Subhash Narayan Posted online: Saturday, Aug 03, 2013
New Delhi : The public-private partnership (PPP) model in the power transmission sector seems to be struggling even as it takes shape.
None of the seven projects with projected combined investments of around R10,000 crore, awarded through a tariff-based competitive bidding process, are close to completion.
The slowdown is attributed by industry sources to the poor project planning by the Power Finance Corporation and Rural Electrification Corporation and aggressive bidding by firms, including the public sector Power Grid Corporation (PGCIL) that continues to be the monolithic player in this segment. The successful bidders sitting on projects, including PGCIL, however, said the delays are mostly regulatory.
While two projects bagged by Reliance Infra — North Karanpura and Tacher — have faced delays on account of statutory clearances and land-related issues forcing the company to look at the exit option, two projects bagged by PGCIL early last year have not made any headway either.
As per the bidding norms, the successful bidder has to complete the projects in 36-months time. This has also created a situation where the relevant power project is ready, but in the absence of a transmission network, is unable to be of any use to beneficiaries.
"Apart from poor planning by executing agencies such as REC and PFC, one of the main reasons why the projects awarded have failed to make a mark is the aggressive bidding by few companies, including PGCIL.
They (Power Grid) won Nagapattinam and Vemagiri projects together worth around R2,600 crore early last year but are yet to place equipment orders for the same and have also approached the regulator CERC for revision of tariffs," said an official of a private sector power transmission firm that also participated in the PPP bids being invited in the sector.
This charge , however, is refuted by PGCIL.
A company official asked not to be named said: "The charge of aggressive bidding is completely baseless. We have received license from the CERC for Nagapattinam project only two days back and are still waiting for the Vemagiri project.
Perhaps the regulator has taken into account delays in power projects associated with our transmission projects." He, however, admitted that
price of these projects would have to be re-negotiated as already there is a delay of 18 months and costs have gone up.
A look at the inter-state tariff-based bidding process for projects such as North Talcher won by Reliance Infra and Nagapattinam bagged by Power Grid reveals that second-best bidders have quoted amounts 45% and 55%, respectively higher than the winners, giving credence to the allegation of aggressive (below-cost) bidding.
"We are not making these bids to cut competition but it is part of our strategic decision-making process. As a PSU, we have the mettle to compete with the best in the industry," said the PGCIL official, adding that its strategy to bag more projects would continue when projects worth another R9,500 crore come up for bidding in remaining period of current fiscal year.
It is expected the PFC and REC would invite bids for about seven more projects this year. While participation in past bids has been good and all major transmission players, including L&T, Simplex, Reliance Infrastructure, Jaypee, Tata Power, Sterlite Grid, Isolux, Gammon will likely bid for the new projects, there is a feeling among some of these companies that aggressive bidding by PGCIL, which has its hands already full, could put a spanner in their works.
According to a Goldman Sachs research report, PGCIL already has a R1.3 lakh crore worth of projects that needs to be executed over next five years.
This would mean that the company would have to invest and execute projects of over R20,000 crore per year.
As per the report, this would be difficult given its current execution capacity of R15,000 crore per year. The PGCIL official, however, said that the firm's annual project execution capacity is higher.
"We have implemented projects of R17,000 crore a year in the past." He said PGCIL is confident of undertaking projects worth R20,000 crore a year.
"Aggressive bidding by participants without adequate diligence is a problem. In such cases subsequently, on better understanding of the issues, the project may be stalled or even abandoned by the bidder, forcing
delays and additional costs," Satya Narain Gupta, general secretary, Electric Power Transmission Association said.
"There are issues like absence of due diligence by PFC and REC before projects are put up for bidding. Due diligence would reduce changes of encountering surprises midway a project cycle and improve execution," said another official of a private sector power transmission firm.
In a set of recommendations to the Central Electricity Authority, FICCI highlighted the need for changing the standard bidding document for PPP projects in transmission sector and suggested that private-sector representatives should be involved in the decision making process.
"Historically, the final route for transmission lines has had a variation of 60-70% in terms of the actual cost as compared to the estimated cost based on the survey reports provided by the bid process coordinators PFC and REC. As many bidders rely on the BPC's reports for submitting bid, without doing their own diligence, there are many instances of several bidders submitting unviable bids," said a power ministry official.
The growth of transmission sector is crucial for the development of the power sector.
The PMO is actively pushing for clearance of power projects particularly on the generation side. But absence of transmission network could make the entire exercise futile.
Last year's grid failure is a grim reminder that despite having power surplus regions in the country, absence of adequate transmission networks allowed the frequency to drop on the grid could result in a complete blackout in northern and eastern parts of the country.
Power transmission sector was opened up for private participation in 2008 with all new inter-state projects going through mandatory competitive bidding from January 2011. States were given two-year additional time to strengthen systems and build capability to undertake planning and carry out bid process for tariff-based bidding from January 1.
India needs a minimum of Rs 2 lakh crore investment in the transmission sector during the 12th Plan period. Of this, PGCIL is expected to contribute about 50%, while the remaining will have to financed and developed by the private sector.
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