The state-owned transmission utility Power Grid Corp (PGCIL) has been flexing its muscles in the competitive bidding for projects in the last two years by placing bids that are as much as 60% lower than the average bids of private participants, thus squeezing out the fledgling competition on the strength of its near monopoly in the sector.
Till 2013, PGCIL had only won two out of eight projects that were awarded through competitive bidding. The other companies who won five of the other six projects include Reliance Power Transmission and Sterlite Technologies. However, in the last two years, PGCIL has won bids for four projects where it undercut the competition through much lower price offering compared to the average price offering for these bids.
Although the power transmission sector was opened to the private sector in 2010, PGCIL continues to command 99% market share. A study in contrast is the power generation sector where the private producers contribute nearly one-third of the capacity after the Electricity Act, 2003 enabled participation of private players.
Private players, speaking on the condition of anonymity, say PGCIL has historically been aggressive in its bids, which distorts the level playing field as it becomes difficult for the nascent private sector in transmission to outdo a monopoly. Besides, a large chunk of transmission projects are doled out to the PSU by the government that has sustained its near total grip over the sector.
Last year, the ministry invoked a ‘compressed time schedule’ provision in the Central Electricity Regulatory Commission (CERC) rules to give eight new transmission projects costing R36,000 crore to PGCIL, overlooking the CERC mandate that recommends tariff-based competitive bidding for transmission projects.
“Power Grid is an experienced inter-state transmission player with significant economies of scale and a strong balance sheet, which positions us to competitively bid for transmission and sub-transmission projects in the 12th and 13th Plans. The company’s bids are aggressive because of our over-all strength and not because we want to disrupt the process”, a company executive said.
The executive further said that while several projects being executed by the company were facing delay due to various reasons, not all are attributable to the transmission giant, it was still the best equipped to handle tricky projects as reflected inthe government’s decision to award projects to the company on a nomination basis.
Last week, bidding for the R6,000-crore Gadarwara A and Gadarwara B transmission closed with private participation from Adani, Sterlite and Essel apart from PGCIL. Two European firms had showed interest earlier but they chose to opt out of the bidding while on the domestic front Tata and L&T also decided to give the bidding a miss. The bids for the project is expected to be opened by the end of this month.
The bids were called by the Rural Electrification Corporation, a wholly-owned subsidiary of the ministry of power, for the Gadarwara transmission project. The project would evacuate the power generated from the upcoming 1,600 megawatt thermal power project of NTPC in Gadarwara, Madhya Pradesh. Bidders are supposed to give two technical and two financial bids each.
A Goldman Sachs report published in March 2013 analysed the PGCIL bid and had this to say: “Prima facie, we believe these bids appear to be very aggressive as PGCIL may not even earn the cost of capital. However, PGCIL may derive some benefits such as: (i) cheaper sources of financing; (ii) lower operation & maintenance expenses; and (ii) lower raw material procurement costs due to economies of scale.”
Domain experts maintain that the best way to solve the current concern of the private players would be to bifurcate the Power Grid’s business into two with one subsidiary managing projects won through competitive bidding while the other takes care of projects that are given on a nomination basis. This will ensure the cost of the former is not passed on to the latter.
