New Delhi: State-run power utilities such as NTPC Ltd and NHPC Ltd will have to start competing next year with private sector rivals for government projects with the power ministry opposed to any extension of the current system under which these are awarded to public sector companies without a bidding process.
This follows India’s apex power sector regulator, the Central Electricity Regulatory Commission, coming out in favour of a competitive system from 2011, a move that will have a direct impact on state-run North Eastern Electric Power Corp. Ltd (Neepco), Satluj Jal Vidyut Nigam Ltd (SJVNL), and Tehri Hydroelectric Development Corp. Ltd (THDC), apart from NTPC and NHPC. The state-owned companies have traditionally been building such plants on a cost-plus basis, which means that they get to charge a price that factors in their cost and a certain return.
“Our feeling as of now is that the competitive scenario is there for all players and everybody will have to compete on the level playing field,” Union power secretary P. Umashankar said in New Delhi. “The exemption for CPSUs (central public sector units) is till 2010. After that the sector will be open and there will be competition for everybody.”
The existing norm doesn’t apply to the so-called ultra -mega power projects of 4,000MW, which are awarded through a competitive bidding process. NTPC unsuccessfully bid for two of these projects.
NTPC is among those state-run companies that have been lobbying the power ministry for an extension of the present regime, several officials have said.
“By introducing the competitive bid process, the sector will be at a loss as we have seen in the past that a lot of developers get a project, but are not serious about implementing (it),” said a senior NTPC executive who did not want to be identified.
Unless the ministry changes its mind, the state-run utilities will have to compete with Reliance-Anil Dhirubhai Ambani Group’s Reliance Power Ltd, Mukesh Ambani-owned Reliance Industries Ltd, Essar Power Ltd and Lanco Infratech Ltd among others for power projects.
Freeing up the process is essential for building a long-term competitive market for power in India, said Gokul Chaudhri, partner at audit and consulting firm BMR Advisors.
“The government-owned companies were provided a five-year moratorium valid until January 2011 before a level-playing field is to be introduced from a tariff and fiscal perspective,” Chaudhri said. “The expectation was for these companies to use this grace period to adjust to market-based economics.”
According to the power ministry’s tariff policy of 2006, competition is key to keeping prices in check through the reduction of capital costs and greater operational efficiency.
“The Central government has already issued detailed guidelines for a tariff-based bidding process for procurement of electricity by distribution licensees for medium or long-term period vide gazette notification dated 19th January 2005,” the policy says.
Opening up the sector to competition will open up the power market.
“The purchase of power by utilities would be done on a competitive bid basis. Everybody will have to bid... They will have to sell the power through the competitive bidding route,” Umashankar said. “The exemption for CPSUs is up to 2010, beyond that the sector will be open. There will be open competition for everybody.”
India has a power generation capacity of 159,000MW and plans to add 62,000MW by 2012. It plans to further add capacity of 100,000MW over the 12th Plan (2012-17) to meet growing demand for power in the country, which has the second fastest growing major economy in the world.
Some state-run utilities are confident of succeeding in the new scenario.
“The power sector has got tremendous demand today. If competitive bidding gets mandatory, central PSUs will also compete and try to get projects. I do not see why central PSUs can’t compete with the private sector companies,” said R.S.T. Sai, chairman and managing director of THDC. He also expects qualitative criteria for bidders to ensure that frivolous bids get weeded out.
S.K. Garg, chairman and managing director, NHPC, and H.K. Sharma, chairman and managing director, SJVNL, did not respond to phone calls or to messages left on their mobile phones.
Neepco’s chairman and managing director couldn’t be contacted.