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Bidding for Power sector
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Indian Power Sector
Bidding Strategies
& Issues
Rajat Misra
SBICAP
pfi rankings#1 MLA in Asia pacific (# 9 globally)#1 Advisor in Asia pacific (#5 globally)Petrochemicals deal of the year (GGSRL)SBICAP
Power Sector AssignmentsBid Advisory & MLA to TPL for UMPPBid Advisory to CSEB for 1500 MW Bhaiyathan ProjectAdvisor to PGCIL for Tala TransmissionAdvisor to GERC for all rules and regulations under EA03 and Gujarat ActUnbundling & Privatization of DVBCurrent State
The story of futureGDP growth rate 8% will require similar growth in power capacityInstalled generating capacity of 128 GWRequired 200GW / 300GW by yrs 2012/2017Electricity Act 2003 focuses on reforms, competitionPolicies framed under Act reinforce the spiritISSUES
All (??) procurement through bidding No cost-plus projects through MoU (??)AdvantagesCompetitionTransparent processRisk Allocation to Bidder and its LendersIncentivization for EfficiencyISSUES
However, flawed strategy can negate the advantagesFurther, no real competition if mines are allocated in non-transparent mannerDifference in Bids where mines are attached vis--vis case2 bids is evidentBid Scenario
Policy Framework
Section 63 of EA03: ..the Appropriate Commission shall adopt the tariff if such tariff has been determined through transparent process of bidding in accordance with the guidelines issued by the Central Government. Tariff Policy issued in Jan 2006 under Section 3 of EA03Bidding Guidelines
Case I: Location, technology or fuel is not specified Example GUVNL bidCase II: Location specific projectsExample: UMPP, Bhaiyathan, JhajjharStandard bid documents preparedHowever, these should not be taken as the Holy Grail..Bidding Guidelines
Guidelines binding on procurers and deviations to be approved by ERCRole of SERCs extremely importantAppropriate deviations should be approved keeping in view special situations (eg qualification criteria in case of bhaiyathan; umpp; overleveraging)Bidding Guidelines
A 2 part tariff (Capacity and Energy charges) for long term procurement. Combined allowedTariff to be in Indian Rupee only (except)Capacity charges may have separate escalable and non-escalable components.Min/Max capacity Charges > 0.7How feasible is it?Bidding Guidelines
Energy ChargesFixed in Base Year and indexedMay have separate escalable and non-escalable componentsOR fixed for each of the yearsNo provision for heat rate degradation, ambient conditionsBidding Guidelines
Energy Charges for Imported CoalBase Energy Charge to be escalatedImported fuel in USD/kWhTransportation in USD/kWhInland fuel in Rs/kWhEach of above may have escalable and non-escalableDifferent Strategies adopted by Bidders recentlyBidding Guidelines
Combined Capacity and Energy Charges permittedNo escalations above those quoted allowedMin offtake to be specified in Bid doxBidding Guidelines
Indices for bid evaluation by CERCDiscounting rate for levelised tariff calculation to be specified by CERCCurrent Rates are as follows:Evaluation Rates by CERC
ParameterRateDiscounting Rate for tariff10.49%Imported coal fuel7.61%Imported coal transport14.79%Captive mining coal6.39%Developers Perspective
Case Studies
Bidding Steps
Extremely important to have pre-bid tie-ups in placeCommitment on major costsTime period for financial closeInterest rates risk?Escalation & Currency provisions on EPC?Bids not required to be underwrittenBidding Steps
Imported Coal as FuelBidding Strategy and appetite for risk are more importantRecent bids have clearly underlined this factMix of Indexed and non-indexed costs much more importantMore sensitive to variation in qualityImported Vs Domestic
CriteriaDomesticImportedCalorific Value(kcal/kg)35006000Cost (Rs/MT)10002700Variable Cost(Rs/kWh)0.801.4Bidding Scenario
ScenarioAffect on Tariff in spreadsheet exampleD/E 80:208 paiseLoan repayment 15 years7 paiseInterest Rate increase by 1% p.a.3 paiseLenders Views
Paradigm Shift in financing Move from Payment Security based lending to Competitive Tariff based lendingAvoids mistakes of the pastUnbundling, Open Access Provisions drive lenders comfortEncouraging Response from ECA/ECBLenders concerns
Buy Out ProvisionsEvacuation Transmission RiskTime Frame to achieve Financial Closure1 year from date of signing of PPAEnvironmental ConcernsECA/ECB financiersThird Party SaleCure Period- Resumption of supplyForce MajeureLand acquisitionProcurers responsibility!!Change in Law, stillLenders Perception
Imported Coal as FuelTake or pay only at 65% on imported fuelLenders see the above as a risk in long term contracts.What would a developer do??Case Studies
Imported Coal
UMPP Mundra & GUVNL Bids
For UMPP Bids for Mundra, Tata Power and Reliance had different bid strategiesTPL bid numbers were broken into escalable and non-escalable componentsReflects clear direction of owning mine and ships (or equivalent long term contracts) while retaining limited riskUMPP Mundra & GUVNL Bids
Reliance has bid all numbers as escalableReflects strategy of procurement on spot basis for coal and transport No upsides possible unless captive mines / long term contract on different termsWas it conservative or aggressive?UMPP Mundra & GUVNL Bids
For GUVNL bid that was all-inclusive, Adani had bid based on imported coal Tariff for each year fixed and no escalationsRisk of international coal price, transportation cost, forex variation borne by bidderPossible only with ownership / long term contracts for coal & transportWhat about exchange rate risk??UMPP Mundra & GUVNL Bids
How does Adani bid address goals of bidding?CompetitionEfficiencyTransparencyRisk sharingUMPP Krishanapatnam
Significant change in Reliance StrategyWhat do the numbers tell?Summary
For SERCs
Take a pragmatic view on deviations from bidding documentsBE TRANSPARENT ALL BID NUMBERS TO BE IN PUBLIC DOMAINBidding Strategies Take a call on appropriate risk sharing mechanismWHEN TO CANCEL A BID????Any Questions?
Bhaiyathan Model???Thank you
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Australia - Newcastle (6700 kc GAD)China - Qinhuangdao ( 6800 kc GAD)Russia - Vostochny (6700 kc GAD)S.A. - Richards Bay (6000 kc NAR)