Indian Railways on Thursday signed memorandum of understanding with Adani Power Ltd., to buy electricity to run its trains, as part of its plans to purchase electricity from private power producers through competitive bidding route at cheaper rates and trim its costs.
According to the terms of memorandum of understanding with Adani Power, Indian Railways will procure 50 Megawatts of power for the next three years at Rs3.69 per unit of electricity. The electricity will be received at Dadri and Phaphund powergrids from where Indian Railways will take the power, when the supply commences before March 2016.
“We expect to save Rs150 crore in electricity bill due to the signing of this contract” a senior railway official told FE on condition of anonymity.
The price at which Adani Power will supply electricity will be almost half of what the Indian Railways’ currently spends for an average unit of electricity.
Last fiscal, the national transporter consumed nearly 17.5 billion units of electricity at an average cost of Rs6.75 per unit, amounting to an electricity bill of Rs12,322 crore. That roughly translates into 18% of its total expenses.
“Indian Railways will save around Rs5000 crore in the coming three years due to our shift to competitive bidding.” said Railway Minister Suresh Prabhu on Thursday.
The deal with Adani Power is part of a larger plan that Indian Railways has ventured to cut its electricity costs, as suggested by the Central Electricity Authority to procure power from private producers by calling in competitive bids.
Electricity is the second-biggest expense for the Indian Railways after employee costs. By lowering its power expenses, the national transporter aims to improve its financials, since increasing passenger fares is often a sensitive issue.
The Indian Railways plans to procure 440 MW of power for the western region, 350 MW for the eastern region, 220 MW for the northern region.
The national transporter has tied up with Ratnagiri Gas and Power Ltd., for procuring 500 MW at Rs 4.70 per unit, and in addition has floated a tender for 585 MW power for various states on behalf of Zonal Railways, for which 44 bids have been received.
In the current round of bidding, Indian Railways has chosen to sign three-year power purchase agreements (PPAs) as it looks to test the market before delving into long-term PPAs in the future.
“We are also in talks with state- owned distribution companies to reduce their tariff charges as a result of which Maharashtra and Madhya Pradesh have already agreed to reduce their tariff.” the railway official added.