Over the past one year, there has been no appreciable movement in interregional power transmission projects awarded under the tariff-based competitive bidding (TBCB) mechanism, as gauged from official statistics released by Central Electricity Authority. Given that the TBCB mechanism is a very important dimension of reforms in the power sector, this sluggishness is worrisome, notes Venugopal Pillai.
The introduction of tariff-based competitive bidding (TBCB) mechanism has defined one of the most striking contours in the power reforms landscape. Effective January 5, 2011, it was decided that all forms of power procurement would take place only through the TBCB route.
This new paradigm gave very positive results to all stakeholders of the power value chain, mainly the end-consumer. Before the advent of TBCB, Power Grid Corporation of India (PGCIL) was the nominated agency for all interregional transmission lines. PGCIL developed projects on the “cost-plus” basis—a mechanism that guaranteed project cost recovery irrespective of time and cost overruns.
Once TBCB kicked in, matters changed for PGCIL. The Central PSU now had to bid for projects, along with other private sector contenders, on the basis of tariffs. TBCB has created a new breed of private sector power transmission developers and there has been a significant reduction in tariffs, ultimately benefiting the end-consumer. Today, private sector groups like Sterlite and Adani are fast emerging as large independent power transmission companies (IPTC) even as PGCIL continues to have a significant presence.
This report however highlights the fact that the pace of interregional power transmission projects under the TBCB regime has lost steam in recent years. Based on official statistics and reports released by Central Electricity Authority (CEA), T&D India made a rather detailed study on the TBCB phenomenon in the 12-month period ending September 30, 2018.
The findings of the study are rather disturbing. During the period under study, only four interregional power transmission projects were awarded. Given the strategic importance of interregional power transmission lines, which ultimately become building blocks of the National Grid, the number of new TBCB projects, at just four, is dismal. Just as a matter of academic interest, two of the four projects were awarded to PGCIL, while one each went to Sterlite Power and Adani Transmission.
The real issue
When one sees that only four interregional TBCB power transmission projects were awarded during the year ending September 30, 2018, this does not necessarily mean that only four interregional power transmission projects were initiated in the period under study. It only means that the TBCB route was employed for just four projects. What is most important to realize is that there were other interregional power transmission projects that were initiated for development, but NOT under the TBCB mechanism. A pertinent question here is: how would it be possible to deviate from the TBCB philosophy when all power procurement needs to be tariff-based, effective January 2011?
Here is where it is worth appreciating some subtleties; it is not absolutely compulsory to adopt the TBCB route for interregional power transmission lines. There is a body called the Empowered Committee on Power Transmission, now called as the National Committee on Transmission (NCT), which deliberates on power transmission-related issues, at the national level. One of the core functions of NCT is to decide on the modality of development of interregional lines; which is to say, whether TBCB or not. The real reason for the decline in interregional TBCB lines is that the NCT has apparently not been favouring the TBCB route, for various reasons. It is instead awarding projects to PGCIL, on what is called as the regulated tariff mechanism (RTM). Under this mode, no bidding actually takes place. It is NCT that decides on the tariff. NCT decides on the PGCIL-RTM modality if it feels that the transmission project in question involves technical complexity that could be best handled by PGCIL. It can also favour the RTM route if the project needs to be executed on a compressed time schedule, so that the time taken for bidding is forestalled. NCT arrives at decisions based on recommendations given by the regional standing committees on power system planning.
In a recent meeting of NCT, of which the minutes are officially available, the committee was found skimping on the TBCB route. According to the minutes report, NCT reviewed 21 inter-state transmission schemes out of which the TBCB route was recommended for just one project. In as many as 18 projects, PGCIL was named the implementing agency under the RTM mechanism. Two projects were placed for further review.
Whilst recommending PGCIL as the developer of any project, NCT typically observed that the project required to be completed under a compressed schedule or that the project involved additional work to existing assets of PGCIL.
During the NCT meeting in discussion, the lone project that was approved for implementation under the TBCB route was the 400kV Udupi-Kasargode double-circuit (DC) line. The project costing around Rs.620 crore involves building the 110-km Udupi-Kasargode line, a 400/220kV GIS substation and two 400kV line bays at the switchyard of Udupi Power Corporation Ltd at Udupi, Karnataka.
Composition of NCT
The most-recent meeting of NCT has generated much debate around the fact that it has edged out the tariff-based competitive bidding mechanism. It is about projects being awarded to PGCIL per se, industry experts feel that assigning to the projects on the RTM route abrogates the efficiency that the tariff-based mechanism could have imparted.
Interestingly, in its current composition, one member of NCT is an official of PGCIL. Industry experts feel that having PGCIL as a member of a body that decides on matters where PGCIL is itself a potential beneficiary, could tantamount to conflict of interest.
Returning to the analysis of interregional TBCB transmission projects, five projects were completed during the 12-month period ending September 30, 2018. Two projects belonged to PGCIL, two were those of Sterlite Power and one was of Adani Transmission.
In the case of one project, which was under construction and for which Adani Transmission (through its SPV North Karanpura Transco Ltd) was the developer, the transmission service agreement (TSA) was cancelled. The project in question was the “Immediate evacuation system for North Karanpura (3×660-mw) project of NTPC,” also known as the “Eastern Region System Strengthening Scheme – XIX”. The TSA was cancelled citing force majeure as no official clearance was available for constructing overhead transmission lines over coal-bearing areas in Jharkhand. As per the terms of the TSA, the concessionaire, North Karanpura Transco Ltd, has approached CERC for further course of action.
Overall TCBC status
As of September 30, 2018, there were 41 interregional TBCB power transmission projects under various stages of development. Out of these 18 were commissioned and an equal number of were under construction. The remaining five were inactive—representing projects cancelled, or with TSA cancelled, or where construction work could not begin due to protests. It also includes two projects under litigation. (See table.)
In terms of project ownership, dominant players were PGCIL, Sterlite Power and Adani Transmission. While PGCIL and Sterlite Power had 12 projects each, Adani Transmission followed with five.