A program to open India's power-generation sector to private developers is showing promise despite a bumpy start in the bidding for one of its first two projects. The apparent low bid for one project is facing challenges from competing bidders, who allege that the bidder misrepresented its qualifications. But the developer for the second project is awaiting final award, and successful bidders for two others in the program will be selected by July. Five other projects in the Ultra Mega Power Project (UMPP) program are planned.
Indian Power Minister Sushil Kumar Shinde last December issued letters of intent to award the first two UMPPs to the selected successful bidders. A consortium of Globeleq Singapore Pte. Ltd. and Lanco Infratech Ltd. was the apparent low bidder for the Sasan project in Madhya Pradesh state. Tata Power Company Ltd. won the Mundra project in Gujarat state.
The two UMPPs of 4,000 MW each will be designed with five 800-MW supercritical pulverized-coal boilers. The Sasan plant is being constructed near a coal mine, but the Mundra project, which will be on the coast, will operate with imported coal. The developers were selected on the basis of lowest quoted tariff. Altogether 16 companies had submitted bids for participation in the two power projects.
But the award of the Sasan project to the Globeleq Singapore and Lanco consortium now is in question following an investigation by the project's bid evaluation committee. Questions were raised by some of the other qualified bidders, including Mumbai-based Reliance Energy Ltd., the second-low bidder, because of alleged misrepresentation of facts in the consortium¹s bid.
Lanco had tied up with Singapore-based Globeleq for the bid. The protests allege that Globeleq, a shell company, bid for the Sasan Project without the express consent of its parent and that Globeleq (UK) did not financially back its subsidiary. Globeleq is a subsidiary of DFID, a U.K. government agency for investments in developing nations.
During the bid process, India-based Jindal Steel and Power and Lanco Infratech's holding company, Prince Stone Investments, bought out Globeleq Singapore Pte. Ltd. Jindal was one of the eight short-listed bidders for the Sasan project and had qualified on both technical and financial grounds.
Lanco officials respond that there was no misrepresentation and that the company's reliance on its parent¹s technical and financial qualifications is in accord with the criteria in the bid documents.
The fate of the Sasan power project now looks uncertain, as the government will have to decide whether to call for a rebid or consider another bidder. Sources say the government may prefer a rebid. Lanco¹s disqualification could hinge on two issues‹alleged misrepresentation of facts and the change of ownership from Lanco-Globeleq to Lanco-Jindal. The Sasan Power Board has not yet decided on the challenge. Sasan Power Ltd. is a shell company set up as a wholly owned subsidiary of the state-owned Power Finance Corp. Ltd. (PFC) to facilitate tie-ups of inputs and clearances of the Sasan project.
With the Sasan bidding process mired in controversy, PFC has now decided to appoint a consultant with expertise in vetting contracts and commercial transactions for Ultra Mega Power Projects in the pipeline. The consultant would be mandated to assist PFC in evaluating bids for technical consultancy firms and in preparing bid documents and other contract documents.
The award of these projects is the culmination of a process that already has lasted three to four years. The UMPP program envisions construction of nine 4,000-MW powerplants by 2012 for an estimated $3.5 billion per project. They are critical to India's goal of "power for all" by that year. Meeting the mark would require adding 100,000 MW of generating capacity to the country's installed total, which stood at 131,400 MW in 2004, according the the U.S. Dept. of Energy.
The developers for two other UMPPs, Krishnapatnam (Andhra Pradesh state) and Tiliaya (Jharkhand state), are expected to be selected by April and July, respectively. Five more such projects will come up as the Ministry of Power, Central Electricity Authority and PFC are working together for development of all nine UMPPs through tariff-based competitive bidding. PFC has been appointed as the nodal agency and it will set up special purpose vehicles for each of the power projects.
The SPVs would have the responsibility of ensuring key inputs for the projects, such as preparation of a detailed project report, land acquisition, allocation of fuel linkages or coal blocks, allocation of water, appointment of consultants for environmental impact assessment, power delivery, rating of projects, permitting, off-take or sale of power and related issues. Once all the inputs have been tied up and requirements met, the SPVs would be transferred to potential investors, thereby reducing initial time.
Sasan and Mundra Projects
The plan is for the Sasan and Mundra projects to be awarded to developers on a build-own-operate basis. The contract includes construction, execution, operation and maintenance of a 4,000-MW supercritical coal-fired power project for its life cycle. The size of these projects enables them to meet the power needs of a number of states through ultra-high-voltage transmission of power regionally and nationally.
The Sasan project has already obtained a water permit from Madhya Pradesh. Coal will come from a mine about 25 km away. Sasan Power Ltd. now is awarding contracts to consultants for environmental, hydrological, socio-economic and other studies. Completion of the studies is scheduled within three months.
The proposed Mundra project in Gujarat will receive coal imported through Mundra port 22 km away and will be cooled by desalinated water from Kotdi-Creek on the Gulf of Kutch. The successful developer construct the desalination plant near project.
Bidding for the Sasan and Mundra was based on power tariffs. This approach differed from the fixed two-part tariff structure, which is the norm with most power projects, and it implies that power will be available at a cheaper rate to consumers. The large size of the projects is intended to allow developers to derive the benefits of economies of scale.
The earlier practice, where power generating companies were offered mandates based on capital cost and a fixed rate of return, prompted the generators to inflate capital costs with a view to seek a higher return. Lanco¹s and Tata Power¹s low bids were based on consumer costs of 2.8¢ and 5.3¢ per kilowatt-hour, respectively.
Sources say that Lanco was prepared to order equipment from China-based Dong Feng Electric, ignoring overtures from the better-known Western suppliers of power equipment. South Korea's Doosan is believed to be negotiating with Tata.
The main objective of the UMPPs is to attract private sector participation in power generation in India and the federal government is also wanting active involvement of concerned state governments to tackle the power-related problems in their respective states. Before this, the federal government alone made most of the power generation decisions.