Opinion Documenting the power struggle

For the power sector,it could well be a case of one step forward and two steps back. The revised standard bidding document readied by the government — covering projects offered to developers under what is termed the ‘case II’ bidding route that was followed for awarding the Ultra Mega Power Projects — seeks to drastically alter the basic framework under which power projects are offered to developers currently. This is being done in an attempt to push through with the competitive bidding experiment,which is on shaky ground in the wake of numerous defaults by developers of upcoming projects.

What needs to be noted is that the Electricity Act 2003,as it exists now,allows the regulator to determine tariffs,alongside the option for market discovery of tariff through the competitive bidding route. In 2006,the government adopted a Tariff Policy that overtly favored competitive bidding. In the standard bidding documents or SBDs evolved at that time,the fuel risk was passed on to the developer,even though in the case of regulated tariffs,fuel cost was entirely ‘pass through’ (or allowed to be recovered from the consumer). Six years down the line,this preference for bidding has run into rough weather,with a number of long term power purchase agreements — including Tata’s Mundra UMPP and Reliance’s Krishnapatnam UMPP — running into dispute. Added to the problem is that fact that ostensibly to develop the market,coal mines and coal linkages were offered to private developers,most of whom are making a killing by selling electricity in the short term market.

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Now,in a course-correction,the bidding documents are being revised to make fuel cost as ‘pass through’ item. But in their overzealousness to “secure” consumer interest,the ministry plans to bring in a provision to have an ‘independent engineer’ posted at each power plant to oversee efficiency of fuel usage. Investors and lenders have already turned wary of the generation sector due to coal and gas shortage and payment default by the states. The overwhelming view among stakeholders is that the new SBDs,the way they are structured currently,with their onerous conditions and protectionist measures,could end up short-circuiting the renewed interest among investors and developers for the generation sector.

Anil is a Senior Editor based in New Delhi.

anil.s@expressindia.com