17 - Rajat Mishra - Competitve Building Guidelines and Recent Experiences

8/8/2019 17 - Rajat Mishra - Competitve Building Guidelines and Recent Experiences

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Competitive Bidding: Guidelines

and Recent Experience

Department of Industrial and Management Engineering

Indian Institute of Technology Kanpur

3rd

Capacity Building Programme forOfficers of Electricity Regulatory Commissions

23 28 August, 2010

Forum of Regulators

Rajat Mishra, VP

SBI Capital Markets Limited

Indian Electricity Act 1910

- basic framework for development

- growth through public & private licensee

Electricity (supply) Act 1948- intervention of state and creation of SEBs

Electricity Regulatory Commission Act 1998

Electricity Act 2003

INDIAN POWER SECTOR REGULATORY FRAMEWORKIndian Power Sector - Evolution


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Current State

GDP growth rate of 8% to 9% will require similar

growth in power capacity

Installed generating capacity of 160 GW (March

2010)

Required over 200GW / 300GW by yrs 2012/2017

Electricity Act 2003 focuses on reforms, competition

Policies framed under Act reinforce the spirit

Generation:

All procurement through bidding makes processtransparent

Slowly beginning to attract foreign players also esp Case II

Foreign Lenders also making a comeback

Mundra UMPP attracted Multilaterals and ECAs

No cost-plus projects through MoU??????

Issues of gold plating etc FULL CIRCLE

Deviations decrease confidence of external players

Opportunities


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Generation:

Paradigm Shift in financing

Move from Payment Security based lending to

Competitive Tariff based lending

Open access very important

Retrograde steps on open access and cross subsidy hurts investor

and lender sentiments

Avoid mistakes of the past

Opportunities

Transmission:

Interregional transfer capacity to increase to 32.7 GW by 2012, to 57 GW by 2015

& 75 GW by 2017

Planned XIIth Plan investment is Rs 2,400 bn - Rs 1,400 bn in central sector

(interstate system) & Rs 1,000 bn in the state sector (intra-state system)

Empowered Committee 14 Projects identified

First 3 projects awarded

Tenders for the next 3 projects launched

State level projects

First PPP project awarded by HVPN to Kalpataru

Rajasthan project awarded by RVPN to GMR

UP has also invited tenders for state level projects

Private sector to be involved in development of evacuation systems for UMPP

Opportunities


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Competitive Bidding Guidelines

Sec 63 of the Electricity Act states that:

Background

Notwithstanding anything contained in section 62, the

Appropriate Commission shall adopt the tariff if such tariff

has been determined through transparent process of bidding

in accordance with the guidelines issued by the Central

Government.

The guidelines have been framed under the above provisions of

the Act.

Issued by the Ministry of Power on 19th January 2005


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Objectives

Promote competitiveprocurement of electricity

Facilitate transparency and fairness in procurement processes: Transparency ensured by Guidelines & Standard Bid Documents for

tariffbased bidding

Enhance standardization and reduce ambiguity and time for materialization

of projects

Standardization of Bid documents, Bid submission and evaluation

process, timelinefor biddingprocess, tariff structure

Provide flexibil ity to suppliers on internal operations while ensuring

certainty on availability of power and tariffs for buyers

Tariff to be quoted upfront for life of plant and Regulator to adopt tariff

arrived through transparent biddingprocess as specified by Guidelines

Developer has flexibilityto choose optimum unit configuration Provides incentive to Developer to adopt innovative financial modeling

and tax planning to ensure competitive tariff & return on investment.

Period of Procurement

Long Term Medium Term

For 7 or more years From 1 upto 7 years

Procurement Applicable For

Seasonal Power Peak Load: ???

Ideally suited for

hydro

Base Load

Scope


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Bidding Mechanisms

Case 1 Case 2

Scope

Location/ technology/

fuel not specified

Bidder responsible for

clearances/ approvals etc

More relevant for Stateswith limitedfuel sources

Higher risk for developer

Lower risk for state

Land/ Fuel provided by

Procurer

More applicable for

States where fuel

sources are available or

having coastalareas

Higher risk for State

Lower risk for developer

Tariff under case 2 expected to be lower than that under case 1

Procurement by more than

one distribution licensee

through a combined bid

process permitted through

authorized representative.

In case distribution licensees

are located in more than one

State, CERC shall be the

AppropriateCommission

Tariff Structure

Non Escalable

(Firm Price)

Medium Term

Long Term

One Part Tariff

Two Part Tariff

Energy Charge

Escalable

(Base Price withIndex)

Base Price

(with Index)

NQHR

Index notified by CERC

Optional

Capacity Charge

Tariff in INR only except FERV

on imported coal in case II

Min/Max Capacity Charge >

0.7


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Current CERC Rates

Parameter Rate

Discounting Rate for bid evaluation 9.35%

Escalation Rate Domestic coal 6.01%

Escalation Rates Imported Coal

Coal sub-component 16.4%

Transportation sub-component 16.23%

Inland handling sub-component 5.11%

Bidding Process

Two stage process for Long term procurement: Request for Qualification (RFQ)

Request for Proposal (RFP)

For Medium term the procurer has an option to adopt asingle stage tender process combining the RFP & RFQ

process.

The bidding shall be necessarily by way of InternationalCompetitive Bidding (ICB).


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Project Capacity (MW) Winner Bid Price

UMPPs

Sasan UMPP 4000 Reliance power 1.196

Krishnapattam

UMPP4000 Reliance power 2.336

Mundra UMPP 4000 Tata Power 2.265

TilaiyaUMPP 4000 Reliance Power 1.77

Others

Karachana, UP 1320 Jaiprakash Assoc. 2.97

Bara, UP 1980 Jaiprakash Assoc. 3.02

Rajpura, Punjab 1320 L&T 2.89

TalwandiSabo 2000 Sterlite 2.863

Bhaiyathan 1320 India Bulls 0.81

Case 2 Bids

Project Winner Tx. Charge (Rs. Mn)

WRSS Project B Reliance Power 1084.899

WRSS Project C Reliance Power 564.743

East-North Interconnection Sterlite Energy 1187.95

North Karanpura Reliance Power 2580.0051

Talcher-II Reliance Power 1440.0215

Rajasthan PPP GMR 356.50

Transmission Bids

HVPNL has awarded the 1st transmission project based on VGF to consortium of

KalpataruPowerTransmission and Techno- Electric and Engineering Company Ltd

Quoted one time grant of Rs.93.90 Crs and unitary charge of Rs.4.5 crs/month


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Project DeveloperInvestment

(Rs bn.)

Parbati-Koldam PKTCL [RPTL (74%) and Powergrid (26%)] 10.00

WRSSS-II RPTL 13.85

Sugen TPGL [Torrent Power (74%) and Powergrid (26%)] 3.20

Karcham-Wangtoo JPL [(Jaypee (74%) and Powergrid (26%)] 10.00

Mahan Essar Power Transmission Company 8.57

Teesta Urja TPTL [(Teesta Urja (74%) and Powergrid (26%)] 7.00

Mundra (Adani) Adani Power 15.00

Tiroda

MEGPTCL [Adani Power (74%) and Mahatransco

(26%)] 43.79

Jaigad

Jaigad Power Transco (JSW Energy -74% and

MSETCL 26%) 4.46

East-North Interconnection Sterlite Technologies 18.00

Talcher-II RPTL 9.00

North Karanpura RPTL 41.00

HVPNL (evacuation for Jhajjar

and power from Adani Power)

Kalpataru Power Transmission and Techno-

Electric and Engineering Company Limited 3.82

Transmission - Private Sector Projects

20.18

23.37

30.6

0

5

10

15

20

25

30

35

2007 2008 2009

Volume(BnUnits)

Volume Transacted Through Traders & Power

Exchanges

40%

41%

9%10%

Break-up of Short Term Transactions (2009)

UI Bilateral (Through Traders)

Bilateral (Between DISCOMS) Through Power Exchanges

30% increase in volume of power

transacted through traders & exchanges

from2008 to 2009

In 2009, short-term power market

(including UI) was 8 per cent of the total

generation

2009 was 1st year for procurement of

power by industrial sector consumers

through power exchanges (IEX only)

The volume transacted through power

exchanges could have been 17% higher

but was restricted due to transmission

congestion

Short Term Transactions - Volumes


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Price of Short-Term Transactions of Electricity (Rs/Kwh)

Bilateral Through Traders Power Exchange UI (Grid)

Period RTC Peak Off-Peak Total IEX PXIL New SR

Jan-09 7.43 8.55 6.78 7.23 6.16 6.86 4.99 7.61

Feb-09 6.89 8.16 6.19 6.58 6.85 7.42 4.89 7.68

Mar-09 7.35 8.08 7.53 7.43 8.33 8.54 4.85 8.2

Apr-09 6.83 9.05 8.47 7.21 10.1 10.18 5.36 6.04

May-09 6.60 8.18 8.03 6.82 6.84 8.74 4.17 3.99

Jun-09 5.04 6.44 5.07 5.05 7.39 9.60 4.94 5.1

Jul-09 4.72 5.92 4.98 4.75 4.81 4.85 4.12 4.67

Aug-09 4.46 6.32 5.77 4.64 7.40 6.15 6.29 5.85

Sep-09 4.6 6.02 5.48 4.73 4.00 4.32 5.02 4.20

Oct-09 4.86 6.48 5.8 5.07 4.73 5.18 4.24 5.83

Nov-09 5.05 5.76 5.91 5.33 3.16 3.39 2.72 3.79

Dec-09 4.96 5.12 5.06 4.99 3.22 3.07 3.26 3.92

Prices of short-term transactions were higher during Apr-Aug period

The price of electricity transacted during peak, RTC and Off-peak periods shows a

declining trend and converged by December 2009

Short Term Transactions - Prices

Developers Perspective

Case Studies


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All assumptions to be questioned

Determine the Hurdle Rate for IRR

Criteria shifts to IRR from RoE

Hurdle Rate usually determined by Cost of

Equity and risk profile

Typical IRR for cost-plus is 11-12%

RISK TO BE ASSUMED

Bidding Considerations

Extremely important to have pre-bid tie-ups in

place

Commitment on major costs

Time period for which commitments would

hold

Interest rates risk?

Escalation & Currency provisions on EPC? Fuel Price Risk?



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EPC:

Costs: Are the Chinese really cheap?

Performance guarantee on heat rate, aux

Sensitivity on domestic and imported coal

Degradations

Construction schedule

Currency, payment terms

Availability of ECA financing


Domestic coal as fuel:

Mine development expense

Calorific value estimates

Cost of ash disposal

Cost of transportation MGR etc

Operations cost

Mix of Indexed and non-indexed costs



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Imported Coal as Fuel:

Bidding Strategy and appetite for risk aremore important

Mix of Indexed and non-indexed costs muchmore important

More sensitive to variation in quality

HUGE RISK PERCIEVED BY LENDERS

FC may get delayed Sponsor Support


Criteria Domestic Imported

Calorific Value

(kcal/kg)

3500 6000

Cost (Rs/MT) 1000 2700

Variable Cost

(Rs/kWh)

0.80 1.4

Imported Vs Domestic


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International Coal Prices

3224 27

5545

5061

120

70

95

0

20

40

60

80

100

120

140

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 (till

June)

$/tonne

Prices indicative of upward trend since 2001

Prices increased in 2007 owing to huge demand from Asia, mainly China

Supply constraints, like port congestion (Australia), floods in Indonesia & strike at exportterminals (South Africa) also led to increase in prices in 2008

During 2009, prices fell as a result of global financial crisis

Current coal prices hovering around USD 95 per tonne - indicating close to 35% increase

over the previous year

Some Issues with Coal Supply

Of the 219 coal blocks allotted to private players, 40 were declared no-go byMoEF

India will have to import approx. 80 million tonnes of coal by 2011-12

Indonesian government change in Law

cap coal exports to 150 million tonnes annually from

2010 onwards

Indonesian coal Index for sale of coal

Will Sponsors continue to cross subsidise in rising coal pricescenario?


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Financial Assumptions

Financing Mix and sources to be decided

Large projects like UMPP have to source mix of RTL

and external financing

Limited availability of ECB for sector and such tenures

ECA are a viable option

Time consuming Equator Principles to be followed for ECB/ECA funding


Bidding Scenarios

Scenario Effect on Tariff

D/E 80:20 8 paise

Loan repayment 15 years 7 paise

Interest Rate increase by 1% p.a. 3 paise

Open worksheet


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Case Studies

Some Bids

Reflects different strategies and risk appetite of

Bidders

For GUVNL bid that was all-inclusive, Adani had bid

based on imported coal

Tariff for each year fixed and no escalations

Risk of international coal price, transportation cost, forex

variation borne by bidder

Possible only with ownership / long term contracts for coal& transport

GUVNL Bid


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For UMPP Bids for Mundra, Tata Power and Reliance haddifferent bid strategies

TPL bid numbers were broken into escalable and non-escalable

components

Reflects clear direction of owning mine and ships (or

equivalent long term contracts) while retaining limited risk

Reliance had bid all numbers as escalable

Reflects strategy of procurement on spot basis for coal and

transport

No upsides possible unless captive mines / long term

contract on different terms

Was it conservative or aggressive?

UMPP Mundra

CERC Levelised Tariff: Rs 1.77

Base Operating Parameters:

Base CaseUMPP Sasan: Base Case

Auxiliary consumption 7.5%

O and M Values: Rs. 1 Mn/ MW

Coal price escalation 6.77%

Senior debt repayment period: 11 years

Plant load factor 80%

Levelised Tariff Quoted by Reliance Power : Rs 1.196 / Kwh

Project Cost / MW

(Rs Mn)

Project IRR

(%)

Equity IRR

(%)

Base Case 40.48 7% 0%


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Senstivity Analysis - Cumulative

7%

7.43% 7.81%

9.23%

9.30%

4.63%

0%

3.00%

8.77%

12.77%

0%

2%

4%

6%

8%

10%

12%

14%

1 2 3 4 5

Scenarios

ProjectIRR

0%

2%

4%

6%

8%

10%

12%

14%

EquityIRR

UMPP Sasan: Sensitivity Analysis

Scenario 1 2 3 4 5

Rate of interest 11.0% 8.5% 8.5% 8.5% 8.5%

Auxilary 7.50% 7.50% 6.50% 6.50% 6.50%

PLF 80.00% 80.00% 80.00% 90.00% 90.00%

Repayment period 11 11 11 11 18

Rate of interest 11.0% 8.5% 8.5% 8.5% 8.5%

INFERENCE ( SASAN)

Impact of Rate of Interest and debt repayment period is the

highest

In this case the repayment period is 18 years/Other cases 10-12

years

Most of the loans planned with Re-Financing

Some Major loans from IFC/ADB planned as long tenor loan

Rate of interest greatly brought down by huge ECB borrowing

Tariff of Rs. 1.196 p.u. extremely aggressive

Reliance can make project viable only by squeezing every variable ROI,

Auxiliary consumption, Tenor of loan, PLF and other non-traditional

venues

UMPP Sasan: Inference


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Use of bi-products flyash, Steam

Fly ash used in production of Cement

Reliance plans Cement factory near Sasan to utilize flyash

Low pressure steam to be used in production of fertilizer

Alternate use of coal

Additonal Coal from Captive Mine to be used in setting up other

power plants

Certified Emission Reduction(CER)

CERs could be traded in the Market for $15-$20

Vertical Integration

Entering into logistics Sector to reduce cost of transportation

UMPP Sasan: Alternate Revenue Sources

KPCL Case 2 Bid Gulbarga

Capacity 1320 MW

Location Gulbarga, Karnataka

Coal Domestic/International - ?

Procurers 5 DISCOMS of Karnataka

Key Details Coal to be arranged by the bidders either Domestic or Imported

Land and other approvals arranged by state

Plant location around 1000 kms by rail from nearby ports

Comfort letter required at bid stage from Domestic coal supplier

regarding supply for entire PPA tenure

FSA to be signed within 12 months from LoI

Bid requirements practically rule out any participation based on domestic coal linkages

allotted are project specific, developers with captive blocks prefer merchant plant

Imported coal also a practical no-go due to plant location nowhere near a port.Imported coal based tariffs would be very high

Is this really a well thought out Bid -?


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Payment Security offered differs widely

amongst states

Best recourse is 3rd party sale in case of default

Domestic mines offer a significant upside

potential

Imported coal bidding strategy differs on risk

appetite

Opportunities

Health of distribution companies

Too much capacity addition expected from Private Sector

Shortage in equipment supply

Slow Execution pace

Absence of Data on performance of Chinese equipment esp in

Indian Conditions

Funds crunch in Indian Financial market Sector/Firm/ group

Exposure Land Acquisition, R&R and approvals

Constraints


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Conclusion

Indian Power Sector has come a long way in terms of liberalization

Electricity Act 2003 combined with NEP, NTP have promoted competition/

better tariff for end customer

However developers should be aware of certain pitfalls

Competition from Captive Power Plants

Merchant Power tariff assumptions too high

Efficiency assumptions may not be entirely achievable in India

Government should play more proactive role

Sector exposure/Financial closure issues eased out

Development of Power trading model to be handled carefully

Path Ahead Really bright

Thank You

Questions?


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Appendices

Transmission Projects: Private sector

Source: India Infrastructure Research

Project DeveloperInvestment

(Rs bn.)

Parbati-Koldam PKTCL [RPTL (74%) and Powergrid (26%)] 10.00

WRSSS-II RPTL 13.85

Sugen TPGL [Torrent Power (74%) and Powergrid (26%)] 3.20

Karcham-Wangtoo JPL [(Jaypee (74%) and Powergrid (26%)] 10.00

Mahan Essar Power Transmission Company 8.57

Teesta Urja TPTL [(Teesta Urja (74%) and Powergrid (26%)] 7.00

Mundra (Adani) Adani Power 15.00

Tiroda

MEGPTCL [Adani Power (74%) and Mahatransco

(26%)] 43.79

Jaigad

Jaigad Power Transco (JSW Energy -74% and

MSETCL 26%) 4.46

East-North Interconnection Sterlite Technologies 18.00

Talcher-II RPTL 9.00

North Karanpura RPTL 41.00

HVPNL (evacuation for Jhajjar

and power from Adani Power)

Kalpataru Power Transmission and Techno-

Electric and Engineering Company Limited 3.82


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Case 1 Bids

RELIANCE INFRASTRUCTURE (1500MW), May 2010

Bidder

Quantity

(MW) Location

Levelized

Tariff

(Rs/Unit)

Levelized

Transmission Charge

(Rs/Unit)

Levelized Tariff Net of

Transmission Charges

(Rs/Unit)

PPA Signing

Date

Wardha Power 320 Maharashtra 3.42 0.33 3.09 Not Signed

RKM Powergen 300 Chattisgarh 3.72 0.33 3.39

Reliance Power 150 Maharashtra 3.99 0.33 3.66

Reliance Power 1241 M.P. 3.69 0.33 3.36

Corporate Power 380 Jharkhand 4.57 0.73 3.84

BIHAR (1500MW), Oct 2009

Bidder

Quantity

(MW)Location

Levelized

Tariff

(Rs/Unit)

Levelized Transmission

Charge (Rs/Unit)

Levelized Tariff Net

of Transmission

Charges (Rs/Unit)

PPA Signing

Date

ESSAR (Tori) 450 Jharkhand 2.64 0.35 2.29 July 2010

Monnet Ispat

(PTC)200 Orissa 3.62 0.35 3.27

KVK Nilanchal

(PTC)250 Orissa 3.97 0.35 3.63

Ind-Bharath

(PTC)250 Orissa 3.99 0.35 3.65

GMR 191 Orissa 4.05 0.35 3.70

JAS Infra 500 Bihar 4.22 0.35 3.87


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GUJARAT (3000MW), Jan 2010

RAJASTHAN (1200MW), Nov 2009

Bidder

Quantity

(MW) Location

Levelized

Tariff

(Rs/Unit)

Levelized Transmission

Charge (Rs/Unit)


of Transmission

Charges Rs/Unit)

PPA Signing

Date

Adani Power

Rajasthan Ltd1200 Rajasthan 3.24 0.284 2.95 Jan 2010

GMR Kamalanga 100 Orissa 3.81 0.677 3.13 -

Ind Bharath Energy

(Utkal) Ltd 200 Orissa 3.95 0.677 3.28 -

RKM Powergen 300 Chattisgarh 4.30 0.596 3.71 -

Jindal India Thermal

Power450 Orissa 4.38 0.677 3.70 -

Bidder

Quantity

(MW) Location

Levelized

Tariff

(Rs/Unit)

Levelized

Transmission

Charge (Rs/Unit)


of Transmission

Charges (Rs/Unit)

PPA Signing

Date

KSK Energy Ventures 1010 Chattisgarh 2.34 0.265 2.075 June 2010

Shapoorji Pallonji 800 Gujarat 2.80 0.265 2.535 May 2010

Essar Power Ltd. 1000 Gujarat 2.80* 0.265 2.535 May 2010

KARNATAKA (2000MW), Jan 2010

Bidder

Quantity

(MW) Location

Levelized

Tariff

(Rs/Unit)

Levelized

Transmission

Charge (Rs/Unit)

Levelized Tariff Net of

Transmission Charges

Rs/Unit)

PPA Signing

Date

Monet Power (PTC) 150 Orissa 3.76 0.83 2.93 Not Signed

Thermal Power Tech

(PTC)430

Andhra

Pradesh3.77 0.458 3.31

Meenakshi Energy

(PTC)200

Andhra

Pradesh3.80 0.458 3.34

JSW 600 Maharashtra 3.81 0.756 3.06

East Coast Energy

(PTC)400

Andhra

Pradesh3.89 0.458 3.43

NCC Power Projects

(PTC)400

Andhra

Pradesh3.89 0.458 3.43

MSEDCL (2000MW), May 2010

Bidder

Quantity

(MW) Location

Levelized

Tariff

(Rs/Unit)

Levelized

Transmission

Charge (Rs/Unit)


of Transmission

Charges (Rs/Unit)

PPA Signing

Date

GMR EMCO 200 Maharashtra 2.88 0.287 2.593 March 2010

India Bulls1200 Maharashtra 3.27 0.287 2.983

Apr & Jun

2010

Adani Power

Maharashtra1200 Maharashtra 3.28 0.287 2.993

March 2010


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Other Case I Bids

Bid Details L1 L2 L3PPA Signing

Date

Haryana2113MW

Nov 2007

GMR

Kamalanga2.86 Rs

300 MW

Adani Power

Mundra2.74 Rs

1424 MW

- August 2008

Madhya

Pradesh2000MW

Nov 2007

Lanco Infratech2.34 Rs

600 MW

Reliance Power2.70 Rs

1241 MW

Essar Power

(Mahan)2.95 Rs

300 MW

Not signed

Case II Bids

BIDDER PROJECT BID PRICE (Rs/Kwh) OUTCOME

Jaiprakash Assoc.

Nov 20081320 MW, Karachana, UP 2.97

L 1

Jaiprakash Assoc.

Feb 20091980 MW, Bara, UP 3.02

L 1

L&T

Dec 20091320 MW, Rajpura, Punjab 2.89 L 1

Reliance power

July 2007

Sasan UMPP

4000 MW1.297 L1

Reliance power

Nov 2007

Krishnapattam UMPP

4000 MW2.33

L1

Tata Power

Dec 2006

Mundra UMPP

4000 MW2.265 L1

Reliance Power

Aug 2009

Tilaiya UMPP

4000 MW1.77 L1

India Bulls

Apr 2008

Bhaiyathan

1320 MW0.81 L1

Sterlite

Jul 2008

Talwandi

2000 MW2.863 L1

17 - Rajat Mishra - Competitve Building Guidelines and Recent Experiences

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