Reworked Guidelines: Revised SBDs aim to increase private participation

Revised SBDs aim to increase private participation

After private players pulled out of the bidding process for the Bedabahal and Cheyyur ultra mega power projects (UMPPs), leading to the cancellation of the tendering process in 2015, the central government realised the need to revise the standard bidding documents (SBDs). To this end, it formed an expert committee headed by Pratyush Sinha, a former head of the Central Vigilance Commission. On December 29, 2015, the committee released a draft of the revised documents for imported coal-based UMPPs, which was open to stakeholder views and suggestions till January 15, 2016. The revision attempts to address developer concerns regarding variations in imported coal costs through a provision for blending. This is a significant amendment, particularly in the case of the Mundra UMPP, which is seeking a compensatory tariff following the rise in Indonesian coal prices.

Indian Infrastructure takes a look at the draft SBDs for imported coal-based UMPPs…

Bidding process

As per the proposed guidelines, the UMPPs will be set up on a build-own-operate basis and follow the conventional two-stage bidding process comprising the request for qualification (RfQ) and request for proposal (RfP). Prior to the issuance of the RfQ, the procurers are required to incorporate two special purpose vehicles (SPVs): an operating SPV and an infrastructure SPV. All statutory approvals and clearances are to be obtained in the name of the operating SPV and the same is to be transferred to the successful developer after the bidding process is completed. Meanwhile, the land required for constructing the power station will be held by the infrastructure SPV and be leased to the operating SPV by the procurers.

As the upcoming UMPPs will be set up in plug-and-play mode, the procurers will get the environmental impact assessment report and in-principle approval for water linkages before issuing the RfQs. Activities like site identification, land acquisition, environmental and forest clearances, application for transmission connectivity, and the compilation of hydrological, geological, meteorological and seismological data will be undertaken before the issuance of the RfP. The bidder quoting a levellised tariff will be awarded the UMPP.

Salient features

The proposed guidelines call for the pass-through of input cost variations to consumers. The escalation rate for variable charges (separately for fuel, sea transportation, inland handling, inland transportation, and operations and maintenance) will be notified by the Central Electricity Regulatory Commission every year. The revised guidelines also provide the flexibility of constructing UMPPs in a phased manner. Developers can undertake projects in two phases, setting up at least 50 per cent of the contracted capacity in the first phase and the remaining in the second phase.

A key provision has been included in the context of the blending of imported coal with domestic coal in order to reduce fluctuations in imported coal prices. The procurer (discom) can ask the developer, after providing a 30-day notice, to blend domestic coal up to 30 per cent of the total requirement. The domestic coal to be blended with imported coal will be arranged by the procuring discom while imported coal will continue being sourced by the developer. Prior to the issuance of the notice, both parties are required to mutually agree to the revision of variable charges corresponding to the percentage of domestic coal to be utilised for blending. The variation in the landed cost of domestic coal should be at least 10 per cent less than the landed cost of imported fuel. The variable charge corresponding to the percentage of domestic coal to be utilised for blending will be determined by the appropriate commission.

The decision to continue the blending arrangement is the procurer’s prerogative and switching back to the old mechanism can be done after a notice period of 90 days; in this case, the variable charge will again be determined by the commission. It is important to note that the procurer’s right to request the developer to blend imported coal with domestic coal or to switch back to imported coal can only be exercised once during the term of the power purchase agreement (PPA), unless the parties mutually agree otherwise.

The draft PPA also specifies the incentives and disincentives for developers during the operation of a plant. The developer will receive an incentive of 50 per cent of the fixed charge if the plant availability is more than the normative availability in a particular year. A penalty of 25 per cent of the fixed charge will be imposed if its availability for a contract year is less than 85 per cent.

With these proposed SBD revisions, the central government hopes to attract greater private sector participation in upcoming UMPP bids.