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Issues With Tariff Based Competitive Bidding Under Case I Route

Issues With Tariff Based Competitive Bidding Under Case I Route

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Published by Richa Lal

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Published by: Richa Lal on Nov 20, 2011
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IDFC ENERGY ADVISORY BOARD
February, 2010
Issues with Tariff based Competitive Bidding under Case I route
Issue 1: Qualifying requirementsa. Land:
The Bidder should have acquired and have taken possession of atleast 50% of the area of the land as indicated in the environmentalclearance (eg. TOR) and also
certify through an affidavit 
the total landacquired for the power station and that there are no pendingclaim(s)/litigation of any nature against/involving the Bidder vis-à-vis landand that the Bidder has absolute rights and authority to establish and runpower plant on the land.
b. Fuel:
In case of
domestic coal
, the Bidder should have fuel tied up
for the total installed capacity 
for the term of the PPA.
In case of
imported coal
, the Bidder shall have either acquired mineshaving proven reserves for at least fifty percent (50%) of the total installedcapacity for the term of the PPA or should have at least signed FuelSupply Agreement for five (5) years for the total installed capacity.
Similarly for domestic gas and RLNG.
c. Water:
The Bidder shall have acquired approval for the quantity of waterrequired for the power station.
 
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d. Environmental & Forest Clearance:
The Bidder shall have submitted therequisite proposal, for the final environmental clearance approval.
Comments and suggestions:Land:
A
 
Bidder needs to meet the entire technical qualifying requirement listedabove to qualify for the tender. This in turn means that the project developer needsto spend money upfront for acquiring 50% of the
land 
when the financial closure ofthe project has not been achieved. Only bidder with deep pockets can meet therequirement. Another relevant issue here is that many developers plan a phaseddevelopment of the project. However, they need to take environmental clearancefor the entire planned capacity of the project. This implies that even if a bidderwishes to bid for the capacity being targeted in the first phase of the project or apart of the capacity being targeted in the first phase of the project, there may be asituation where he would need to show land acquisition for more than that phase.
Therefore, it is suggested that the condition of land availability should be modified such that land acquisition is correlated with the phase of development of the project.
 
Fuel:
As regards the
fuel 
, most of the projects that have received the coallinkages do not meet the qualifying requirement of having fuel for the total installedcapacity. They either do not have the quantity of fuel on normative basis or thelinkage, if available, is only for one unit whereas the project is defined inenvironmental clearance as two units. This leads to the project getting disqualifiedunder the qualifying requirements. The issue of fuel gets further compounded incase of coastal projects wherein as per the policy, the coal linkage is to beprovided for only 70% of the requirement and the balance has to be tied-up by thedeveloper through import. Thus effectively, if a coastal based project has onlydomestic coal linkage then as per the SBD document, the bid becomes non-responsive and can get rejected if the imported coal is not tied for the balanceinstalled capacity. In fact, the linkage available for non-coastal projects is alsousually not sufficient when computed on normative availability basis, which hasresulted in projects getting tagged as non-responsive in tender evaluation.
 
 /8 3
Therefore, it is suggested that the condition of fuel availability should be modified such that fuel availability or tie-up in case of coal based projects is correlated to 70% of the coal linkage according to the phased development of the project.
Environmental & Forest Clearance:
The process of obtaining environmentalclearance is time taking. Therefore, it is possible that at the time of bidding, theprocess of obtaining such clearance is in an initial or intermediate stage. While it isrecognized that the process of public hearing and its outcome has a crucialbearing on the fate of the clearance, the condition of submitting the proposal forfinal environmental clearance approval is somewhat restrictive. Given that theprocess of bidding takes time to culminate, it is possible that the proposal for finalenvironmental clearance may be submitted by the time of opening of the financialbid.
Therefore, it is suggested 
 
that the condition of environmental and forest clearance should be modified such that the bidder is required to submit the requisite proposal, for the final environmental clearance approval by the time of opening of the financial bid 
. If at the time of opening of the financial bid,the bidder is not able to meet this requirement, the bid should be returned asunresponsive or disqualified.
Issue 2: Contract Performance Guarantee
The successful bidder is required to provide a Contract Performance Guaranteewithin thirty days of issue of Letter of Intent (LoI) by the Procurer. This Guaranteeis determined on the basis of Rs. 30 lakhs/MW of the total Contracted Capacity.The first issue here is that the level of Guarantee may turn out to be very high (for1000 MW, Rs. 300 Crores) and a bidder without deep pockets may be unable tofurnish such guarantee prior to the financial closure of the project.
Therefore, it is suggested that the level of the Contract Performance Guarantee may be lowered. It may be argued that lowering the level of this guarantee may encourage non-serious bidders. To take care of such concerns, the termination cost of the PPA may be increased and kept at a very high level so that it prohibits non-serious bidders.

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