No bidding cap on UMPP developers

NEW DELHI: In what may help companies such as Reliance Power and Tata Power, the government has decided against putting a cap on the number of ultra mega power projects (UMPP) that a company can operate.

Instead, it has decided to put in place a stringent performance guarantee mechanism along with penalty provisions to ensure companies do not overstretch themselves to bag UMPPs. The decision was taken at a meeting of the empowered group of ministers (eGoM) on UMPPs on Thursday.

“The government has decided against putting a cap on the number of bidders for UMPPs as it goes against the idea of promoting competition in the sector. However, the seriousness of the bidders for a project would be gauged by strengthening the performance guarantee parameters with strict penal provisions for any deviations. This would ensure that a company doesn’t bite more than it can chew,” a power ministry official told ET.

The proposal would be implemented once Power Finance Corporation (PFC) revises the performance clause in UMPP bid documents, the official added.

At present, initial bids for UMPPs are backed by a bid bond of about Rs 120 crore, which is replaced by a performance guarantee of Rs 300 crore by the winning bidder. Under the revised norms, both the bid bond and performance guarantee would be raised substantially.

The performance guarantee may increase from Rs 300 crore to Rs 450 crore for the second project, and to Rs 600 crore for the third project. A higher amount could also be finalised by PFC in consultation with the power ministry. The new norms will apply to future projects.

The government will also strictly monitor identified milestones for commissioning a UMPP project. Any deviation would attract stiff penalties. PFC would finalise the penal provisions that would be in addition to the deductions made from the bank guarantee, a source said.

“The idea is to ensure that projects get commissioned on time. The thinking is not to restrict competition, which is important to provide cheap power to consumers,” the official said. The decision would come as a relief to Reliance Power and Tata Power.

While Reliance has won two UMPPs, Tata has bagged one project. Reliance Power has also bid for Tilaiya UMPP. There were reports that the government may restrict a single company to bid for a maximum of two UMPPs. The government has so far completed bids for two UMPPs at Sasan and Mundra. It has finalised the bidder for Krishnapatnam, likely to be Reliance Power, and has invited requests-for-proposal for the Tilaiya project. Five to six more UMPPs are expected to be bid out during the 11th Plan (2007-2012).