Private power companies, such as Tata Power, Reliance Power, Jindal Steel and Power Ltd and Lanco Infratech, among others, are not entirely happy with the new bidding norms proposed by the Power Ministry. They want the Government to address critical issues, such as fuel costs and the impact of changes in global and domestic regulations on power projects, before the new norms are finalised.
Last week, in separate letters, the private companies sought the intervention of Jyotiraditya M. Scindia, Minister of State for Power (Independent Charge). They requested the Ministry to come up with a framework that offers clarity and that would make more players bid for power projects.
The Power Ministry is ready with case-II standard bidding documents, where the bidder offering the most efficient capacity charges and heat value will be the winner. The norms will be placed before an empowered Group of Ministers (eGoM), headed by Defence Minister A.K. Antony, on Thursday.
New Model
The most crucial difference between the Government and the companies is the shift from a build, own and operate (BOO) model to design, build, finance, operate and transfer (DBFOT) structure.
Under the DBFOT model, the project developer will not have ownership of the land and the plant. This also means that lenders will not get security on project assets.
“This is a major structural change, which will cause confusion and risk in funding of projects. BOO is a proven system globally, which need not be changed,” said the Chief Executive Officer of one of the power companies.
However, the Power Ministry is of the view that the issue has been taken up with the RBI, which, in turn, will have to ask banks to consider the power projects for financing. “RBI can ask only Indian banks. This will restrict any foreign funding of the projects,” the official said.
Under the new norms, the fuel price is proposed to be capped at Coal India-notified prices for domestic captive mines, with partial escalation. According to the Anil Ambani-promoted Reliance Power, each mine has unique characteristics, and therefore, a price cap based on Coal India prices, which are based on the depreciated assets of the miner, is unworkable. Moreover, the Government proposes to keep free 15-20 per cent of the capacity in each project for merchant sales.
“Not allowing a long-term power purchase agreement for the entire capacity creates uncertainty for the developer. There may not be buyers for merchant power. The spot prices have also crashed drastically,” said an official at a private power company.
In addition, the new norms prescribe the engagement of an independent engineer for myriad activities. According to Tata Power, this will be intrusive and obstructive. Also, the companies have pointed out that the termination provisions are more stringent than required.