Indian Power Sector Bidding Strategies

1
Indian Power SectorBidding Strategies Issues

• Rajat Misra

2
SBICAP

• pfi rankings
• 1 MLA in Asia pacific ( 9 globally)
• 1 Advisor in Asia pacific (5 globally)
• Petrochemicals deal of the year (GGSRL)

3
SBICAP

• Power Sector Assignments
• Bid Advisory MLA to TPL for UMPP
• Bid Advisory to CSEB for 1500 MW Bhaiyathan
  Project
• Advisor to PGCIL for Tala Transmission
• Advisor to GERC for all rules and regulations
  under EA03 and Gujarat Act
• Unbundling Privatization of DVB

4
Current State

• The story of future
• GDP growth rate 8 will require similar growth in
  power capacity
• Installed generating capacity of 128 GW
• Required 200GW / 300GW by yrs 2012/2017
• Electricity Act 2003 focuses on reforms,
  competition
• Policies framed under Act reinforce the spirit

5
ISSUES

• All (??) procurement through bidding
• No cost-plus projects through MoU (??)
• Advantages
• Competition
• Transparent process
• Risk Allocation to Bidder and its Lenders
• Incentivization for Efficiency

6
ISSUES

• However, flawed strategy can negate the
  advantages
• Further, no real competition if mines are
  allocated in non-transparent manner
• Difference in Bids where mines are attached
  vis-à-vis case2 bids is evident

7
Bid Scenario
8
Policy Framework

• Section 63 of EA03
• ..the Appropriate Commission shall adopt the
  tariff if such tariff has been determined through
  transparent process of bidding in accordance with
  the guidelines issued by the Central Government.
• Tariff Policy issued in Jan 2006 under Section 3
  of EA03

9
Bidding Guidelines

• Case I Location, technology or fuel is not
  specified
• Example GUVNL bid
• Case II Location specific projects
• Example UMPP, Bhaiyathan, Jhajjhar
• Standard bid documents prepared
• However, these should not be taken as the Holy
  Grail..

10
Bidding Guidelines

• Guidelines binding on procurers and deviations to
  be approved by ERC
• Role of SERCs extremely important
• Appropriate deviations should be approved keeping
  in view special situations (eg qualification
  criteria in case of bhaiyathan umpp
  overleveraging)

11
Bidding Guidelines

• A 2 part tariff (Capacity and Energy charges) for
  long term procurement. Combined allowed
• Tariff to be in Indian Rupee only (except)
• Capacity charges may have separate escalable and
  non-escalable components.
• Min/Max capacity Charges gt 0.7
• How feasible is it?

12
Bidding Guidelines

• Energy Charges
• Fixed in Base Year and indexed
• May have separate escalable and non-escalable
  components
• OR fixed for each of the years
• No provision for heat rate degradation, ambient
  conditions

13
Bidding Guidelines

• Energy Charges for Imported Coal
• Base Energy Charge to be escalated
• Imported fuel in USD/kWh
• Transportation in USD/kWh
• Inland fuel in Rs/kWh
• Each of above may have escalable and
  non-escalable
• Different Strategies adopted by Bidders recently

14
Bidding Guidelines

• Combined Capacity and Energy Charges permitted
• No escalations above those quoted allowed
• Min offtake to be specified in Bid dox

15
Bidding Guidelines

• Indices for bid evaluation by CERC
• Discounting rate for levelised tariff calculation
  to be specified by CERC
• Current Rates are as follows

16
Evaluation Rates by CERC
17
Developers Perspective

• Case Studies

18
Bidding Steps

• Extremely important to have pre-bid tie-ups in
  place
• Commitment on major costs
• Time period for financial close
• Interest rates risk?
• Escalation Currency provisions on EPC?
• Bids not required to be underwritten

19
Bidding Steps

• Imported Coal as Fuel
• Bidding Strategy and appetite for risk are more
  important
• Recent bids have clearly underlined this fact
• Mix of Indexed and non-indexed costs much more
  important
• More sensitive to variation in quality

20
Imported Vs Domestic
21
(No Transcript)
22
Bidding Scenario
23
Lenders Views

• Paradigm Shift in financing
• Move from Payment Security based lending to
  Competitive Tariff based lending
• Avoids mistakes of the past
• Unbundling, Open Access Provisions drive lenders
  comfort
• Encouraging Response from ECA/ECB

24
Lenders concerns

• Buy Out Provisions
• Evacuation Transmission Risk
• Time Frame to achieve Financial Closure
• 1 year from date of signing of PPA
• Environmental Concerns
• ECA/ECB financiers
• Third Party Sale
• Cure Period- Resumption of supply
• Force Majeure
• Land acquisition
• Procurers responsibility!!
• Change in Law, still

25
Lenders Perception

• Imported Coal as Fuel
• Take or pay only at 65 on imported fuel
• Lenders see the above as a risk in long term
  contracts.
• What would a developer do??

26
Case Studies

• Imported Coal

27
UMPP Mundra GUVNL Bids

• For UMPP Bids for Mundra, Tata Power and Reliance
  had different bid strategies
• TPL bid numbers were broken into escalable and
  non-escalable components
• Reflects clear direction of owning mine and ships
  (or equivalent long term contracts) while
  retaining limited risk

28
UMPP Mundra GUVNL Bids

• Reliance has bid all numbers as escalable
• Reflects strategy of procurement on spot basis
  for coal and transport
• No upsides possible unless captive mines / long
  term contract on different terms
• Was it conservative or aggressive?

29
UMPP Mundra GUVNL Bids

• For GUVNL bid that was all-inclusive, Adani had
  bid based on imported coal
• Tariff for each year fixed and no escalations
• Risk of international coal price, transportation
  cost, forex variation borne by bidder
• Possible only with ownership / long term
  contracts for coal transport
• What about exchange rate risk??

30
UMPP Mundra GUVNL Bids

• How does Adani bid address goals of bidding?
• Competition
• Efficiency
• Transparency
• Risk sharing

31
UMPP Krishanapatnam

• Significant change in Reliance Strategy
• What do the numbers tell?

32
Summary
33
For SERCs

• Take a pragmatic view on deviations from bidding
  documents
• BE TRANSPARENT ALL BID NUMBERS TO BE IN PUBLIC
  DOMAIN
• Bidding Strategies Take a call on appropriate
  risk sharing mechanism
• WHEN TO CANCEL A BID????

34
Any Questions?

• Bhaiyathan Model???

35
Thank you