In letter to Piyush Goyal, private gencos raise concerns over UMPP bidding norms

Written by Sumit Jha | New Delhi | Updated: Oct 20 2014, 06:31am hrs
Private power producers have raised several concerns over bidding norms for ultra mega power plants (UMPPs), particularly the design-build-finance-operate-transfer (DBFOT) model where lenders exposure to the project is not fully secured.

Under the model, developers are required to transfer the power plant to the government at the end of the contract period, a provision that makes potential lenders jittery.

Last week, Adani Power, Jindal Power and Sterlite Energy pulled out of the bidding process for a UMPP proposed to be set up at Bhedabahal in Odhisha. GMR Energy pulled out of a planned UMPP at Cheyyur in Tamil Nadu.

These companies, and others in the power sector, argued in a recent letter to Piyush Goyal that the DBFOT model relegates the developer to the status of a BOT contractor after he has brought in finance, technology and other inputs, adding that the Central Electricity Regulatory Commission had also opined that the DBFOT model was better suited for natural monopoly businesses and not for delicensed businesses like generation.

Under the banner of the Association of Power Producers, the companies said that while the intent of the bidding documents was to ensure that the volatility in fuel prices is passed on to the consumer, this has not been implemented in practice owing to the way the norms are formulated. The contracts, they said, attempted to pre-determine the fuel pricing trajectory over the full project cycle through price caps.

It is their choice. I do not dictate what companies do. Bidding is an open forum for everybody to choose, power minister Piyush Goyal said on the withdrawal of private players from the second stage of bidding.

Adani, Jindal Power and Sterlite had purchased the request for proposal (RPF) documents for the Bhedabahal UMPP, and GMR for the proposed Cheyyur plant, after making the cut for the RFQ round. State-owned NTPC now remains the only player in the fray after the withdrawal of these firms.

The companies also told the power minister that the formula to determine the annual fixed cost in PPA should be done away with as the provision will lead to inability to repay debt and maintain a healthy cash flow. They said they felt the technical and operating norms for UMPPs were discriminatory vis-a-vis those for other plants, besides not being aligned to CERC norms. Furthermore, changes have been sought to limit the role of independent inspector to only a few parameters of the plant so as to restrict the intrusive nature of such inspections.

They pointed out that while a procurer utility can terminate its contract with the developer on account of default in 27 events, the developer only has three event of defaults under which a PPA can be terminated with a procurer. The association has sought equity in the termination clause citing that a developer could be dealing with up to 17 procurers at one time, leading to potential misuse of the provisions.