Power regulator hits out at new bid docs, provision for inspector

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A government proposal aimed at bringing back ‘inspector raj’ in the power sector has met with scathing criticism from the apex electricity sector regulator, which has termed the move as being in contravention with the existing legal framework and said it should be “dispensed with”.

In a statutory advice to the government, issued on Friday, the Central Electricity Regulatory Commission (CERC) has said the move would be tantamount to creating an independent authority not envisaged under the Electricity Act, 2003. “This may lead to dispute and should ideally be dispensed with.” The proposed norms, floated by the power ministry in consultation with the Planning Commission, envisage ‘independent engineers’ being instituted in a supervisory role at each of the country’s upcoming thermal project for monitoring of operations, something that private project developers and lenders have termed as “intrusive” and “unworkable”.

The provision in the new standard bidding document (SBD) stipulates the appointment of an independent engineer by the state electricity boards (or the utility buying power from the project).

The Indian Express had reported on October 19 that the new bidding documents could usher in an ‘inspector raj’ through the backdoor.

The engineer will be tasked with overseeing the operations of the plant, including the efficiency in the usage of coal to decide whether the variable portion of the electricity tariff being charged by the plant reflects the most efficient use of fuel. Gajendra Haldea, Adviser (Infrastructure) to Planning Commission Deputy Chairman, and one of the architects of the new bidding format, has countered the criticism against the provision and said the proposed independent engineers would carry out only quarterly inspections and that the person would not have any right to reject data offered by the project developer.

The CERC, in its advice to the government, has termed the Design Finance Build Operate and Transfer (DFBOT) model as proposed in the revised standard bidding document (SBDs) — under which the ownership of the entire plant and the land will vest with the distribution utility inviting bids for the power purchase agreement and the project developer will have to necessarily transfer the plant to the distribution utility upon expiry of the concession period — as “unsuitable” for a delicensed business like power generation.

The regulator has, instead, suggested that the revised document should switch back to the BOO (build, own and operate) model being followed in the existing bidding documents. “In our view, the DFBOT model is suited more for natural monopoly businesses like road, transport, transmission and distribution of electricity etc. and not for delicensed businesses like generation. It is felt that the DFBOT model may not inspire the developer to adopt prudent maintenance towards the end of the concession period, leading to high degree of deterioration of the plant. The model may also lead to complexities in transfer process in case of multiple procurers,” the CERC said in its advice to the government. The regulator has further criticised the proposed DFBOT model on the grounds that since the Electricity Act, 2003, has categorically proposed unbundling of the distribution sector utilities (state electricity boards) into separate generation, transmission and distribution companies, the provision for the transfer of generation stations (after the concession period is over) to distribution utilities, as envisaged in the proposed DBFOT format, will only lead to aggregating generation and distribution assets under the same entity again. This, the regulator has said, would be in contravention to the provisions of the Electricity Act.

Additionally, in the event of privatisation of distribution utilities across some states, if the transfer of generation station were to happen under the provisions of the new bidding regime, it would simply lead to the plant passing on to a private sector owner of the distribution utility. There are also uncertainties on how the transfer of staff manning the station will take place.

POWER STRUGGLE

* The CERC has opposed a proposal to appoint an independent engineer to oversee the operations of power producers