Scope of intra-State Transmission Projects in India through Competitive Bidding Process: compiled by Amitava Nag

1. Intra-State Tariff Based
Competitive Bidding for
Transmission Works
Compiled by Amitava Nag, SE,
Regulatory Affairs Cell, WBSETCL
Summery
As per Tariff Policy 2006, all Intra-State
Transmission Projects are to be taken up through
Tariff based Competitive bidding with effect
from 06.01.2013. Exemption from competitive
bidding route may be adopted in (i) first two
experimental works for 1200 kV HVDC lines (ii)
Works required to be done to cater an urgent
situation or which are required in a compressed
time schedule by STU as decided by the Central
Government on a case to case basis. (Ref. Tariff
Policy Amendment dated 08.07.2011). State has
been given option either to use VGF based MTA
document of Planning Commission or the
Standard Bidding Document of Ministry of
Power for procurement of intra-state
transmission services. For the VGF based
bidding, the unitary charges will require to be
approved by SERC prior to bidding. The above
said guidelines are for procurement of
transmission services to select transmission
service provider for a new transmission line. A
transmission charges for providing transmission
service and O&M required for the various
transmission elements shall form the basis for
bidding. Under the MTA, it has been decided
that the prospective bidders would be awarded
projects on the basis of lowest grant sought or
highest premium offered.
Guiding Principle
1. As per GoI Tariff Policy, all Intra-State
Transmission works are to be taken up
through Tariff based Competitive bidding
with effect from 06.01.2013. However
exemption from competitive bidding route
may be adopted as per Para 7.1 (6) (ii) (ref.
Amendment of Tariff Policy dated 8.7.2011)
where works required to be done to cater to
an urgent situation or which are required in a
compressed time schedule by STU as
decided by the Central Government on a
case to case basis.
2. STU/ Joint Venture Companies of STU are
also eligible to participate in the Tariff based
bidding.
3. Ministry of Power has evolved a Standard
Bidding Document which has been used by
some intra-state transmission projects. At
the same time, a VGF (Viability Gap
Funding) model has been evolved for intra-
state transmission projects for which a MTA
(Model Transmission Agreement) was
developed by the Planning Commission.
State has been given option either to use
VGF based MTA document or the Standard
Bidding Document for procurement of intra-
state transmission services. For the VGF
based bidding, the unitary charges will
require to be approved by SERC prior to
bidding. The experience of VGF based
MTA is to be reviewed after three years.
4. The above said guidelines are for
procurement of transmission services to
select transmission service provider for a
new transmission line.
5. State Government shall constitute an
Empowered Committee. The functions of
the Empowered Committee will be (a) To
identify projects (b) To facilitate evaluation
of bids and (c) To facilitate development of
projects.
6. Procurement of transmission services would
include all activities related to survey, DPR
(Detailed Project Report)/PP (Project
Profile) formulation, arranging finance,
project management, obtaining transmission
license, obtaining RoW, necessary
clearances, site identification, land
compensation, design, engineering,
equipment, material, construction, erection,
testing and commissioning, maintenance and
operation of transmission lines and/or
substations and/or switching stations and/or
HVDC links including terminal stations and
HVDC transmission line so that the facilities

2. are available as per target availability fixed
by SERC.
7. State Government may notify any
Organization/ State Public Sector
Undertaking especially engaged for this
purpose or BPC notified by the Central
Government to be the BPC (Bid Process
Coordinator) for State.
8. BPC would be responsible for coordinating
the bid process for procurement of required
transmission services for each intra-state
transmission project to be implemented
under tariff-based competitive bidding in
accordance with the guidelines.
9. The BPC shall prepare the bid
documentation in accordance with those
guidelines and obtain approval of the SERC
if any material deviation is proposed to be
made from Standard Bid Documents. BPC
shall specify scheduled month of
commercial operation and invite bids for
the transmission charge.
10. The bidder shall submit Technical & Price
bid (annual tariff payable after
commissioning till expiry of license period).
CERC has advised GoI to ask bidders to
quote bid for a period of 35 years. The
selected bidder should be obligated for
extension of his license two years before the
expiry of initial 25 years.
13. Tariff shall be designated in Indian Rupees
only.
14. Tariff structure will have two components-
one scaleable and other non-scaleable. Scaleable
component shall not be more than 15% of the
non-scaleable component.
15. The successful bidder shall be designated as
the TSP (Transmission Service Provider) after
executing TSA and acquiring Special Purpose
Vehicle {SPV (Ref. Electricity Rules 2005)}.
16. TSP shall seek transmission license from
SERC if it is not a deemed licensee.
17. TSP shall take-up execution, commissioning
and operation of the project as per specified
schedule in the TSA.
18. Recovery of transmission charges from the
users shall be as per the guidelines.
19. The final TSA along with the certification by
the Bid Evaluation Committee shall be
forwarded to SERC for adaptation of Tariffs in
terms of Section 63 of the Act.
Bidding Process
1. BPC shall intimate SERC about initiation of
the bidding process.
2. The bidding shall necessarily be by way of
ICB (International Competitive Bidding).
3. BPC shall publish the RFQ (Request for
Qualification) which is the first stage of
tender.
4. RFQ shall contain (i) Brief description of
the project (ii) Commissioning milestones to
be achieved by the bidders (iii) Qualification
requirements to be met by bidders including
technical experience, minimum net-worth,
internal resource generation, conditions for
license, etc with necessary proof of the
same.
5. RFP (Request for Proposal) the 2nd
stage of
tender shall be issued to all bidders who
have qualified at the RFQ stage. In case the
bidders seek any deviations and BPC finds
those deviations are reasonable, the BPC
may agree to such deviations and with the
approval of SERC BPC shall give the
revised bidding document to all who had
sought RFP document.
6. RFP shall contain (i) Specified target dates
for commissioning and commercial
operations (ii) Proposed TSA (iii) Discount
factor (iv) Bid bond as well as Contract
Performance Guarantee (v) Proposed
indemnification agreement between the TSP
and the utilities (vi) Liquidated damages that
would apply in the event of providing the
transmission services (vii) Technical,
operational and safety criteria to be met by
bidder including the provisions under
different rules/regulations under Act.
7. BPC may at its option adopt a single stage
two envelope tender process combining the

3. RFP and RFQ processes instead of two-
stage process.
8. A transmission charges for providing
transmission service and O&M required for
the various transmission elements shall form
the basis for bidding.
9. Under the MTA, it has been decided that the
prospective bidders would be awarded
projects on the basis of lowest grant sought
or highest premium offered. In these
projects, the state electricity regulators will
fix base unitary charges that will determine
the revenue stream for the project.
Evaluation of Bids
1. The State government shall constitute a
Bid Evaluation Committee for evaluation
of the bids.
2. The technical bids shall be examined to
ensure that the bids submitted meet
minimum eligibility criteria set out in the
bid documents on all technical evaluation
parameters. Only the bids that meet all
elements of the minimum technical
criteria set out in the bid documents shall
be considered for further evaluation on
the transmission charges bids.
3. Transmission charge bid shall be rejected
if it contains any deviation from the bid
documents for submission of the same.
4. Ratio of minimum and maximum
transmission charge over the term of
license shall not be less than 0.7 to avoid
excessive front loading or back loading
during the period of contract.
5. Foreign exchange risk, if any, shall be
borne by the provider of transmission
service.
6. The bidder, who has quoted the lowest
levelised annual transmission charge as
per evaluation procedure, shall be
considered for the award.
7. After selection and issue of LOI from the
BPC, the selected bidder shall acquire the
SPV, in accordance with the terms and
conditions as finalized in the bid
document.
8. The TSP shall make an application for
grant of transmission license to SERC
within one month of issuance of LOI or
signing of TSA, whichever is later.
9. The TSA will be effective only upon
grant of transmission license from SERC.
10. The final TSA along with the
certification by the Bid Evaluation
Committee shall be forwarded to the
SERC for adaptation of tariffs.
VGF (Viability Gap Funding) through
PPP in Transmission Projects
1. GoI recognizes that there is significant
deficit in the availability of physical
infrastructure across different sectors and
that this is hindering economic
development; whereas development of
infrastructure requires large investments that
cannot be undertaken out of public financing
alone, and that in order to attract private
capital as well as the techno-managerial
efficiencies associated with it, the
Government is committed to promoting
Public Private Partnerships (PPPs) in
infrastructure development; GoI recognizes
that infrastructure projects may not always
be financially viable because of long
gestation periods and limited financial
returns, and that financial viability of such
projects can be improved through
Government support. GoI formulated
Guidelines for Financial Support to PPPs for
providing financial support to bridge the
viability gap of infrastructure projects
undertaken through Public Private
Partnerships.
2. VGF scheme, finalised by the finance
ministry few years back to promote
investment in the infrastructure sector,
involves central assistance in the form of
grant for capital expenditure up to 20% of
the project cost, while the state government
being one of the owners could also provide a
matching grant with a ceiling of another
20% of the project cost.
3. All PPP (public-private partnership) projects
in the power transmission sector, including
intra-state transmission networks, will now
qualify for government grants under the

4. VGF scheme, making them attractive to
private sector investors.
4. A VGF (Viability Gap Funding) model has
been evolved for intra-state transmission
projects for which a MTA (Model
Transmission Agreement) was developed by
the Planning Commission.
5. The States also have the option to use VGF
based MTA (Model Transmission
Agreement) document of Planning
Commission for development of
Transmission System in their States under
PPP (Public Private Partnership) mode.
[Ref.No.15/1/2008-Trans GoI, MoP dated
2.5.2012]
6. Under the MTA, it has been decided that the
prospective bidders would be awarded
projects on the basis of lowest quote for
grant of VGF. In these projects, the state
electricity regulators will fix base unitary
charges that will determine the total
transmission charges for the project. Then
bids could be invited based on VGF. The
guidelines for determining base unitary
charge could be revised by the power
ministry from time to time in consultation
with the finance ministry and the Planning
Commission to prevent misuse of the VGF
provisions. The entire mechanism would be
reviewed after a period of three years.
7. This scheme will apply only if the contract/
concession agreement are awarded in favour
of a private sector company.
8. Contract or concession agreement will be
between Government or statutory entity,
Private sector company & Lead financial
institution.
9. Project cost does not include the cost of land
incurred by the government/statutory entity.
VGF based MTA (Model Transmission
Agreement) of Planning Commission
1. MTA provides the basis for optimal
utilization of resources on the one
hand and adoption of international
best practices on the other. The
objective is to secure value for
public money while providing
efficient and cost-effective services
to the users.
2. Three elements determine the
financial viability of transmission
projects are (i) Concession period
(ii) Unitary charge and (iii) Capital
costs
3. Concession period is required to be
fixed as 25 years (as per Electricity
Act 2003) plus 10 years
considering useful life (subject to
regulatory approval).
4. Unitary charge is to be determined
as per MTA (which is broadly in
line with prevailing transmission
tariffs)
5. Capital cost is the variable that will
determine the financial viability of
a transmission system. Adoption of
cost-effective specifications would,
therefore, be essential for reducing
capital costs in order to improve
viability.
6. The MTA suggests that the unitary
charge should not be fixed at a
level lower than 75% of the total
costs.
7. It has been stipulated that unitary
charge subsequent to the first year
of operation may be determined by
reducing the same to the extent of a
pre-determined percentage in the
band of 1 to 2 percent per annum.
8. The MTA provides for indexation
of the unitary charge to the extent
of 30% thereof linked to WPI
(Wholesale Price Index).
9. As an added incentive, the MTA
allows the concessionaire to create
additional capacity and appropriate
the transmission tariff from the
users of such capacity.
10. Capital subsidies alone may not
suffice in meeting the likely gap in
viability. One of the options can be
to provide development rights over
real estate for generating additional
revenue to make the project viable.
Therefore, provision kept in MTA
for real estate development. The
MTA provides 25% of revenue

5. would be shared with the Project
Authority.
11. Unlike the normal practice of
focusing on construction
specifications, the technical
parameters proposed in the MTA
are based mainly on output
specifications. Only the core
requirements design, construction,
O&M have been specified, leaving
enough room for the concessionaire
to innovate and add value. In sum,
the MTA focuses on ‘what’ rather
than ‘how’ in relation to the
delivery of services by the
concessionaire.
12. The MTA identifies the KPI (Key
Performance Indicators) relating to
operation of the transmission
system and stipulates penalties for
failure to achieve the requisite
levels of performance.
Concessionaire is required to
ensure the availability of system
capacity at normative levels. The
number of forced outages in a year
has been capped in order to ensure
system reliability. Transmission
losses of the transformers must also
remain within specified normative
levels.
13. The MTA stipulates stiff penalties
in case of false declaration by the
concessionaire.
14. For monitoring the KPI, monthly
status reports and inspections by
Independent Engineers have been
prescribed. The concessionaire is
also required to maintain the
requisite ISO certifications for the
transmission system.
15. Among the short listed bidders
(based on parameters such as
concession period, unitary charge,
technical parameters, performance
standards etc.) who seeks the
lowest grant or offers the highest
premium, as the case may be, shall
win the contract.
16. The commercial and technical risks
relating to construction, O&M are
being allocated to the
concessionaire. Political risks are
being assigned to the Project
Authority. The MTA provides for
extension of the concession of the
concession period in order to
compensate the concessionaire for
specified events. In case extension
cannot be granted, MTA provides
for a pre-determined monetary
compensation to be paid to the
concessionaire.
17. MTA stipulates a time limit of 180
days for achieving financial
closuree (extendable for another
120 days on payment of penalty),
failing which bid security shall be
forfeited.
18. Handing over possession of the
land required for construction of
sub-stations and obtaining of
environmental clearances are being
proposed as conditions precedent to
be satisfied by the Project
Authority before financial closuree.
19. Procurement of a transmission
license and other applicable permits
has been proposed as a conditions
precedent to be satisfied by the
concessionaire.
20. The MTA requires the
concessionaire to procure and
maintain right of way.
21. Additional works may be
undertaken within a specified limit,
but only if the entire cost thereof is
borne by the Project Authority.
22. Before commencing the
commercial operation the
concessionaire will be required to
ensure compliance with the
specifications relating to safety and
quality of service for the users.
MTA provides safety certification
by the designated Electrical
Inspector prior to COD and reviews
at regular intervals.

6. 23. O&M is proposed to be governed
by strict standards and any
violations would attract stiff
penalties.
24. MTA provides substitution rights to
lenders so that the concession can
be transferred to another company
in the event of failure of the
concessionaire to operate the
project successfully.
25. MTA contains the requisite
provisions for dealing with force
majeure events.
26. Upon expiry of the specified
concession period of 25 years, the
concessionaire would be entitled to
a termination payment equal to 40
times the monthly unitary charge.
However, the concessionaire would
have the right to seek an extension
of 10 years in the concession period
and in such an event, no
termination payment shall be due
and payable after expiry of the
extended period.
27. MTA provides for appointment of
additional or concurrent auditors to
play a critical role in ensuing
financial discipline.
28. The MTA addresses other
important issues such as dispute
resolution, suspension of rights,
change in law, insurance, defects,
liability, indemnity, redressed of
public grievances and disclosure of
project documents.
References
1. Government of India’s
(Ministry of Finance,
Department of Economic
Affairs)Scheme for
support to PPP in
Infrastructure July’2005
2. Government of India’s
(MoP) Tariff based
Competitive-bidding
Guidelines for
Transmission Service
3. Government of India’s
(MoP) Guidelines for
Encouraging Competition
in Development of
Transmission Projects
4. Government of India’s
(Ministry of Finance,
Department of Economic
Affairs) Guidelines for
forwarding proposals for
financial support to PPP
(Public Private
Partnerships) in
infrastructure under the
VGF (Viability Gap
Funding) Scheme.
5. Planning Commission’s
VGF based MTA (Model
Transmission Agreement)
for PPP in Transmission
System.