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No cause to scrap UMPP PDF Print E-mail
Wednesday, 07 January 2015 01:17
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Single bids are responsive and the real issue is tariff

 

It is true several private sector power producers have expressed their doubts over the power ministry’s new Design-Build-Finance-Operate-Transfer (DBFOT) model of auctioning two ultra mega power projects (UMPPs) in Odisha and Tamil Nadu. These producers have said the new model is pretty much unfinanceable since the project’s ownership does not vest with them, that there are 27 events of defaults on the part of the developer versus just 3 events of default on the part of the utility. In the event, just the public sector NTPC has bid for the UMPPs, which is why there is a call for the bids to be scrapped.

The government would do well to ignore this for a variety of reasons. For one, just because there is a single bid doesn’t make it unresponsive, what matters is the tariff at which NTPC quotes for the project. In any case, if the bid costs the power at a rate at which state utilities do not want to buy, the process automatically becomes infructuous and new bids will have to be called for—a call can then be made as to whether the DBFOT model should be continued with or not. In any case, it is important to keep in mind, the project is not really one for the Central government to scrap. The bids are being floated through a Central government body, but this is on behalf of various state governments—so it is they who have to take a final call. But what if, another argument goes, NTPC gets the project but is not able to actually deliver on it? One thing even opponents of the DBFOT model will concede is that, if the project work does not start in time, NTPC will simply have to forfeit its performance guarantees—under the earlier models, if a developer did not meet its commitments, it was next to impossible to wrest back the project. Any decision on the suitability of the DBFOT has to be taken after looking at the alternatives and their relative strengths and weaknesses, not just because some developers are protesting against it.

 

 

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