No conflict of interest in PGCIL taking part in competitive bidding, says PGCIL chairman and managing director

By: | Published: September 6, 2018 4:29 AM

Power Grid Corporation of India (PGCIL) transmits over 50% of electricity generated in India through its 1.5-lakh-km circuit transmission lines.

POWER SECTOR, POWER INDUSTRYIS Jha

Power Grid Corporation of India (PGCIL) transmits over 50% of electricity generated in India through its 1.5-lakh-km circuit transmission lines. The state-owned behemoth’s performance metrics remains commendable even after transmission projects being opened to private players through mandatory tariff-based competitive bidding (TBCB). IS Jha, chairman and managing director, PGCIL, during an interview with Anupam Chatterjee, discussed his views on transmission network planning and some prevalent misconceptions related to TBCB projects. Excerpts:

How would you respond to the criticism that not awarding transmission projects through TBCB favours government companies?

I am not sure how people jump to such conclusions, but it is clearly a misconception. Currently, most of the projects are going for tariff bidding. When transmission systems are built, some part of the work overlaps within assets which are already owned by different entities. The norm is, the part of the work which falls within the existing ownership of a particular project is allotted to the asset owner. This eases numerous logistical issues, saves a lot of additional costs, which otherwise would have raised project expenditure and in turn, contribute towards raising electricity tariffs. Only the work which falls within the domain of existing asset owners are being allotted to them irrespective of them being government or private entities. And usually such allocations comprise a small fraction of the overall project.

Are transmission projects executed under cost-plus mechanism more expensive?

This comes from a weaker understanding of the nuances of the sector. People are comparing first year’s tariff under cost-plus with levelised TBCB tariffs. These are not apple for apple comparison as first-year tariffs, by virtue, are always higher than levelised tariffs. For bidding under TBCB, every developer bases their cost estimates on empowered committee reports. Under the cost-plus basis, the levelised tariff is 13.5% of the total project cost, if the debt to equity ratio is 70:30. It further goes down to 12.3% when the ratio is 80:20. Project delays also lower tariffs further under cost-plus. Notably, levelised tariffs for all the 18 projects under TBCB are in the range of 14%-40% of the empowered committee’s estimated costs, much higher than cost-plus norms.

There is an impression that PGCIL’s project completion speed is lower than its private-sector counterparts…

On the contrary, there have been instances where private companies did not complete transmission projects awarded under TBCB, and ultimately, PGCIL had to make alternative arrangements to compensate for the transmission shortfall arising due to that. Irrespective of private and public companies, transmission projects are delayed due to a lot of reasons such as land acquisition, contractor problems etc. However, most PGCIL projects have come much faster than private players. As on May, 14 out of 18 TBCB projects have been commissioned. Out of this, five have been on time of which three were executed by PGCIL. All the other nine projects are done by private players with delays of six to 20 months.

Do you think there is any conflict of interest in PGCIL competing for TBCB projects while also being a part of the transmission planning system?

Transmission planning is done by CEA, CTU and other stakeholders while the bidding processes for selection of transmission service provider are coordinated by PFC and REC. PGCIL is allowed to participate in central TBCBs. It is a completely transparent system. I don’t think there is any conflict of interest in this regard. If that would have been the case, PGCIL would have won all the contracts under TBCB, but that is not the case at all. The power ministry takes such decisions with a lot of deliberations and thinking. Nothing is done in an arbitrary manner.

Did the TBCB system adversely impact the quality of projects?

Under TBCB, transmission systems should be built within a 25-35-year lifeline. Even the developers who built these, get their tariffs over this time span. Therefore, quality issues should be taken care of by them for their own interest. The feeling of ownership should drive them into building long-standing projects. However, some private companies which might want to sell off these assets in three-four years might not be very keen about quality and sustainability. It is obviously true that there are many possible compulsions which warrant transfer of assets. I think these issues can be dealt by including terms and conditions which mandates the developer to run transmission projects for a minimum of five years.

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