1. Ahead of Rs 1 lakh-cr bids, pressure to end Power Grid’s perks

Ahead of Rs 1 lakh-cr bids, pressure to end Power Grid’s perks

The government has chalked out a plan to invite bids for power transmission projects worth Rs 1 lakh crore over the next one year...

By: | New Delhi | Published: June 30, 2015 1:23 AM
Sources said transmission projects worth Rs 4,000 crore will be bid out next month by the Power Finance Corporation and Rural Electrification Corporation. (Reuters)

Sources said transmission projects worth Rs 4,000 crore will be bid out next month by the Power Finance Corporation and Rural Electrification Corporation. (Reuters)

The government has chalked out a plan to invite bids for power transmission projects worth Rs 1 lakh crore over the next one year, but this could barely weaken the public-sector monopoly that has long stunted the expansion of the sector unless all bidders are treated at par, analysts say. Like in the projects awarded in recent months, the bulk of the new ones to be awarded could also go to the state-run Power Grid Corporation of India (PGCIL), given its financial muscle, continued state patronage and access to information by virtue of being the central transmission utility (CTU).

Sources said transmission projects worth Rs 4,000 crore will be bid out next month by the Power Finance Corporation and Rural Electrification Corporation.

The government, sources said, has started work on de-notifying PGCIL as the the CTU to ensure a level playing field to private-sector bidders. There is a conflict of interest in PGCIL being a prominent bidder for new projects as well as the CTU, they added.

Over 90% of the power transmission business is carried out and controlled by PGCIL, even though the sector, witnessing a huge capacity deficit, was opened up to the private sector in 2011 to keep pace with the rapid expansion of generation capacity. In contrast, in the generation sector, the share of private investment now is close to 40%.

The CTU status affords PGCIL the strength to outbid its opposition as has been witnessed in the last six projects awarded.

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PGCIL managed to bag 60% of the projects in terms estimated cost by bidding nearly 30% lower than the next best bidder.

The company manages to undercut its competition because of its ability to secure cheaper funds due to its balance sheet and better deals on equipment due to economies of scale that is unmatched by its private peers.

“Although the private-public investment mix in transmission is not healthy at the moment, if the majority of projects are awarded through bidding, going forward it would benefit the the entire power sector,” an executive of a privately owned power transmission company said. He added that despite the stiff competition from PGCIL, the new trend augured well for the industry.

Industry experts say that cost benefit accruing to consumers due to projects awarded under competitive bidding as opposed to those awarded under nomination is undeniable. “The last 13 competitively bid interstate projects till date has offered 40% discount compared to cost-plus projects. This includes projects won by PGCIL that have taken 55% lower returns than on regulated equity model,” an industry expert told FE.

The private sector has also pointed to the massive transmission congestion faced by the country as the entire sector is too dependent on one player. In 2014-15, over 3 billion units of electricity remained unsold due to lack of transmission corridors between north and south. “The situation will aggravate further once proposed hydro and natural gas fired projects become operational in the northeast,” the executive quoted above said.

Consumer Education and Research Society (CERS), a consumer body, has written to power minister Piyush Goyal on the PGCIL monopoly in the sector, saying : “It is regretted that PGCIL is allowed to charge to charge 30% extra tariff on account of projects that bypass bidding process and are awarded citing urgency.” CERS further noted that not only are PGCIL’s projects facing 12-14 months delay, the company, due to lack of competition in the sector, dictates terms in technology selection and hiring contractors.

PGCIL has, in the past, defended its pre-eminent status in the sector on account of being the only company that can execute projects in difficult conditions and terrain. It has also argued that project delay is a function of several factors including delay in commissioning of power plants that afflicts the private sector as well.

However, in spite of PGCIL, power transmission network has only grown 1.5 times compared with doubling of power generation capacity in over a decade, leading to bottlenecks in the system.

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  1. S
    sararaaaj
    Jul 1, 2015 at 1:15 pm
    let bidders not get hopeful . hopefuls have tried for 15 years but have been waiting in cold storage central utility has warded off issue of licenses for 15 yeas and will do so . Govt is fooling people by shown govt is in action time will tell
    Reply

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