The Indian Railways may have lost an opportunity to reduce its electricity bill by Rs 430 crore, as it was asked to enter into a bilateral power purchase agreement with Ratnagiri Gas and Power (RGPPL). The railways had earlier floated bids for procuring 500 MW of power it needed additionally.
The transporter’s electricity bill stood at Rs 12,000 crore last fiscal. While the railways stands to save nearly Rs 4 per unit with the deal with RGPPL, as the current average cost of power procured from the Maharashtra discom is Rs 8.50 per unit, it could have saved a further R1 per unit if it had taken the competitive bidding route for procuring power. The tariff offered by RGPPL is Rs 4.70 per unit, but in one of the bids for 50 MW, the national transporter found Adani Power to be the lowest bidder at Rs 3.7 per unit. The average cost of power for the railways nationally is around Rs 6.75 per unit.
If Adani Power’s bid is taken as the benchmark for competitive bids, the railways would have saved R1 per unit compared with RGPPL’s rate, amounting to Rs 438 crore. “The decision for procuring power from RGPPL was made before the results of a 50-MW tender were announced. We had not anticipated that we would get power at such a low rate for our 50-MW tender.” a railway official, requesting anonymity, told FE.
RGPPL, which is owned jointly by NTPC, GAIL, the state of Maharashtra and a handful of lenders, has had a long history of being a stressed asset due to unavailability of cheaper domestic gas. With the railways as a buyer, the gas-based power has ended its struggle to find buyers due to its expensive power.
However, the move has disappointed several coal-based private power producers, who had been looking to grab a chunk of the 1,010 MW of tenders originally floated by the railways. The transporter, after its deal with RGPPL, has cut down the capacity to be tendered by 500 MW and has floated fresh tenders for only 585 MW. “The railways should have gone ahead with the bidding route for tying up the entire capacity that it had originally floated. Looking at the response in the other tenders, there was a good chance it would have got a better deal that it did with RGPPL,” Jayant Cavale, MD, RattanIndia Power told FE. He added that the curtailed tender from the railways meant that it was ‘one opportunity less’ for independent power developers like his company in an environment where PPAs were hard to come by.
It is estimated that over 10,000 MW of coal-based capacity is currently looking for buyers, as the debt-ridden state-owned power companies have clamped down on buying power. Though the current year, with more 7,000 MW of PPAs, has been the most prolific since 2011-12, the rapid capacity addition during the intervening period has ensured that many power plants are still without buyers.
The railways’ bilateral treaty with RGPPL seems like a move to help the plant and the associated lenders, which are mostly government-owned banks. However, this would hit private-owned plants and their lenders as it robs them of an opportunity to sustain their operations, a senior official of an private power company lamented.
Under Suresh Prabhu, the railways has been aggressively looking to cut down its energy cost by opting for the competitive bidding route for power purchase. The national transporter has petitioned the Central Electricity Regulatory Commission (CERC) to declare it as a deemed licencee, a move that would allow it to wheel power from cheaper sources while avoiding a cross-subsidy surcharge usually levied on commercial customers by state discoms.