At a time when cash-strapped state electricity boards (SEBs) are averse to buying power, Indian Railways has emerged as a potential saviour for idling power projects.
Railways, the state-owned transporter, has stepped up its efforts to reduce electricity costs and has called for bids from power producers to supply 1,010 MW of electricity over three years.
Indian Railways has floated the tender through Railway Energy Management Co. Ltd for sourcing electricity in the eastern region (350 MW), west (440 MW) and north (220 MW). This is in addition to 500 MW it plans to buy from the Ratnagiri Gas and Power Pvt. Ltd's Dabhol plant in Maharashtra.
"The electricity is to be supplied for three years from March 2017 to March 2020," said a person aware of the development. The person didn't want to be named.
The railways is trying to take advantage of its position as the largest consumer of power in the country to bring down its electricity costs. The national transporter needs about 12 billion units of electricity a year, with consumption growing at an average 5% per year. Its power bill is estimated at Rs.11,000 crore for the current fiscal year.
By calling for competitive bids, the railways expects to benefit from lower tariffs. The transporter is seeking to reduce its electricity cost to less than Rs.5 per unit from the present average of around Rs.7 per unit.
Queries emailed to an Indian Railways spokesperson remained unanswered till press time.
Cash-strapped SEBs have been unwilling to procure electricity, given the low tariffs they earn for power supply, slow progress in reducing losses and higher power purchase costs. SEBs are laden with debt of Rs.3.04 trillion and accumulated losses of Rs.2.52 trillion.
"Progress w.r.t. (with regards to) tie-up of new long term PPAs (power purchase agreements) by state owned distribution companies continues to remain slow with sizeable generation capacity having no long-term PPAs; timelines for implementation of tariff compensation for the affected thermal IPPs (independent power producers) remain uncertain," rating agency Icra Ltd wrote in a 7 July report.
"In Icra's view, the financial position of state-owned distribution utilities in many states continues to remain weak, with large subsidy dependence, and limited progress in loss reduction against the regulatory targets in some states and high debt levels," the report said.
Indian Railways plans to buy electricity from the Dabhol plant, offering a lifeline to the 1,967 megawatt (MW) power project now owned by Ratnagiri Gas and Power Pvt. Ltd.
The national transporter plans to reduce electricity bills by nearly one-third by seeking competitive bids from power producers, sourcing from electricity exchanges and reaching bilateral arrangements. This plan was articulated in this year's railway budget.
"Although a bulk consumer, railways pays extremely high charges for traction power," railway minister Suresh Prabhu said in his budget speech. "It is proposed to procure power through the bidding process at economical tariff from generating companies, power exchanges and bilateral arrangements. This initiative is likely to result in substantial savings of at least Rs.3,000 crore in next few years."