The Hindu : CERC favours competitive bidding for power projects

Online edition of India's National Newspaper
Friday, Jan 02, 2004

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CERC favours competitive bidding for power projects

By Our Special Correspondent

NEW DELHI JAN. 1. The Central Electricity Regulatory Commission (CERC) today initiated the process of competitive bidding for all future power projects involving inter-State generating and transmission facilities. The process will also apply to public sector power companies such as the National Thermal Power Corporation, the National Hydroelectric Power Corporation, the Powergrid Corporation of India, the North Eastern Electric Power Company, the Neyveli Lignite Corporation and the Satluj Jal Vidyut Nigam.

Releasing the draft regulation for terms and conditions for electricity tariff, the CERC said it would like all future power projects to come through the competitive bidding route in order to harness the benefits of increased economic efficiency and ensuring that electricity prices remained in line with costs. The Commission, however, admitted that it would take some time before the power sector could move to a fully competitive regime. The Commission has also urged the Central Government to issue guidelines for competitive bidding as required under Section 63 of the new Electricity Act as that would remove the need for detailed regulation.

The Commission made it clear that the new terms and conditions of tariff would be applicable only to projects taken up on cost plus basis. As for the projects that came through a transparent tariff based bidding process as per the guidelines of the Central Government, the tariff would be accepted by the Commission.

According to the draft guidelines, for new projects, the capital cost would be as admitted by the Commission and this normative debt equity ratio would be 70:30. The capital cost and debt equity ratio of all the stations and transmission lines for which tariff was approved by the Commission prior to April 1, 2004 would continue during the next tariff period, that is, the next five years for which the new norms would be applicable.

The return on equity for the Central public sector undertakings (CPSUs) would be pegged at 14 per cent post tax against the existing 16 per cent post tax. In case of independent power producers (the fast track projects which were approved after 1992) the return on equity would be 16 per cent post tax. But in case the Government provides the same payment security mechanism as extended to CPSUs, the return on equity for the independent producers would also be pegged at 14 per cent post tax.

Depreciation would be allowed over the fair life of the assets at the rate notified by the Commission. In addition, advance against depreciation would be allowed to meet debt service obligations and the repayment period of the loan would be ten years instead of the existing 12 years. Working capital would be allowed on normative basis and the rate of interest applicable would be the short-term prime lending rate of State Bank of India.

The Commission also said income-tax on the core activity of the utility would be reimbursable by the beneficiaries and would be adjusted subsequently, based on the income-tax assessment by the relevant authority. The existing provisions regarding development surcharge for taking up new capacity addition would continue for the next five years.

The Commission has now solicited reactions to its draft guidelines by January 23 so that the regulations are finalised and notified well before April 1. The regulations would be valid for the next five years.

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