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PUNJAB STATE ELECTRICITY REGULATORY COMMISSION

SCO 220-221, SECTOR 34-A, CHANDIGARH

Petition No.5 of 2009

Date of hearing: 19.5.2009

Date of Order: 27.5.2009

In the matter of: Petition for allowing the applicant, an authorized representative of the procurer, PSEB, to issue Letter of Intent in favour of M/s Lanco Infratech Ltd. for development of 1320 MW Rajpura Thermal Power Project on Build, Own & Operate basis

AND

In the matter of: Nabha Power Limited

Present: Shri Jai Singh Gill, Chairman

Smt. Baljit Bains, Member

Shri Satpal Singh Pall, Member

ORDER

Nabha Power Limited (NPL) had, in view of the single bid received, filed a petition (22 of 2008) before the Commission for allowing it to continue with the bidding process under clause 5.7 of the Guidelines issued by the Ministry of Power (MoP), Govt. of India on 19.1.2005 and as amended from time to time (Guidelines). The Commission in its Order dated 8.12.2008 allowed the petitioner to continue with the bidding process with the directions that the decision of the Evaluation Committee and recommendations of NPL, Punjab State Electricity Board (Board) and the State Government will be submitted to the Commission and the Letter of Intent (LoI) shall be issued only after seeking the approval of the Commission. This petition has been filed in the above context.

2. The petitioner has submitted that the non-financial part of the sole bid of M/s Lanco Infratech Limited (LIL) was opened on 11.12.2008 and the financial part on 16.12 2008. The bid Evaluation Committee in its report observed that the quoted levellised capacity charges are significantly higher as compared to Talwandi Sabo Power Limited (TSPL) - another project of the Board recently awarded through competitive bidding - and recommended that NPL/Board may take a view for acceptance of the quoted tariff keeping in view the prevailing market prices before seeking approval of the Commission to issue the LoI. NPL referred the matter to the Board who in turn felt that since tariff quoted by the lone bidder is on the higher side, negotiations may be held at the Government level, preferably by a Committee headed by the Chief Secretary.

3. Consequently, a Negotiation Committee headed by the Chief Secretary was constituted which held five meetings in all. Initially the bidder in letter of 20.1.2009 offered a reduction of 12 paise in the quoted tariff if the transfer cost of Rs.500 crore was re-structured, which proposal was, however, not accepted. Subsequently, the bidder in its letter of 28.1.2009 offered its revised bid on an un-conditional basis with a levellised tariff of Rs.3.309/kwh after a reduction of 7.7 paise/kwh to their original quoted tariff. The Negotiation Committee, thereupon, sought the comments of the consultants, M/s PFCCL, on the revised offer of the bidder. In its 5^th and final meeting, the Negotiation Committee, while observing that M/s PFCCL has not given any categorical recommendations on the quoted tariff, submitted its report to the Government of Punjab with 3 options:

a) That Govt. may accept the revised tariff offer of the bidder dated 28.01.2009 of Rs.3.309/kwh; or

b) That the project may be developed departmentally on EPC mode. However, this would require a budgetary support of about Rs.2000 crore; or

c) That the project may be rebid which may take additional nine months.

The petitioner has informed that the Council of Ministers after a detailed discussion and careful consideration of the facts approved option a) above.

4. The petitioner has further submitted that the Board concurred with the decision of the Council of Ministers and accepted the revised tariff offered by the bidder as it is facing acute power shortage and compelled to purchase power at a very high rate. In the interests of all the stakeholders (consumers, State Govt. and the Board), it was considered desirable that the power plant is commissioned at the earliest. It has been averred that early commissioning of the project would not only save time but will also help in reducing the financial burden of purchasing power from private parties/traders at substantially higher rates.

5. The petitioner has prayed that it be allowed to issue LoI in favour of M/s Lanco Infratech Ltd. for development of the 1320 MW Rajpura Thermal Project on Build, Own & Operate basis at a levellised tariff of Rs.3.309/kwh as per the revised offer of 28.01.2009 by the bidder.

6. The Commission in its letter of 9.4.2009 directed the petitioner to submit the views of the Evaluation Committee in terms of clause 5.15 of the Guidelines since the new tariff rates emerging after the negotiations would need to be considered afresh by the Committee constituted for the purpose. This was considered a necessary input to enable the Commission to take an informed decision.

7. The petitioner has furnished the views of the Evaluation Committee which has observed that the original price bid was not rejected by it in terms of clause 5.15 of the Guidelines. Subsequently the State Govt. at the highest level has decided to accept the revised tariff quoted by LIL and that it would not be appropriate to consider or comment upon that decision.

8. The petitioner was heard by the Commission on 19.5.2009. It was urged that a competitive bidding process had been initiated for developing NPL in which only one bid was received. In accordance with the Guidelines, the single bid could only be processed with the approval of the Commission which was accorded in the Commission’s Order of 8.12.2008. Thereafter, the bid was further processed as per the Guidelines and the views of the Evaluation Committee obtained. The latter did not reject the bid but recommended that it may be considered by NPL, the Board and the State Govt. in the light of prevailing market conditions. Ultimately, the State Govt. accepted the revised offer of the LIL of Rs. 3.309 per kwh and it is now proposed that the LoI be issued accordingly. The bidding process came to an end after the decision to accept the revised offer of the developer was taken. Attention of the Commission was specifically drawn to section 63 of The Electricity Act 2003 (Act) which enjoins that the Commission is obliged to accept the rates that have been determined as a result of competitive bidding process. It is, accordingly, urged that in the instant case where the bidding process has been taken to its logical conclusion, there is no option before the Commission except to approve the rates so determined at the conclusion of the process.

9. The Commission has carefully considered the factual position in this case as well as the issues urged by the petitioner. As regards the competence of the Commission to now consider and approve the rates finally arrived at, the Commission observes that the provisions of section 63 of the Act would be binding on the Commission if the process of competitive bidding had been completed strictly in accordance with the Guidelines. This, however, does not appear to be the case specially when an important ingredient of the Guidelines is that the lowest rates quoted must be appraised by an Evaluation Committee which is empowered to reject the same if it finds that these are not aligned with the prevailing market rates. The Evaluation Committee in this case did observe that the rates quoted in the single bid were definitely on the higher side as compared to the recent case of Talwandi Sabo Power Limited (TSPL) but instead of rejecting the rates it chose to refer the matter to NPL with the direction that it may consider the issue in the light of prevailing market rates. The Commission further observes that the entire process of negotiations held with the bidder and a revised rate emanating therefrom is not envisaged in the Guidelines but even if this process is seen to be reasonable, it is perhaps necessary that the final rate be appraised by the Evaluation Committee. This does not seem to have been the case and even the consultants (M/s PFCCL) whose views were sought failed to make any specific recommendation. The Commission had specifically sought the views of the Evaluation Committee in this respect but it has not commented on the crucial issue of whether or not the final rate is in line with the prevailing market rates. In the circumstances narrated above, the Commission is constrained to conclude that the final rates proposed to be adopted have been arrived at in a manner that does not conform in letter and spirit with the provisions of the Guidelines and as such, the provisions of section 63 of the Act would not apply in this case.

10. In so far as the final negotiated rate of LIL is concerned, it is necessary to observe that it is far in excess of the levellised tariff of Rs.2.8643 per kwh that has been accepted in the case of TSPL. In that case, 4 bids were received with the 3 other bidders quoting a levellised tariff of Rs.2.8797, 2.9948 and 3.1498 per kwh. Thus even the highest tariff quoted in that case is substantially lower than the negotiated rate of NPL. Several other power stations are coming up in the neighbouring states of Haryana (Jhajjar) and Uttar Pradesh (Karchana, Bara) where too levellised tariff that has been accepted does not exceed Rs. 3.02 per kwh. The Commission is conscious of the fact that it is difficult to effect comparison of rates of these power projects given the fact that such rates are impacted by location, coal linkage and other factors such as mega power status and the flexibility in some cases to effect merchant sale of a part of the generation. Even so, the difference between the tariff accepted in their cases and the negotiated tariff of LIL is such that it cannot be satisfactorily explained by the advantages that some other power stations may enjoy. Possibly with the intent to eliminate locational and other advantages that may be enjoyed by a power plant, the Evaluation Committee has compared the capacity charges of NPL with the TSPL (in NPL model) and observed that there is a considerable difference between the two. A similar position emerges when capacity charges of some other power stations being developed in Haryana and UP are taken into account. The Commission is unable to agree that comparing the incremental tariff of two UMPPs with the difference between the TSPL and NPL tariffs is an appropriate or accurate way to arrive at the conclusion that the negotiated rate is in line with the prevailing market rates. In these circumstances it is difficult to escape the conclusion that the negotiated rate of NPL is not in line with the prevailing market rates and that the issue of LoI at this stage would not be in the interest of any of the stake holders. For all the above reasons, the Commission is of the view that this is not a fit case for the issue of LoI to LIL.

11. There can, however, be no two opinions that the early development of NPL is in the interests of all and for this purpose, other options as brought out by the Negotiation Committee are available. In the event that it is decided that re-bidding is the best course of action then the Commission, mindful of the loss of opportunity cost on account of the long bidding process, would have no objection if the same is compressed by seeking RFQ and RFP in a period of 75 days.

Sd/- Sd/- Sd/-

(Satpal Singh Pall) (Baljit Bains) (Jai Singh Gill)

Member Member Chairman

Chandigarh

Dated:27.05.2009