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Bidding to raise power generation

V. Jayanth

Tariff-based competitive bidding could hold the key to attracting investment in the power sector.

THE TARIFF-BASED competitive bidding process, evolved by the Planning Commission and the Union Power Ministry, could be the road to stepping up power generation in the country. The bidding is being conducted by the public sector Power Finance Corporation (PFC). The target is 70,000 MW of additional power capacity by 2012.

The bid of Rs.1.19 a unit of power by the Lanco consortium, which includes the U.K.-based Globeleq, for the 4,000 MW pithead-based Sasan project in Madhya Pradesh, and the Tata Power Company's Rs.2.26 a unit for the Mundra project in Gujarat show the advantages of the process. The Mundra project is an imported-coal-based one. Both the winners expect to achieve financial closure by 2007 and complete the project over a five-year period. Lanco's first unit could go on stream in 36 months from the time of financial closure.

Now that a competitive tariff-based bid for such projects is possible, the Power Ministry may have fewer problems developing at least nine mega projects. The PFC will have separate special purpose vehicles for each of these projects to push through the clearances, especially with regard to land, water, environment, and forest related issues.

Power Ministry sources say the major problem in wooing private and foreign investment is the tariff. Under the present regimen, it is not possible for the investors to supply electricity either to the State Electricity Boards (SEBs) or directly to the consumers (where possible) at competitive rates. The SEBs are seeking power at around Rs.3 a unit; the State Governments are naturally reluctant to frequently raise the power tariff.

"With the advent and success of tariff-based competitive bidding, we are hopeful that not just these nine, but more mega power projects can be pushed through in the next five years. The problem rests in the long gestation period for such projects. Ideally, we should get through these nine by early 2007 to ensure they come on stream by 2012, which is the target date," the sources say.

It has been difficult for the SEBs to ensure timely and uninterrupted supply of coal from the coalfields dotting the country's eastern region. Though the Centre and the related Ministries offer to tie up States with dedicated blocs of coalfields, Electricity Board sources say this has not always been possible. Some States have gone in for coal imports to meet 20-25 per cent of their needs each year.

If pithead-based or imported-coal-based projects become the order of the day, the private sector and foreign investors may be more willing to jump into the fray. And at such competitive rates, the SEBs will have no problems purchasing the power from them.

The National Thermal Power Corporation, for example, was pushed to fourth place with its bid of Rs.2.12 a unit for the Sasan project. It was out-bid by three private groups.

With the creation of a national power grid and consequently the possibility of exporting power from the surplus to the deficit States or regions, officials say the mega projects can be conveniently located.

They can come up either closer to the coalfields or be set up near ports to facilitate easy imports. That should reduce the cost of power production. It remains to be seen if the Sasan and Mundra bids will ignite new interest in the power sector.

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