Private developers of power transmission lines have upped the ante against Power Grid Corporation of India Ltd for the state-run entity’s alleged ‘cross-subsidisation’ of projects won under the tariff-based competitive bidding.
The move follows the Supreme Court’s recent ruling that state-run Coal India Ltd (CIL) can’t claim impunity from the Competition Act.
“We welcome the Supreme Court’s judgment regarding the CIL falling under the purview of the Competition Commission and understand that the matter has been remanded back to the regulator. On similar lines, all large and influential PSUs would be brought under the purview of the CCI,” India Grid Trust (IndiGrid) CEO Harsh Shah said.
Private-sector power transmission infrastructure developers believe that the large projects being awarded under the regulated tariff mechanism (RTM) with guaranteed return is providing Power Grid Corporation of India Ltd (PGCIL) with an undue advantage in winning other tariff-based competitive bidding (TBCB) projects by quoting lower.
“We believe that there is an advantage (for the PGCIL) due to large scale. However, it’s pertinent to note that most of the scale is on account of RTM projects which are awarded based on cost plus method and 15.5% ROE. However, we don’t believe that current TBCB bids are won on similar thresholds. This is perplexing,” Shah said.
Since the launch of the TBCB in January 2011, the PGCIL has won 39% of the bids and private sector has bagged 61% of the transmission development projects. This is apart from the strategic projects nominated to the PGCIL under the RTM.
“There are fears among private companies about the continued dominance of one PSU in the transmission sector. There is an apprehension that the PGCIL can use its privileged access to funding and legacy projects (with a guaranteed rate of return) to undercut TBCB bids, which can eventually crowd out robust private participation in the sector,” Electric Power Transmission Association (EPTA) director general IS Chaturvedi said.
Power transmission project developers said the TBCB model has been a great infrastructure story and greater participation of private sector will augur well for building critical transmission assets in time and at competitive cost toward India’s energy transition plans. The move towards the TBCB needs to be accelerated.
Chaturvedi said in the interest of probity and transparency, all-out efforts are needed for a complete transition to a truly competitive regime and, perhaps, stricter norms for giving out nomination projects. “Complete institutional separation between PGCIL and Central Transmission Utility of India Ltd is also an area that needs attention,” he added.
India, which has the largest interconnected electricity grid in the world, has more than 4,70,000 circuit km of transmission lines, with the Centre holding a 38% share, states 54% and the private sector a measly 8%.
“There’s an unfair advantage to the PGCIL. Their bids are more competitive under TCB compared to the nomination bids. It basically becomes cross-subsidisation. For reasons which are justified if you are nominating them for something, then their price needs to be reviewed, cross-checked against their bids in the TBCB to avoid any cross subsidization,” said Association of Power Producers (APP) director general Ashok Khurana.
“The basic principle of economics says that price discovery through competition is the best. Competition can be avoided in rare circumstances,” he said.
However, considering the PGCIL having been in this field for a long time, with a strong balance sheet that gives it the advantage on the cost of capital, some analysts don’t agree that there is no level playing field and that PGCIL enjoys “unfair advantages”. They note that more than 60% of the bids have been won by the private developers in recent years.
“The experience of the private sector is building up in this space. Sterlite, Adani, ReNew and other smaller players have all built or are building a good portfolio. The private sector winning 60% is a good amount of participation. What the private sector would want is that most of the projects should be routed through the bidding route and not given through the nomination basis,” said Vikram V, vice-president and sector head of corporate ratings, Icra.