standard Bidding Documents Bharat Heavy Electricals Ltd Empowered Group of Ministers Ultra Mega Power Project Power Tata Power

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