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Home News Power Sector News Fuel price fluctuations - Power ministry to revise bid documents

Fuel price fluctuations - Power ministry to revise bid documents

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Gireesh PradhanThe Ministry of Power will, in 2-3 weeks, put out a revised standard bid document for both case-I and case-II bidding, special secretary Gireesh Pradhan said. "But the revised bid document for both case-I and case-II bids will only be on a prospective basis," Pradhan said.

This means the changes will apply only to upcoming projects, including the Orissa & Chhattisgarh UMPPs, and not those that have already been awarded.

Under Case-I bidding, a developer has to decide the location, fuel and technology for the proposed power plant, get all the requisite clearances and acquire land for the same. Here, the onus lies more on the developer than on the government.

In Case-II bidding, the developer has to bid on the basis of a specific location and fuel. The government facilitates acquisition of land and clearances, and signing of power purchase agreements.

The primary issue to be addressed in the new bid document is a provision to cushion unforeseen fuel price fluctuations for power producers.

Companies like Tata Power, Reliance Power, JSW Energy and Adani Power are facing the brunt of the Indonesian government's decision earlier this year to link coal exports from the country to international prices. The decision will significantly increase the players' fuel costs and even make some of their projects unviable.
The developers have written to the power ministry seeking a revision of tariffs owing to the rise in the price of coal.

For example, at the time of bidding for the 4,000 mw ultra mega power project (UMPP) at Mundra in 2006, Tata Power had quoted non-escalable energy charges of 55%, while 45% was escalable.

However, as against the Central Electricity Regulatory Commission's estimate of a 3.47% increase, coal prices have gone up 131% since then, Anil Sardana, managing director, Tata Power, had told DNA in an interview earlier this month.
In just the last one year, the price of coal futures on New York Mercantile Exchange has risen 22% to $75.3/tonne.

Morgan Stanley and Deutsche Bank have in their reports dated September pegged Tata Power's annual losses at Mundra as a result of the increase in coal prices following the policy change in Indonesia at Rs480-600 crore. The company holds 30% in two mines -- PT Kaltim Prima Coal and PT Arutmin -- and a coal trading company in Indonesia, all owned by PT Bumi Resources Tbk.

Pradhan was non-committal on whether the central government would step in to put an end to the power producers' woes.
The developers will have to first negotiate with the state electricity boards (SEBs), which have contracted to buy power from them, he said.

Kameswara Rao, executive director, power, PricewaterhouseCoopers, approved of Pradhan's idea of letting developers parley with the SEBs. "If it's a very new project, then the developer might scrap it or I guess both the developer and the SEB will take a hit," he added.

But then, most SEBs are already saddled with huge debt. Tamil Nadu chief minister J Jayalalithaa recently sought a `40,000 crore bailout to make good Tamil Nadu State Electricity Board's losses.
On other possible changes in the SBD, Pradhan said the tenure of long-term power purchase agreements will also be looked at.

Rao, however, noted that the current standard bid document, introduced in 2006, is "fairly robust" and there might be some broad tinkering on issues like the leeway provided to state government to make changes to it.

Source - DNA


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