Day-3, Mr. Vimal Kirti Singh, IAS

1. POWER PROCUREMENT
UNDER
INTERNATIONAL COMPETITIVE BIDDING
(EVALUATING COMPETITIVE REGIME)
3rd Aug 2013
Presentation by
VIMAL KIRTI SINGH, IAS
PRINCIPAL SECRETARY,
DEPTT. OF ENERGY,
GOVT. OF JHARKHAND

2. AGENDA
 Background and Context
 Guiding Principles
 Experience of Competitive Bidding
 Challenges faced in competitive bidding
 Case Study
 Key Learning

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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. THANK YOU