The government is set to make tariff-based bidding mandatory for allocation of power projects from next January, in a move that is expected to bring down the price of electricity to the consumer. However, state-run utilities like NTPC and Damodar Valley Corporation (DVC) might feel the heat, because with their limited ability to cut costs, they could easily be outbid by large private players.
The Centre and many states already follow the tariff-based bidding route for allocation of power projects even though it is not mandatory for them to do so. Under this mechanism, the player that promises the lowest electricity tariffs wins the bid. However, states currently have the freedom to allocate projects exclusively to the public sector units owned by them. This is called the MoU route.
Response from private players to tariff-based bidding has been very encouraging. For example, such competitive bidding held by the central government for four ultra-mega power projects (UMPPs) saw very aggressive offers from private players. That, in turn, helped keep tariffs for these projects low.
All the four UMPPs have gone to private players. NTPC, India’s largest power generator, could not bag even one UMPP. What is even more significant is that three out of the four UMPPs have gone to one company. It is, therefore, a foregone conclusion who will be winners if tariff-based bidding is made mandatory.
It is not that NTPC is not a cost-competitive power generator. The PSU’s drawback is that it does not enjoy the same level of operational flexibility as private players. If tariff-based bidding becomes mandatory, NTPC will be at a disadvantage vis-a-vis private players.
“NTPC has scope for further efficiency. It will have to pull up its socks if it has to survive in a competitive bidding regime,” former power secretary Anil Razdan said.
A private developer can persuade its equipment supplier to lower prices by promising higher volumes. That would, in turn, allow it the flexibility to make its offer more aggressive for allocation of power projects. A public sector company does not enjoy this kind of functional autonomy.
The original deadline for implementing the compulsory tariff-based bidding for allocation of power projects was January 2006. However, the government extended the deadline to January 2011 to allow more time to public sector power generators to prepare themselves for competition. But further extension is unlikely.
The CERC has advised the Centre to stick to the January 2011 deadline for the implementation of mandatory tariff based-bidding for allocation of power projects. The central electricity watchdog has made the recommendation on the basis of preliminary findings of a study being undertaken by it to assess comparative benefits of tariff-based bidding vis-a-vis cost-plus system. The CERC has told the government that its preliminary analysis suggests that tariffs being obtained through competitive bidding are lower than the levelised tariff under the cost-plus structure.
The regulator has further argued that this conclusion holds true even in cases where developers have to arrange all physical inputs and statutory clearances on their own. The commission is expected to complete the study soon.
“When there is acute power shortage, bidding is not helpful in bringing down electricity tariff. However, under normal circumstances bidding is good for both buyers and sellers,” PTC India chairman Tantra Narayan Thakur said.
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