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ULTRA MEGA POWER

PLANTS AND POLICY

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BACKGROUND With India being a country of chronic powerdeficits, the Government of India has planned to

provide "power for all" by the end of

the Eleventh Five-Year Plan (2007 2012).This would entail the creation of an additionalcapacity of at least 100,000 MW by 2012Ultra Mega Power projects, each with a capacityof 4000 MW or above, are being developed withthe aim of bridging this gapLaunched by Ministry of Power in 2005-06

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Central government has taken the initiativeunder tariff based competitive bidding routeusing super critical technology on BOO basisCentral Electricity Authority is the technical

partner & Power finance corporation is the nodalagencySeparate SPVs were provided for each project toundertake project development activities

including bid process managementIn addition to Ultra Mega thermal powerProjects, Ministry of Power is also taking stepsfor bringing up large Hydro Projects and largesize Transmission Projects on the fast track

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ROLE OF MINISTRY OFPOWER

Ministry of Power to be facilitator forcoordination with concerned Ministries/ agenciesand State Government for ensuring:

Coal block allotment for pithead projectsEnvironment/ forest clearancesFacilitate acquisition of land

Required support from State Govt. & itsagenciesTo facilitate proper payment securitymechanism with State Govt./ State utilities

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CONCEPTSetting up of large projects of 4000 MW at asingle location: ensuring economies of scaleAward of projects to developer through tariff

based competitive bidding : ensuring cheaper powerUtilization of super critical technology: ensuringhigher efficiency and lower CO 2 emissions

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The first UMPP, developed by TATA Power atMundra, Gujarat has been commissioned andcontributes 4,000 MW in power to the northern

grid.Total number of UMPPs viewed are 16 ,out ofwhich awarded are 4-

I. Sasan UMPP, Madhya PradeshII. Mundra UMPP, GujaratIII. Krishnapatnam UMPP, Andhra PradeshIV. Tilaiya UMPP, Jharkhand

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POLICIES FORDEVELOPMENT OF UMPPPROVISION OF ELECTRICITY ACT,2003 Provides that regulatory commissions shalladopt the tariff if it is determined throughtransparent process of bidding accordance withguidelines issued by central government

Aims at moving away from cost plus approachfor tariff determination & expected to encourage private sector investment

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O BJECTIVES OF THE P OLICY

Access to Electricity Available for all households innext five years.

Availability of Power Demand to be fully met by2012.Shortages to be overcome and spinning reserve tobe available. Per capita availability of electricity to be increasedto over 1000 units by 2012. Minimum lifeline consumption of 1 unit/household/day as a merit good by year 2012. Financial Turnaround and Commercial Viability ofElectricity Sector.

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ELECTRICITY TARIFF POLICY

Objective is to promote competition, efficiencyin operations & improvement in quality ofsupply

To ensure availability of electricity to consumersat reasonable and competitive ratesPolicy stipulates that all future requirement of

power needs to be procured competitively bydistribution licenses except in cases of expansionof existing projects

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BIDDING PROCESS WOULD START WITH THEREGULATOR APPROVING THE DEMAND

FORECAST FOR THE DISTRIBUTION COMPANIES

Demand forecast forshort / medium /

long term

Regulatoryapproval offorecast

Procurementprocess

Path 1

Using non-standardbid documents

Using standardbid documents

Path 2

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PROPOSED POWER PROCUREMENT BIDDING PROCESSIF STANDARD DOCUMENTS ARE USED

Key activities/Salient points

At each stage we mayspecify minimumnumber of bids to

proceed to next stage

Requirementdefinition

Initiate RFQ Shortlistbidders

RFP Bidding Evaluationof bids

Awardof bid(s)

Post bidnegotiations

Specificationof

Quantum Timing Duration of

contract

Publishnotice

Issue RFQ

Evaluateresponsesto RFQs

Shortlistbidders

For shorttermcontractsbidders maybe pre-qualified

Issue RFPto selectedbidders

Conductpre-bidconference

Short listedbiddersinvited tosubmit bids

Technicalcompliancemust for anybid to beconsidered

Determinationof winner onbases of pricebids

Use ofindependent

observer ifnecessary RFQ/RFP process may be combined into singlestep, especially for short term contracts

Regulator kept informed at all stages of theprocess

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PROPOSED POWER PROCUREMENT BIDDING PROCESS IN CASEOF DEVIATIONS FROM STANDARD BIDDING DOCUMENTS

Any modificationssuggested by bidders, ordue to any other reasons tobe approved by regulator possibly over severalrounds of iterations

Requirementdefinition

Preparebiddingdocuments

Initiate RFQ Shortlistbidders

Seek regulatoryapproval

Iterations ondevelopment ofbid documents

Regulatoryclearance offorecast

A

RFP Bidding Evaluationof bids

Awards ofbid

Post bidnegotiations

ARegulators commentson process and goahead

Even though activeregulatory approval

needed in only certainstages, but the regulator is

always kept informed ofall developments

Regulatoryapproval if

required

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IN THE RFQ STAGE, BIDDERS SHOULD BE SCREENED ON THEBASIS OF AN ARRAY OF METRICS

Financial metricsTechnical metrics Past record

To ensure supplycontracts, in case ofdefault

To minimise risk ofdelay/shortfall

To preventfrivolous/mischievousbidders

To ensure supplycontracts, in case ofdefault Net worth

Credit worthiness Bank/other financial

guarantees

For new plants Past infrastructure

project execution Resource raising

For existing plants Reliability Performance in the past

Tie ups with transmissioncompanies preferred

Should be an organizationof repute

No default on previouscontracts

Net worth Credit worthiness Bank/other financial

guarantees For long term contracts

trader should show thecapability/history to source

70-80% of contractamount

Tie ups with generatorsand transmissioncompanies are preferred

Source of power has to bespecified

Trader of repute No default on past

contracts Past litigation record No conflict of interest

between other obligationsand contract being bid

Limits to vary by duration ofcontract and amount of loadcontracted

To be suitably relaxed in initial stages fortraders, as they would have no history oftrading operations

Forgenerators

For traders

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FOR MEDIUM/LONG TERM CONTRACTS, AT RFP STAGE, BIDSSHOULD BE SCREENED BASED ON NON PRICE EVALUATION PRIORTO PRICE COMPARISONSElement forevaluation Details

Financial guarantee covering supply default

Different bidders could be capable of delivering power atdifferent points in grid

Most reliable/least bottlenecked point most preferable

Relevant for time of day contracts, or for parts of long termcontract

Best fit to demand should get preference

Bidder asking for least financial guarantee from buyer would bepreferred

Risk sharing mechanism in case of forced outages/unforeseencircumstances

Suppliersguarantee

Delivery point

Deliverydates/period

Buyersguarantee

Force majeure /risk sharing

All these aspectsneed to besufficiently

detailed in the

standard biddocuments andprocesses, to

enable bids to beefficiently andtransparently

evaluated/ rejectedon technical merits

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BUYER SHOULD SPECIFY THE BID STRUCTURE IN DETAIL

Whether partbidding is allowed?

What is being bidfor?

What is the tariffstructure used?

No part bidding Part bidding allowed Part bidding allowed in multiples

of some pre-specified minimumbid unit (preferred option)

Energy Capacity Percentage of load (varying)

Single part tariff Two part tariff with suitable

indexation (preferred)

Elementsof a bid

Illustrative

examples

Element

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INTERNATIONAL PRECEDENTS OFFER SEVERAL USEFUL TIPS FORFORMULATING THE COMPETITIVE GUIDELINES

Aspect International examplesReference documentIssue date/number

Bidding for part of thecontract

RFP for Central Maine Power Company allowsbidders to bid in multiples of 20% of total contractamount

November 18, 2003;issued by Maine PUC

Use of Independent

observer

Independent observer was used for overseeingthe process of RFPs for Portland GeneralElectric Company

January 20, 2004; Interimreport of independentobserver

Use of discounting/NPV calculations forevaluation

Public service commission of Maryland approveduse of single discounted average term price

(DATP) for evaluation of bids in the phase IIsettlement proceedings Order no. 78710 Case no.8908; Phase II September2003

Pre-qualification ofbidders to form apanel

Rules of the Florida Public Service Commissionon general purchasing procedures allow theprequalification of bidders to form a panel

Ch.25-25 Sup no.194

Financial guaranteesfrom bidders

RFP for Central Maine Power Company requiredbidders to provide financial guarantees upto US$1.21 million/month and 1.50 million/month whilebidding for service to 2 classes of consumers

November 18, 2003;issued by Maine PUC

Bidding for percentageof load

Rather than a fixed load (in MW/ MWh) the bidmay be asked for the percentage of the utilitysload, so as to offload some risk to the suppliers

EPSA guidebook for designimplementation andmonitoring of competitivepower supply solicitations

Bidding for partialduration

EPSA guidelines mention use of annuity basedcalculations while comparing bids for unequal(part) duration and choosing a lower overall bidportfolio

EPSA guidebook for designimplementation andmonitoring of competitivepower supply solicitations

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