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Note on Critical Concerns with the Case 1 (DBFOO) Model Bidding Documents

1. Open Capacity
The SBD proposes that 20% of all contracted power capacity be left open for sale to third
party buyers, and concessional fuel would not be available for third party buyers. In case
concessional fuel is used for generation and sale of power from the 'Open Capacity', the draft
PSA prescribes revenue sharing through payment of an amount equal to the higher of, (a)
Fixed Charge and (b) 30% of the gross sale revenue.
It would not be operationally feasible to import coal for generating power from only the
'Open Capacity'. Further, merchant power tariffs are lower than the fixed charge discovered in
recent Case 1 bids and this implies that the generator may not be able to recover the fixed
charges from sale of such 'Open Capacity', whether using concessional coal or otherwise.
Therefore, this provision of 'Open Capacity' essentially creates stranded capacity right
from the start.
Due to the above, a developer would have no choice but to recover the fixed charge for the
20% Open Capacity by loading it on the utility entitlement of the Contracted Capacity,
thereby leading to higher tariff for the end consumers. Therefore, the provision of Open
Capacity needs to be deleted.
It may be recalled that even CERC has criticized this concept in its statutory advice to MoP
dated 26th Oct 2012, and noted that:
The provision of open capacity will lead to assets getting further stranded. There is no
rationale for providing for open capacity in the SBDs. It should deal with only the
capacity to be contracted to avoid complication and discourage perverse tendency of
loading, in the bid for the dedicated capacity, the costs on account of risks associated
with open capacity.
Consequential changes required in the DBFOO PSA:
Clause No.
18.4.1
18.4.2
18.5.1
21.4.4

Change required
To be deleted
To be deleted
The line related to Open Capacity may be removed
Following additions and deletions (marked in bold) are required:
The obligations of the Utility to pay Fixed Charges in any Accounting Year
shall in no case exceed an amount equal to the Fixed Charge due and payable
for and in respect of the Normative Availability of 90% (ninety per cent)
computed with reference to the entitlement of the Utility in Contracted
Capacity(the Capacity Charge). Provided, however, that in the event of
Despatch of the Power Station beyond such [72% (seventy two per cent)]
90% (ninety per cent), Incentive shall be payable in accordance with the

21.4.5
24.1.3

provisions of Clause 21.6.1. For the avoidance of doubt, the Capacity Charge
referred to herein shall be equal to and computed with reference to the
maximum Availability of [72% (seventy two per cent)]19 90% (ninety per
cent) of the Contracted Capacity.
72% may be replaced with 90%
To be deleted

2. Technical and Operating Parameters


It may be kept in mind that the Competitive Bidding Guidelines were formulated for effecting
efficient price discovery through an open and transparent bidding process. The price
discovery mechanism cannot be a mode for bringing about changes in the technical and
operating parameters which are governed by the regulations and norms framed by the
CERC and CEA, under mandate provided to them by the Electricity Act.
The model bidding documents attempt to short circuit the regulatory process by specifying
different norms for projects awarded through competitive bidding this differentiation
between projects under Section 62 of EA and projects awarded under competitive bidding
distorts the competitive landscape and goes against the legislative framework of the power
sector.
Accordingly our request is that all aspects of power plant operation which are regulated
through standards and norms specified by the CERC/SERCs and CEA should govern all
projects irrespective of their ownership or mode of tariff determination.
a. Impracticality of specified Station Heat Rate - As per the DBFOO documents
issued by MoP in Nov 2013 for Case 1 competitive bidding under Section 63, a
developer is required to quote Fuel Charge based on the specified Station Heat Rate
(SHR) which corresponds to the Net Station Heat Rate of a power project. The SHR
as stipulated is 2350 kCal/kWh for bids received before Dec 2016 and 2300
kCal/kWh for bids received beyond Dec 2016.
However, as per data gathered by us, there are more than 17 power projects of APP
members (with total capacity more than 20,000 MW and each consisting of multiple
units) wherein the orders for the Boiler packages were placed prior to the notification
of the DBFOO documents. The design specifications for the Boilers under these
orders were based on the CERC Tariff Regulations as applicable during the time of
order placement and most of these power plant units have either already been
commissioned or are in advanced stages of construction with significant capital
investment already sunk in.
None of these projects will be able to meet the stringent pre-specified SHR
requirements specified under the DBFOO documents and these projects will be
unable to take part in competitive bids and will remain stranded. Therefore it is
requested that the pre-specified SHR requirements in the DBFOO documents may be
removed and instead SHR may be made a biddable parameter to allow them the
flexibility to design the plant in the most efficient manner.

As an alternative, for projects which had already placed their Boiler orders before the
date of notification of the DBFOO documents, the pre-specified SHR requirement
should be in line with the normative requirements as specified in the CERC Terms
and Conditions of Tariff Regulations as applicable on the date of Boiler package order
placement.
Consequential changes required in the DBFOO PSA:
Clause No.
22.1.1
Schedule C,
Clause 2.1

Change Required
Footnote no.20 to be deleted
The clause should refer to the SHR requirements as specified in the CERC
Terms and Conditions of Tariff Regulations as applicable on the date of
Boiler package order as placed by the bidder.
Schedule F, Instead of mentioning 2,300 kCal per kWh, the clause should refer to the
Clause 3.2
SHR requirements as specified in the CERC Terms and Conditions of Tariff
Regulations as applicable on the date of Boiler package order as placed by
the bidder.
Footnote no.51 may be deleted.

b. Auxiliary Consumption - The PPA requires delivery of 95% output from Installed
Capacity, which means that the plant has to operate with auxiliary power consumption
of less than 5%. This is not achievable and is unrealistic a fact which is borne out by
the limited experience of 660 MW supercritical plants such as NTPC units at Sipat
and IPP Plants of Tata Power and Adani Power, wherein about 6.5% to 7.0% auxiliary
power is consumed. Hence, the requirement needs to be aligned with CERC norms.
Consequential changes required in the DBFOO PSA:
Clause No.
Definitions
5.1.4 (Explanation)

Change Required
Insert Auxiliary Consumption shall be as per prevailing CERCs
Regulations.
Auxiliary Consumption to be considered as per CERCs prevailing
Regulations.

c. Linking of Availability with Minimum Fuel Stock - The document specifies that the
generator needs to maintain a minimum stock of fuel sufficient for full production of
electricity from Contracted Capacity for a continuous period of 7 days. In case the
fuel stock falls below this minimum level, only 30% of Fixed Charges will be paid for
the capacity proportionate to the shortage in minimum fuel stock.
It may be noted that linkage coal supply and its transport is fully controlled by the
Government and is outside the control of the developer. In fact, the fuel stocks of the

IPPs reach critical levels at least 3 to 4 times a year for no fault of the generators. If
these clauses were applicable to the abovementioned plants, the developers would
have lost availability and fixed cost for no fault of their own.
Not allowing for full recovery of fixed charges when the plant is available will only
result in the fuel related risks being rolled into the capacity charges. This will lead to
high consumer tariffs for all times to come and therefore, the Availability of the Power
Station should not be linked to the fuel stock.
Consequential changes required in the DBFOO PSA (dated 5th May 2015):
Clause No.
Change Required
21.4.2
To be deleted
21.5.2
To be deleted
22.7 Minimum Fuel To be deleted
Stock
31.1 (i)
Reference to Minimum Fuel Stock to be deleted
d. Penalty for mis-declaration - As per the draft PSA, in the event of Mis-declaration,
the Availability for the relevant month, for the purpose of payment of Fixed Charge,
shall be deemed to be reduced by the same proportion that Availability bears to Misdeclaration, as if the Mis-declaration had occurred for a period of one month.
This stipulation is very harsh on the Supplier as a single instance of mistaken Misdeclaration will reduce the Availability for the entire month. Further, since the CERC
(Indian Electricity Grid Code) Regulations clearly outlines provisions for penalty in
case of mis-declaration by a generating station, it is not advisable for the model
bidding documents to provide a separate treatment for the same as the Regulatory
framework should be kept the same for all plants. Therefore this provision may be
deleted.
Consequential changes required in the DBFOO PSA:
Clause No.
21.5.5
24.4

Change Required
In the event of Mis-declaration, Penalty
provisions of IEGC shall be applicable.
Provision of Mis-declaration shall not be
applicable during Ramp Up

3. Damages for breach of maintenance


As per Clause 21.6.2, in case the Availability in any month is less than the Normative
Availability, the Fixed Charge for that month will be reduced in proportion to the extent of

shortfall in Normative Availability. Apart from this, there is also an additional penalty
imposed on the Supplier of 25% of the Fixed Charge which has been reduced on account of
the shortfall in Availability.
The above reduction in Fixed Charge along with additional damages provides enough
disincentives for the Supplier to ensure that any reduction in Availability is rectified at the
earliest.
However notwithstanding the above, Clause 15.9 (Damages for breach of maintenance
obligations) imposes additional damages on the Supplier to be calculated and paid at the rate
of 2% of Average Daily Fixed Charge till the breach causing the reduced Availability is
rectified.
As the Supplier is already losing out on Fixed Charges due to reduced Availability, a penalty
of additional 2% on the average daily Fixed Charge is unreasonable and illogical as the
Supplier will anyway make every effort to restore the unit as soon as possible so as not to
lose out on revenue. This provision should be deleted.
Consequential changes required in the DBFOO PSA:
Clause No.
15.9

Change Required
To be deleted

4. Disallowing bids from multiple power plants of same bidder


Clause 2.4 of the model RFQ prohibits an applicant to simultaneously submit another
application individually or as a part of any other consortium and Clause 2.2.1(c) stipulates
disqualification on account of conflict of interest. Therefore, individual bidders are
restricted from offering supply of power from more than one power plant belonging to them.
This provision is a serious obstacle to all IPP developers of multiple projects, and given the
scarce bidding opportunities available from State utilities (Discoms), it is unfair to restrict
developers with multiple projects from submitting bids from different sources. This condition
is also unjustified for the following reasons:

Restricting a Bidding company to quote from only one plant denies the opportunity to
tie up power supply from other plants even if he can offer more competitive tariff
from multiple sources compared to other bidders

Each project has unique characteristics in respect of plant location, technology, capital
cost, fuel source & distance, financing means, operational efficiencies, etc. with
bearing on both Fixed and Variable Cost components of the Tariff

Case1 bids are called for specific capacities. Any bidding company with different
projects with quanta of untied capacities should be eligible to tie up their individual
untied capacities within the total bid capacity

Permitting multiple projects of a bidding company does not in any way restrict or
skew the competition or accord any advantage because the tariff affordable / quoted
by other bidders is in no way influenced by a bidder who can quote better tariffs from
more than one source / project.

Tying up Long Term PPAs within a stipulated time period is mandatory to save FSAs
from being cancelled and is also mandatory to avail Mega Power benefits.

It may be recalled that such restriction did not exist in the previous SBDs, and power
procurement processes adopted by Rajasthan, UP and Tamil Nadu in 2011 and 2012, which
did not have any such hurdle, were successful and encouraged more competition.
In view of the above, MoP is requested to amend the restrictive provision in order to widen
the field of competition and ensure a level playing field.
Consequential changes required in the DBFOO RFQ:
Clause No.
2.4.1
RFQ

Change Required

of Additions and deletions required in the clause are highlighted in bold as


follows:
2.4 Number of Applications and cost thereof
2.4.1 No Applicant shall submit more than one Application for the project
from the same source of power supply. An applicant applying individually or
as a member of a consortium shall not be entitled to submit another
Application either individually or as a member of any consortium as the case
may be from the same source. For avoidance of doubt, an Associate of the
Applicant applying individually or as a member of a consortium may
submit an Application from a different source of power supply either
individually or as a member of any consortium as the case may be, and the
provisions of clause 2.2.1 (c) shall not be applicable in such cases.

5. Obtaining Long Term Open Access


As per clause 5.4.2 of the draft PSA, it is the obligation of the Supplier inter alia to obtain
LTOA for transmission. However, the timelines for grant of such LTOA depends upon the
existing backlog of applications pending with the CTU (which can be sizeable depending
upon the region) and is therefore not in the hands of the Supplier. In case of such delay in
availability of LTOA leading to the failure of Supplier to achieve a monthly availability of
70% for a consecutive period of 6 months from the stipulated timeline for commencement of
power supply, it would amount to a Supplier Default as per Clause 31.1.1 of the model PSA,
for reasons beyond the control of the Supplier.

Therefore, as the grant of LTOA is not within the reasonable control of Supplier, it is
suggested that the non-grant of LTOA may be treated as a Force Majeure event affecting the
obligations of the supplier.
Consequential changes required in the DBFOO PSA:
Clause No.
5.1.5 (a)
6.1.2 (a)
28.2 (h)

Change Required
Non grant of Open Access shall be treated as Force Majeure as per clause
28.2. (h)
Non grant of Open Access shall be treated as Force Majeure as per clause
28.2. (h)
Inserting Non Grant of Open Access for Long Term under Non Political
Event of Force Majeure.

6. Matching of lowest tariff


In case of fulfilment of Capacity Required through multiple bidders, the bidding document
specifies that the remaining bidders have to match the Lowest Bidder. This has no relevance
for Case 1 projects where the boundary conditions are different between all projects - each
project is endowed with unique characteristics in respect of plant location, technology
(supercritical / sub-critical), capital cost, fuel source and its distance, means and terms of
financing, operational efficiencies, etc. which have a bearing on the two components of the
Tariff viz., Fixed (Capacity) Charge and Variable (Fuel) Charge. This provision is also in
contravention of principles of fair competition because each bid is unique as per the unique
plant characteristics of the developer, and any post-bid negotiation / imposition of a lower
tariff on bidders is not justified.
Bidders apart from the L1 bidder should not be asked to match the lowest bidder as
their bids are based on entirely different assumptions and project specific
characteristics.
Consequential changes required in the DBFOO RFQ:
Clause No.
1.2.5
2.7.2 (a)

Change Required
Provision of remaining bidders having to match the bid by lowest bidder
may be removed.
Provision of remaining bidders having to match the bid by lowest bidder
may be removed.

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