Tariff based competitive bidding for intra state trans. projects

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Information about Tariff based competitive bidding for intra state trans. projects
Finance

Published on March 13, 2014

Author: amitavonag

Source: slideshare.net

Description

Scope of intra-State Transmission Projects in India through Competitive Bidding Process: compiled by Amitava Nag

Intra-State Tariff Based Competitive Bidding for Transmission Works Compiled by Amitava Nag, SE, Regulatory Affairs Cell, WBSETCL Summery As per Tariff Policy 2006, all Intra-State Transmission Projects are to be taken up through Tariff based Competitive bidding with effect from 06.01.2013. Exemption from competitive bidding route may be adopted in (i) first two experimental works for 1200 kV HVDC lines (ii) Works required to be done to cater an urgent situation or which are required in a compressed time schedule by STU as decided by the Central Government on a case to case basis. (Ref. Tariff Policy Amendment dated 08.07.2011). State has been given option either to use VGF based MTA document of Planning Commission or the Standard Bidding Document of Ministry of Power for procurement of intra-state transmission services. For the VGF based bidding, the unitary charges will require to be approved by SERC prior to bidding. The above said guidelines are for procurement of transmission services to select transmission service provider for a new transmission line. A transmission charges for providing transmission service and O&M required for the various transmission elements shall form the basis for bidding. Under the MTA, it has been decided that the prospective bidders would be awarded projects on the basis of lowest grant sought or highest premium offered. Guiding Principle 1. As per GoI Tariff Policy, all Intra-State Transmission works are to be taken up through Tariff based Competitive bidding with effect from 06.01.2013. However exemption from competitive bidding route may be adopted as per Para 7.1 (6) (ii) (ref. Amendment of Tariff Policy dated 8.7.2011) where works required to be done to cater to an urgent situation or which are required in a compressed time schedule by STU as decided by the Central Government on a case to case basis. 2. STU/ Joint Venture Companies of STU are also eligible to participate in the Tariff based bidding. 3. Ministry of Power has evolved a Standard Bidding Document which has been used by some intra-state transmission projects. At the same time, a VGF (Viability Gap Funding) model has been evolved for intra- state transmission projects for which a MTA (Model Transmission Agreement) was developed by the Planning Commission. State has been given option either to use VGF based MTA document or the Standard Bidding Document for procurement of intra- state transmission services. For the VGF based bidding, the unitary charges will require to be approved by SERC prior to bidding. The experience of VGF based MTA is to be reviewed after three years. 4. The above said guidelines are for procurement of transmission services to select transmission service provider for a new transmission line. 5. State Government shall constitute an Empowered Committee. The functions of the Empowered Committee will be (a) To identify projects (b) To facilitate evaluation of bids and (c) To facilitate development of projects. 6. Procurement of transmission services would include all activities related to survey, DPR (Detailed Project Report)/PP (Project Profile) formulation, arranging finance, project management, obtaining transmission license, obtaining RoW, necessary clearances, site identification, land compensation, design, engineering, equipment, material, construction, erection, testing and commissioning, maintenance and operation of transmission lines and/or substations and/or switching stations and/or HVDC links including terminal stations and HVDC transmission line so that the facilities

are available as per target availability fixed by SERC. 7. State Government may notify any Organization/ State Public Sector Undertaking especially engaged for this purpose or BPC notified by the Central Government to be the BPC (Bid Process Coordinator) for State. 8. BPC would be responsible for coordinating the bid process for procurement of required transmission services for each intra-state transmission project to be implemented under tariff-based competitive bidding in accordance with the guidelines. 9. The BPC shall prepare the bid documentation in accordance with those guidelines and obtain approval of the SERC if any material deviation is proposed to be made from Standard Bid Documents. BPC shall specify scheduled month of commercial operation and invite bids for the transmission charge. 10. The bidder shall submit Technical & Price bid (annual tariff payable after commissioning till expiry of license period). CERC has advised GoI to ask bidders to quote bid for a period of 35 years. The selected bidder should be obligated for extension of his license two years before the expiry of initial 25 years. 13. Tariff shall be designated in Indian Rupees only. 14. Tariff structure will have two components- one scaleable and other non-scaleable. Scaleable component shall not be more than 15% of the non-scaleable component. 15. The successful bidder shall be designated as the TSP (Transmission Service Provider) after executing TSA and acquiring Special Purpose Vehicle {SPV (Ref. Electricity Rules 2005)}. 16. TSP shall seek transmission license from SERC if it is not a deemed licensee. 17. TSP shall take-up execution, commissioning and operation of the project as per specified schedule in the TSA. 18. Recovery of transmission charges from the users shall be as per the guidelines. 19. The final TSA along with the certification by the Bid Evaluation Committee shall be forwarded to SERC for adaptation of Tariffs in terms of Section 63 of the Act. Bidding Process 1. BPC shall intimate SERC about initiation of the bidding process. 2. The bidding shall necessarily be by way of ICB (International Competitive Bidding). 3. BPC shall publish the RFQ (Request for Qualification) which is the first stage of tender. 4. RFQ shall contain (i) Brief description of the project (ii) Commissioning milestones to be achieved by the bidders (iii) Qualification requirements to be met by bidders including technical experience, minimum net-worth, internal resource generation, conditions for license, etc with necessary proof of the same. 5. RFP (Request for Proposal) the 2nd stage of tender shall be issued to all bidders who have qualified at the RFQ stage. In case the bidders seek any deviations and BPC finds those deviations are reasonable, the BPC may agree to such deviations and with the approval of SERC BPC shall give the revised bidding document to all who had sought RFP document. 6. RFP shall contain (i) Specified target dates for commissioning and commercial operations (ii) Proposed TSA (iii) Discount factor (iv) Bid bond as well as Contract Performance Guarantee (v) Proposed indemnification agreement between the TSP and the utilities (vi) Liquidated damages that would apply in the event of providing the transmission services (vii) Technical, operational and safety criteria to be met by bidder including the provisions under different rules/regulations under Act. 7. BPC may at its option adopt a single stage two envelope tender process combining the

RFP and RFQ processes instead of two- stage process. 8. A transmission charges for providing transmission service and O&M required for the various transmission elements shall form the basis for bidding. 9. Under the MTA, it has been decided that the prospective bidders would be awarded projects on the basis of lowest grant sought or highest premium offered. In these projects, the state electricity regulators will fix base unitary charges that will determine the revenue stream for the project. Evaluation of Bids 1. The State government shall constitute a Bid Evaluation Committee for evaluation of the bids. 2. The technical bids shall be examined to ensure that the bids submitted meet minimum eligibility criteria set out in the bid documents on all technical evaluation parameters. Only the bids that meet all elements of the minimum technical criteria set out in the bid documents shall be considered for further evaluation on the transmission charges bids. 3. Transmission charge bid shall be rejected if it contains any deviation from the bid documents for submission of the same. 4. Ratio of minimum and maximum transmission charge over the term of license shall not be less than 0.7 to avoid excessive front loading or back loading during the period of contract. 5. Foreign exchange risk, if any, shall be borne by the provider of transmission service. 6. The bidder, who has quoted the lowest levelised annual transmission charge as per evaluation procedure, shall be considered for the award. 7. After selection and issue of LOI from the BPC, the selected bidder shall acquire the SPV, in accordance with the terms and conditions as finalized in the bid document. 8. The TSP shall make an application for grant of transmission license to SERC within one month of issuance of LOI or signing of TSA, whichever is later. 9. The TSA will be effective only upon grant of transmission license from SERC. 10. The final TSA along with the certification by the Bid Evaluation Committee shall be forwarded to the SERC for adaptation of tariffs. VGF (Viability Gap Funding) through PPP in Transmission Projects 1. GoI recognizes that there is significant deficit in the availability of physical infrastructure across different sectors and that this is hindering economic development; whereas development of infrastructure requires large investments that cannot be undertaken out of public financing alone, and that in order to attract private capital as well as the techno-managerial efficiencies associated with it, the Government is committed to promoting Public Private Partnerships (PPPs) in infrastructure development; GoI recognizes that infrastructure projects may not always be financially viable because of long gestation periods and limited financial returns, and that financial viability of such projects can be improved through Government support. GoI formulated Guidelines for Financial Support to PPPs for providing financial support to bridge the viability gap of infrastructure projects undertaken through Public Private Partnerships. 2. VGF scheme, finalised by the finance ministry few years back to promote investment in the infrastructure sector, involves central assistance in the form of grant for capital expenditure up to 20% of the project cost, while the state government being one of the owners could also provide a matching grant with a ceiling of another 20% of the project cost. 3. All PPP (public-private partnership) projects in the power transmission sector, including intra-state transmission networks, will now qualify for government grants under the

VGF scheme, making them attractive to private sector investors. 4. A VGF (Viability Gap Funding) model has been evolved for intra-state transmission projects for which a MTA (Model Transmission Agreement) was developed by the Planning Commission. 5. The States also have the option to use VGF based MTA (Model Transmission Agreement) document of Planning Commission for development of Transmission System in their States under PPP (Public Private Partnership) mode. [Ref.No.15/1/2008-Trans GoI, MoP dated 2.5.2012] 6. Under the MTA, it has been decided that the prospective bidders would be awarded projects on the basis of lowest quote for grant of VGF. In these projects, the state electricity regulators will fix base unitary charges that will determine the total transmission charges for the project. Then bids could be invited based on VGF. The guidelines for determining base unitary charge could be revised by the power ministry from time to time in consultation with the finance ministry and the Planning Commission to prevent misuse of the VGF provisions. The entire mechanism would be reviewed after a period of three years. 7. This scheme will apply only if the contract/ concession agreement are awarded in favour of a private sector company. 8. Contract or concession agreement will be between Government or statutory entity, Private sector company & Lead financial institution. 9. Project cost does not include the cost of land incurred by the government/statutory entity. VGF based MTA (Model Transmission Agreement) of Planning Commission 1. MTA provides the basis for optimal utilization of resources on the one hand and adoption of international best practices on the other. The objective is to secure value for public money while providing efficient and cost-effective services to the users. 2. Three elements determine the financial viability of transmission projects are (i) Concession period (ii) Unitary charge and (iii) Capital costs 3. Concession period is required to be fixed as 25 years (as per Electricity Act 2003) plus 10 years considering useful life (subject to regulatory approval). 4. Unitary charge is to be determined as per MTA (which is broadly in line with prevailing transmission tariffs) 5. Capital cost is the variable that will determine the financial viability of a transmission system. Adoption of cost-effective specifications would, therefore, be essential for reducing capital costs in order to improve viability. 6. The MTA suggests that the unitary charge should not be fixed at a level lower than 75% of the total costs. 7. It has been stipulated that unitary charge subsequent to the first year of operation may be determined by reducing the same to the extent of a pre-determined percentage in the band of 1 to 2 percent per annum. 8. The MTA provides for indexation of the unitary charge to the extent of 30% thereof linked to WPI (Wholesale Price Index). 9. As an added incentive, the MTA allows the concessionaire to create additional capacity and appropriate the transmission tariff from the users of such capacity. 10. Capital subsidies alone may not suffice in meeting the likely gap in viability. One of the options can be to provide development rights over real estate for generating additional revenue to make the project viable. Therefore, provision kept in MTA for real estate development. The MTA provides 25% of revenue

would be shared with the Project Authority. 11. Unlike the normal practice of focusing on construction specifications, the technical parameters proposed in the MTA are based mainly on output specifications. Only the core requirements design, construction, O&M have been specified, leaving enough room for the concessionaire to innovate and add value. In sum, the MTA focuses on ‘what’ rather than ‘how’ in relation to the delivery of services by the concessionaire. 12. The MTA identifies the KPI (Key Performance Indicators) relating to operation of the transmission system and stipulates penalties for failure to achieve the requisite levels of performance. Concessionaire is required to ensure the availability of system capacity at normative levels. The number of forced outages in a year has been capped in order to ensure system reliability. Transmission losses of the transformers must also remain within specified normative levels. 13. The MTA stipulates stiff penalties in case of false declaration by the concessionaire. 14. For monitoring the KPI, monthly status reports and inspections by Independent Engineers have been prescribed. The concessionaire is also required to maintain the requisite ISO certifications for the transmission system. 15. Among the short listed bidders (based on parameters such as concession period, unitary charge, technical parameters, performance standards etc.) who seeks the lowest grant or offers the highest premium, as the case may be, shall win the contract. 16. The commercial and technical risks relating to construction, O&M are being allocated to the concessionaire. Political risks are being assigned to the Project Authority. The MTA provides for extension of the concession of the concession period in order to compensate the concessionaire for specified events. In case extension cannot be granted, MTA provides for a pre-determined monetary compensation to be paid to the concessionaire. 17. MTA stipulates a time limit of 180 days for achieving financial closuree (extendable for another 120 days on payment of penalty), failing which bid security shall be forfeited. 18. Handing over possession of the land required for construction of sub-stations and obtaining of environmental clearances are being proposed as conditions precedent to be satisfied by the Project Authority before financial closuree. 19. Procurement of a transmission license and other applicable permits has been proposed as a conditions precedent to be satisfied by the concessionaire. 20. The MTA requires the concessionaire to procure and maintain right of way. 21. Additional works may be undertaken within a specified limit, but only if the entire cost thereof is borne by the Project Authority. 22. Before commencing the commercial operation the concessionaire will be required to ensure compliance with the specifications relating to safety and quality of service for the users. MTA provides safety certification by the designated Electrical Inspector prior to COD and reviews at regular intervals.

23. O&M is proposed to be governed by strict standards and any violations would attract stiff penalties. 24. MTA provides substitution rights to lenders so that the concession can be transferred to another company in the event of failure of the concessionaire to operate the project successfully. 25. MTA contains the requisite provisions for dealing with force majeure events. 26. Upon expiry of the specified concession period of 25 years, the concessionaire would be entitled to a termination payment equal to 40 times the monthly unitary charge. However, the concessionaire would have the right to seek an extension of 10 years in the concession period and in such an event, no termination payment shall be due and payable after expiry of the extended period. 27. MTA provides for appointment of additional or concurrent auditors to play a critical role in ensuing financial discipline. 28. The MTA addresses other important issues such as dispute resolution, suspension of rights, change in law, insurance, defects, liability, indemnity, redressed of public grievances and disclosure of project documents. References 1. Government of India’s (Ministry of Finance, Department of Economic Affairs)Scheme for support to PPP in Infrastructure July’2005 2. Government of India’s (MoP) Tariff based Competitive-bidding Guidelines for Transmission Service 3. Government of India’s (MoP) Guidelines for Encouraging Competition in Development of Transmission Projects 4. Government of India’s (Ministry of Finance, Department of Economic Affairs) Guidelines for forwarding proposals for financial support to PPP (Public Private Partnerships) in infrastructure under the VGF (Viability Gap Funding) Scheme. 5. Planning Commission’s VGF based MTA (Model Transmission Agreement) for PPP in Transmission System.

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