Pune-based Prayas Energy Group sees an improvement in power capacity addition since the introduction of competitive bidding, but it says that the process must be above board

Competitive bidding for power projects has significantly improved the tempo of capacity addition in the country, but the bidding process must be transparent, with necessary regulatory oversight and scrutiny, and developers must adhere to contractual obligations if the gains are to be sustained, according to Prayas Energy Group.

In a report titled 'Transition from MoU to Competitive Bidding: Good take-off but turbulence ahead', published last week, Prayas has analysed issues arising from the shift in policy for new power projects and how this has progressed over the past five years. Prayas is a non-government organisation based in Pune set up by professionals  working to protect and promote public interest in health, energy and education fields through various initiatives.

The report points out that the guidelines for competitive bidding, issued in 2005, are not being followed consistently and that critical provisions on transparency and accountability are being compromised. In this respect, it says, it is necessary that changes are not made to benefit a particular developer and that such practices can be curbed through periodic reporting on the ongoing bidding exercise to the appropriate regulator and undertaking public hearings before initiating any changes in the projects.

Prayas has focused on coal-based thermal capacity contracted on a long-term basis through the bidding process. The Electricity Act 2003 enabled competitive bidding that encouraged private sector investment in power generation. The guidelines were notified by the power ministry in 2005.

The Act allows industries to set up captive power plants and also gives consumers a choice to select the power generator through an 'open access' mechanism. Over the past five years, state electricity distribution companies have contracted over 42,600 MW capacity through the competitive bidding route, Prayas reports.

On the issue of transparency, Prayas says many states do not make public on websites the information of the bidding for engineering, procurement and construction (EPC) contracts which has led to questions on the integrity of the process.  It has recommended that it be made mandatory to upload the bid documents, the bid evaluation  spreadsheet and evaluation report, certificates, correspondence and all other agreements  with the successful bidder, for the benefit of the common people .

In this respect, Prayas has proposed the setting up of a central information repository that will compile all such important information and documentation for each bidding process in each state. It says that necessary amendments should be made to the bidding guidelines to allow citizens easy and timely access to this information. Similarly, an modifications to be made in the bid evaluation spreadsheet in a particular case should be done only under the approval and supervision of the regulatory commission.

The NGO has also described certain problems that continue to hamper work for developers, like the acquisition of land, securing environment clearance and uncertainty over fuel supply that may result in non-compliance with the power purchase agreement (PPA). It says that in these situations, provisions may be considered for multi-stage bid bonds, and to ensure procurer's rights over the generation plant in case of default by a developer.

Prayas thinks that the tariff discovery through the bidding process has been quite competitive vis-à-vis projects coming up on a cost-plus basis. For example, the capacity charge of competitively bid Case-1 projects is equivalent to the capital cost of about Rs3.5 crore to Rs4.5 crore per MW, whereas many cost-plus projects have a capital cost between Rs4.5 crore and Rs5.8 crore per MW.

The report highlighted the failure of the Independent Power Producers (IPPs) policy in the 1990s, under which IIPs were allowed to set up power plants by signing memorandums of understanding (MoUs) with respective state governments. But, Prayas says, due to the lack of transparency, the power sector saw small capacity additions during the 1990s. The controversial Dabhol Power Corporation set up by Enron in Maharashtra is a classic example of a governance crisis during the IPP era. The IPP process not only resulted in high project cost, but it also failed to bridge the growing demand-supply gap.