case 1, 2 competitive regime

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Case I & Case II Bidding Projects:

Evaluating Competitive Regime

S. C. ManochaCEO & Whole Time Director (LITL -EPC)



REFORMING POWER SECTOR IN INDIA

Electricity

Act 2003

Comp. Bidding

Guidelines

National

‘Tariff’

Policy

Open Access, Sec

63/ Section 79( 2)/

Sec 60

Contestable

Price

Discovery

• Open access

• Competitive bidding

Possible Wholesale /

Retail Competition

Competitive

new

generation

• EA 2003 introducing

– Non-discriminatory openaccess transmission

– Sec 63 - ERCs to follow

competitive bidding process

– Sec 79(2) - CERC to advise GoI

on promoting competition

– Section 60 – Controlling

abuse of market power

• Competitive Bidding Guidelines

• National Tariff Policy

Policy actionsEvolving market structure in power sector



Need of Electricity Act, 2003

Inability to meet the growing demand.

Poor quality of supply- low voltage, grid instability

Vertically Integrated SEBs

Only SEBs entitled to buy or sell electricity

Generation and Supply largely owned by state or central sector companies

Inefficiencies leading to enormous losses in the system

Private participation almost non-existent

Generation needed license.

No significant participation in Transmission, distribution.

Cost plus model followed by generators and distributors.

Power traded through Long Term PPAs of 25 years.

Large captive capacities come up due to continued poor and inadequate

supply

Complete absence of competition



Electricity Act, 2003

Consolidates laws of electricity relating to generation, transmission, distribution

and trading of electricity.

Creates environment conducive for development of electricity industry andIntroduction of competition in the Sector.

Formation of National Electricity Policy and National Tariff Policy.

Open Access for Transmission /Distribution Systems allowed.

De-licensing of power generation.

Trading of electricity permitted. Liberal provisions for captive power generation.

Rural generation and distribution freed from licensing.

Expanded role for the Regulatory Commissions – tariff determination etc

Role of CEA reduced.

Envisages unbundling of transmission and distribution.

The Regulatory Commission to promote development of market including trading.



EA 2003 sets the stage for Competition

Allows multiple generators to come up and compete

Allows larger consumers to choose supplier Prescribes competitive procurement of power on long term

Aims to create a National Market via compulsory open access

Policy framework assures

Reasonable and stable returns on investments

Well defined Regulatory mechanisms

Makes governments responsible for providing Power on demand



How Does Competition Help?

Allow multiple participants to compete with each other to

Provide High Quality at Low Prices

Allow participants to manage their supply requirements by

Purchasing deficits from the market

Selling excess to the market

Allow participants to manage the cost of supply

Purchasing lower cost supply from market and back-down expensive

generation

Availability of an efficient market allows investors to set-up capacities

Part of long term capacity kept for sale as merchant capacity

Long term capacity is set-up without the commitment with the availability of

a market as a back-up



Legal and Policy Framework after Electricity Act 2003

National Electricity Policy 2005 announced.

Guidelines for determining tariff through competitive bidding notified2005

5 Regional Power Committees set up 2005

Electricity Appellate Tribunal : Operational 2005

CERC notified regulations for open access in transmission 2005

Tariff Policy notified in 2006

Guidelines for private investment in transmission 2006

Several SERCs-open access in Distribution – action initiated



National Electricity Policy

The objectives as per the National Electricity Policy, 2005 is as follows:

• Total village electrification by year 2010

• Following milestones to be achieved by year 2012 :

Per capita consumption of 1000 units.

Installed capacity over 200,000 MW.

Spinning reserves 5% .

Minimum lifeline consumption of 1 unit per household per day.

Inter-regional transmission capacity 37,000 MW.

Energy efficiency/ conservation savings about 15%.



National Tariff PolicyAims & Objectives of Tariff Policy

• Ensure availability of electricity – reasonable & competitive rates

• Ensure financial viability and attract investments• Promote transparency, consistency and predictability in regulatory approaches

• Promote competition, efficiency in operations and improvement in quality of supply

Provisions of Tariff Policy

• Procurement by distribution companies shall be done at through competitive bidding.

• Mandates competitive procurement of power and transmission services – transitionalwindow of 5 years period given to public sector companies.

• Promote Multi-Year Tariff (MYT) framework.

• Encourage loss reduction strategies.

• Progressive reduction in cross-subsidy.

• SERC shall fix a min % for purchase of energy from renewable considering

Availability of such resources in the region, and Its impact on retail tariffs.

• CERC should lay down guidelines for pricing non-firm power, especially from non –

conventional sources, where procurement is not through competitive bidding.

• Encourage efficiency in operations by sharing of gains between licensees and

consumers



Competitive Bidding Guidelines

Issued by the Ministry of Power on 19th January 2005.

Promote competitive in procurement of electricity.

Facilitate transparency and fairness in procurement processes

Transparency is ensured by the Guidelines & Standard Bid Documents for tariff based

bidding

Information regarding site, water, fuel linkage, other clearances & project details are made

available to bidders before start of bidding process

Standardization of Bid documents , Bid submission and evaluation process, timeline

for the bidding process, Tariff structure

Tariff to be quoted upfront for the life of the plant and the Regulator to adopt the

tariff arrived through transparent bidding process

Developer has the flexibility to choose optimum unit configuration.

Provides incentive to Developer to adopt innovative financial modeling and tax

planning to ensure competitive tariff & return on investment

Protect consumer interests by facilitating competitive conditions in procurement of

electricity



Case 1 and Case-2 Bidding

Bidding Mechanism

Case-I Bidding Case-2 Bidding

• Location/ technology/ fuel –

not specified.

• Generally done by the

individual state.

• Power developer bids for the

portion or the total power

generated.

• Bidder responsible for

clearances/ approvals etc.

•More relevant for states withlimited fuel sources.

• Higher risk for developer

• Lower risk for state

• Land/ fuel – provided by

procurer.

• Can be done by one or more

states by the formation of SPV.

• The whole power is procured

produced from the power plant.

• States responsible for facilitating

all the clearances

• More applicable for states

where fuel sources are availableor costal areas exist.

• Higher risk for State

• Lower risk for developer

Tariff under Case 2 is expected to be lower than that under Case 1



Case 1 and Case-2 Bidding

Case 1 Bid Case 2 Bid

Location, Technology, Fuel not

specified by Procurer.

Location w.r.t specific Project

wherein Procurer intends to set-up

Power Plant is fixed.

Technology is also fixed

(Super Critical/Sub Critical).

Option of Fuel arrangement could

be either by Procurer or left to the

Bidder.

Only quantum of Power & Deliverypoint is mentioned.

Contracted Capacity is mentioned. Supply is at generator bus-bar.



Case 1 Bid - Qualification Requirement

Technical

Land Bidder should have acquired and have taken possession of at least 50% of the

area of the land. In case of land to be acquired under the Land Acquisition Act, the Bidder shall

submit copy of notification issued for such land under Section 4 of the Land

Acquisition Act

Fuel Domestic Coal – Firm arrangement – mine allocation/fuel linkage

Imported Coal - either acquired mines having proven reserves for at least 50%

of the quantity of coal required to generate power.OR shall have fuel supply agreement for at least 50% of the quantity of fuel

required for a term of at least 5 years or the term of the PPA (which ever is less)

Domestic Gas - Firm arrangements for fuel tie up by way of long term fuel

supply agreement for the quantity of fuel required to generate power from the

generation source for the total installed capacity

Water Bidder should have acquired approval for qty of water reqd

Environment &

Forest Clearance

Bidder should have submitted proposal for Environment & Forest Clearance

Financial

Networth @ Rs 0.50 Cr/MW



Case 2 Bid - Qualification Requirement

Technical

Experience of developing projects (not

necessarily in the power sector) in the last10 years, whose aggregate capital costs

must not be less than the amount

equivalent to Rs. 0.75 Crore.

Out of these projects, the capital cost of

at least one project should be equivalentor more than Rs. 0.125 Crore.

Developing project means successful commissioning of a project in which the

Bidder/Parent/Affiliate, as the case may be, held equity stake of not less than 26%from the time of financial closure till the time of commissioning of such project.

Financial

IRG @ Rs 0.3 Cr/MW

Networth @ Rs 0.50 Cr/MW for capacity upto 2000 MW &Rs 0.25 Cr/MW for capacity exceeding 2000 MW

Annual Turnover @ Rs 1.20 Cr/MW for capacity upto 2000 MW & Rs 0.25 Cr/MW

for capacity exceeding 2000 MW



Tariff Components

Component Designated To Consideration To be Quoted

1. Fixed Charges Capacity Escalable Capacity First year charges

Charges Charges escalated as perrates prescribed by CERC.

2. Fixed Charges Capacity Non Escalable Same Value for -Charges term of agreement

3. Variable Energy Escalable Capacity First year charges

Charges Charges Charges escalated as per rates

prescribed by CERC.

4. Variable Energy Non Escalable Same Value for the

Charges Charges Capacity Charges term of Agreement



Features of PPA

• Terms of Agreement - Condition Precedent/Subsequent to be satisfied by the Seller

and Procurer

• Right to Available Capacity and Scheduled Energy• Liquidated Damages

– For Delay on account of Seller:-

• LD @ Rs 10,000/MW/day upto delay of 60 days from COD

• LD @ Rs 15,000/MW/day for delay > 60 days from COD

– For Delay on account of Procurer:-

• To pay Capacity Charges on Normative Availability for delay period

• Coordination of Construction Activity

• Synchronization, Commissioning and Commercial Operation

• Billing and Payment

• Third party sale on default

• Force Majeure

• Change in Law

• Termination on Events of Default



Benefits of the Competitive Bidding Guidelines

Cost Plus to Competitive Regime to Mature Market.

Shift from the Concept of ROE to IRR.

Thrust on Rapid Capacity Addition.

Potential Players Encouraged.

Lower Project Cost.

Competitive Tariffs.

Faster Development of the Projects.

Higher Benchmark of performance : Heat rate, Auxiliary Power

Consumption, Availability etc.

Ultimate Benefit to Consumer



Bidding TrendsGeneration - Case II Bids Generation - Case I Bids Transmission Bids

Project Lev Tariff State Lev Tariff Agency Quote

Rs mn/annum

Sasan UMPP 1.196 to 2.251 Gujarat 2.25 to 2.89 PFC 1400 to 2400

Mundra UMPP 2.264 to 3.746 MP 2.34 to 3.044 REC

N Karanpura

2580 to 5340

Krishnapatnam

UMPP

2.4914 to 4.197 Haryana 2.355 to 2.94 REC

Talcher II

1440 to 4479

Tilaiya UMPP 1.7704 to 2.756 Gujarat 3.2 to 3.79

Bhaiyathan 0.81 to 2.387 MSEDCL I 2.7 to 3

Talwandi Sabo 2.864 to 3.15 MSEDCL II 2.88 to 3.45

Jhajjar 2.996 to 3.82 PCKL 3.7 to 5.5

Bara 3.021 to 3.984 Rajasthan 3.2

Rajpura 2.889 to 3.29 U.P 3.24 to 4.3

Karchanna 2.97 to 3.984 A.P 3.4 to 5.5

Dhopave 3.666 to 4.045 NPCL 4.08 to 5.4



Concerns – Case 1 Bidding

• Land: Acquisition of 50% land ! – Should be reduced to 25%, in order to

increase competition

• Fuel: Firm Fuel Arrangement ! – In case the bidder has applied for coal

linkage and its application is in priority list with LT-SLC , then it should be

considered.

• Imported Coal - In case if bidder quotes based on use of Imported Coal, its

bid is not at par with the bidders who quotes via domestic coal – Hence,

parity needs to be bridged !

• Fuel Linkage for the phase of Power Station – Bidders are free to quote

w.r.t the phase of Power Station and hence they require the fuel linkage

only for the said phase as bidded and not for the other phase/Power

Station - Still its is not being followed by all Procurers !



Concerns – Case 2 Bidding

Case 2 Bids are not being invited by the States in expeditious manner, due

to the following key issues –

a. Difficulty in Land Acquisition

b. Firm Fuel arrangement

c. Delay in Environmental Clearance

Example

State Project

Karnataka PCKL is trying its best to select the developer for establishment

of 1320 MW of Gulbarga (Jewargi) Thermal Power Plant through

competitive bidding since 2007, however due to non-availabilityof fuel – the bid is still on hold (after RFQ).



Winning Strategies for the Investors (Case- 1)

Pre-bid tie-ups to be in place for the proposed project from where the

power will be supplied

Fuel Water

Land

All Clearances (environmental clearance, forest clearance, Airport

Authority Clearance etc )

Assessment of the fuel transportation cost

The cost of developing the fuel infrastructure like - MGR, Conveyor

system, Coal jetty etc

The transmission cost - wheeling charges

The cost of developing the dedicated transmission line



Winning Strategies for the Investors (Case-2)

Government support for – land, fuel, water, clearances etc (Platter Approach)

EPC

• Commitment of major equipments – Cost and Delivery schedule

• Determination of performance guarantee parameters – heat rate, auxiliary power

consumption, availability etc

• Payment Terms

• Hedging for the exchange rate variation.

Fuel (Domestic)

• In case of captive mining - Assessment of Mine development Cost

- Estimate of the Calorific value

• Cost of developing fuel transportation infrastructure - MGR, Conveyor system etc

Fuel (Imported)

• Tie - up for the Imported coal

• Cost of Fuel Transportation – freight charges



Winning Strategies for the Investors

Financing Assumptions :

• Debt equity ratio,

•Interest rate – Low cost fund from the Government

• ECB borrowing, like Exim banks from where the equipments are sourced

• Longer loan repayment period

• Option of Re-financing

Tie-up with OEM’s for the spares or creating a pool of spares among the power

project developers Selling of By-products like ash/ash brick etc

Selling of CER’s (If the project qualifies)

Vertical Integration – to enter into logistics sector to reduce transportation cost

Incentives for going with the cleaner technology like supercritical/ IGCC



A Way Forward……….

Transmission and Distribution – next focus area.

Policy formulation to enable participation of more private players and

transparency in transmission and especially in distribution. The progress of privatization in distribution is slow, mainly due to lack of political

will as it extremely people centric activity.

People think that privatization is against the interest of the consumers

Privatization of distribution is being attempted in two ways.

• The first is the sale of a government-owned discoms to private (eg –Orissa, Delhi,Ahmedabad, Surat, Mumbai etc) - large mobilization, require major infusion of money,

large risk to to state and private company.

• Second is through appointment of a private distribution franchisee, particularly for loss

making circles (Maharashtra – Bhiwandi, Nagpur, Aurangabad, Uttar Pradesh – Agra

Kanpur, Bihar – Patna, Gaya, Muzzafarpur, Bhagalpur, several others under the pipeline)

- more controlled, focused approach, can be managed with limited funds,implementation is smooth but slow.

Privatization of distribution circles, under the franchisee model, has so far been

possible only in select states.



Thank You



Facts About Indian Power Sector

Power Supply Position during Feb 2011

Energy shortages - 7.2%

Peaking deficit - 10.2 %Generating plants – PLF (April ‘2010 - Feb’2011) All India- 74.33%

Almost 100% of Electricity Transmission in India is owned by public sector.

About 13 % of Electricity Distribution in India is owned by private sector.

All India Aggregate Technical & Commercial (AT&C) losses were 34.54% in

the year 2005-06 which reduced by 2.11% to 32.47% in the year 2006-07.AT&C losses varies from 12.65% to 67.68% during 2006-07 in different

States.

Metering Status: 23 States have achieved 100% Metering at 11 KV Feeder level.

9 States have achieved 100% consumers metering

Source : CEA



Examples for Case - 1

Procures Total Installed

Capacity(MW)

Successful

Bidder

Tariff (rs/unit) Capacity offered

(MW)

Uttar Pradesh 1200 Lanco 1.91 1000

Bihar 1200 Essar (Tori) 2.29 450

Gujarat 3000 KSK 2.34 1010

Gujarat 1320 Adani 2.89 1000

Haryana 1980 Adani 2.94 1424

Rajasthan 1200 Adani 2.95 1200

Maharashtra 2000 GMR 2.59 200



Procures Capacity (MW) Successful Bidder Tariff (rs/unit)

UMPP

Sasan, MP 4000 Reliance 1.196

Krishnapatnam, AP 4000 Reliance 2.336

Mundra, Gujarat 4000 Tata 2.265

Tilaiya, Jharkhand 4000 Reliance 1.77

Others

Karchana, UP 1320 Jaiprakash 2.97

Bara, UP 1980 Jaiprakash 3.02

Rajpura Punjab 1320 L&T 2.89

Talwandi Sabo, Punjab 2000 Sterlite 2.86

Jhajjar, Haryana 1320 CLP 2.99

Bhaiyathan, Chhattisgarh 1320*60% India Bulls 0.81

Examples for Case - 2



Examples for Transmission Projects

Procures Successful Bidder Levelised Tariff (rs

million/anuum)

North Karanpura M/s Reliance Power Transmission Ltd. 2580.0051

Talcher-II M/s Reliance Power Transmission Ltd. 1440.0215

North East Interconnection M/s Sterlite Technologies Ltd. 1187.950

WRSS Project B M/s Reliance Power Transmission Ltd. 084.899

WRSS Project B M/s Reliance Power Transmission Ltd. 564.743