Haryana forfeits Lanco's Rs 11-cr bank guarantee

Chandigarh | Updated: Jan 30 2009, 23:25pm hrs
Miffed over its refusal to sign the Request for Proposal (RFP) project document, the Haryana Power Generation Corporation Limited (HPGCL) has forfeited Rs 11.67-crore bank guarantee of Lanco Kondapally Pvt Ltd.

HPGCL says the firm violated the terms and conditions of its agreement for supplying power to the state at Rs 2.355 per unit for the full term of 25 years.

The Corporation has now taken up the matter with the Union Ministry of Coal and Power to reconsider revocation of coal linkage. It has proposed that the Ministry should plug the shortcomings in the RFP documents to make the bidding process more dependable and ensure that companies stick to their commitments.

The Corporation has also urged the Orissa Government to look into the conduct of Lanco and take appropriate action against the firm for backtracking on its agreement.

The Corporation, on behalf of distribution companies Uttar Haryana Bijli Vitran Nigam Limited (UHBVNL) and Dakshin Haryana Bijli Vitran Nigam Limited (DHBVNL), had floated tenders for procurement of power up to 2,000 MW under Case-I competitive bidding route, in which the supplier of power could establish its plant anywhere in the country and the only obligation the procurer has is to purchase power and pay for it.

The offer was well responded to and 18 out of the 25 firms who purchased bid documents submitted their qualification proposals by July 16, 2006. A committee headed by the Chief Secretary evaluated the proposals and selected 14 bidders for issuing the RFP. Seven of the 14 bidders submitted their bids by the due date of November 26, 2007.

The evaluation committee selected three companies -- Lanco, which agreed to supply power at Rs 2.355 per unit for 389 MW; PTC India Ltd at Rs 2.860 per unit for 300 MW and Adani Power Ltd, which offered power at Rs 2.940 per unit for 1,311 plus 113 MW with the approval of the Haryana Electricity Regulatory Commission. Following ratification by the Council of Ministers, the HPGCL issued letters of intent (LOI) to the successful bidders.

However, Lanco failed to submit the RPF project documents, including power purchase agreement (PPA), due on the date of execution -- August 7, 2008. All bidders, except Lanco, signed the PPA. The company also did not submit the performance bank guarantee (PBG) to the Corporation.

A war of words through letters ensued between the Corporation and the company, in which the company said that due to "unavoidable constraints and actions of any agency or the state government concerned, which are beyond the control of the project developer, the developer should not be held liable or penalized". It said that though the company was "vigorously following up with the state (Orissa) government agencies to expedite land acquisition, the uncertainty continues".

It said that on account of circumstances beyond its control, it was not possible for Lanco to sign the RFP documents and no useful purpose would be served in signing the RFP, as the company would be incapable of fulfilling the obligations. It also said that the company would suffer severe financial losses if it signs the PPA, as after that it would have to submit PBG of Rs 29.175 crore, and, in case of delay, it will have to submit an additional bank guarantee of Rs 3.75 lakh per MW for every week of the delay.

But according to the Corporation, the MoU between Lanco and the Orissa government was not made known to it before Lanco's offer was accepted. The situation has not changed since the submission of bids on November 26, 2007, but for the administrative approval for acquisition of 1124.65 acres and a confirmation of availability of 40 cusecs of water from Brahmani river for the project, dated July 21, 2008.

Sanjeev Kaushal, Managing Director of HPGCL, was not available for comment as he was out for a visit to a thermal plant.