Presentation on Case I & Case II Bidding Projects ... - Infraline

Case I & Case II Bidding Projects:
Evaluating Competitive Regime
S. C. Manocha
CEO & Whole Time Director (LITL -EPC)

REFORMING POWER SECTOR IN INDIA
Policy actions
• EA 2003 introducing
– Non-discriminatory open
access 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
Evolving market structure in power sector
National
‘Tariff’
Policy
• Open access
• Competitive bidding
Comp. Bidding
Guidelines
Electricity
Act 2003
Open Access, Sec
63/ Section 79( 2)/
Sec 60
Contestable
Price
Discovery
Competitive
new
generation
Possible Wholesale /
Retail Competition

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 and
Introduction 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 notified
2005
• 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 Policy
Aims & 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 – transitional
window 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 with
limited 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 available
or 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.
‣ Only quantum of Power & Delivery
point is mentioned.
‣ 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.
‣ Contracted Capacity is mentioned.
‣ Supply is at generator bus-bar.

Case 1 Bid - Qualification Requirement
Technical
Land
Fuel
Water
Environment &
Forest Clearance
Financial
Networth @ Rs 0.50 Cr/MW
‣ 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
‣ 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
Bidder should have acquired approval for qty of water reqd
Bidder should have submitted proposal for Environment & Forest Clearance

Case 2 Bid - Qualification Requirement
Technical
Experience of developing projects (not
necessarily in the power sector) in the last
10 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 equivalent
or 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
for capacity exceeding 2000 MW
MW & Rs 0.25 Cr/MW

Tariff Components
Component Designated To Consideration To be Quoted
1. Fixed Charges Capacity Escalable Capacity First year charges
Charges Charges escalated as per
rates 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 Trends
Generation - 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
Krishnapatnam
UMPP
2.4914 to 4.197 Haryana 2.355 to 2.94 REC
Talcher II
Tilaiya UMPP 1.7704 to 2.756 Gujarat 3.2 to 3.79
2580 to 5340
1440 to 4479
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
Karnataka
Project
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-availability
of 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

Examples for Case - 2
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 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