MERC, the Maharashtra Electricity Regulatory Commission that oversees the price of electricity and its procurement in the state, has found discrepancies in a power tender worth around Rs 40,000 crores issued by the Maharashtra State Electricity Distribution Company Ltd. (MSEDCL). In a scathing order issued against MSEDCL on June 25, the MERC, which is also an adjudicating authority in power tariff matters, has sought justification from the state power distributor for not approaching the Commission before starting the bidding process for the mega tender as per the law. On May 10, MERC had launched the biggest tender in recent times for procuring 1600 MW Coal Based Thermal Power and 5000 MW Solar Power for Maharashtra from private players.
Intriguingly, after issuing the tender, the MSEDCL approached the Commission for an urgent hearing to seek approval for "deviations in standard bidding documents" for the long term procurement of power. It is common logic that any deviation from the set rules will always require prior regulatory approval and justification before any tender is floated and bids received. But in this case, the last date of bidding and opening of the tender was June 18, 2024 and the matter on changes in the bidding documents is still pending before the approving authority.
MSEDCL had filed an “Interlocutory Application” meaning an appeal (I.A. No. 28 of 2024 in Case No. 96 of 2024) seeking urgent listing in the matter with the Commission, which was heard by MERC on June 25. In the hearing, the regulator raised serious questions on the process and asked the public company to file submissions on the various aspects of the tender within 7 days. The matter is next listed for a hearing on July 2.
Why The Scrutiny?
The tender for meeting Maharashtra's power demand for the financial year 2033-34 seems to be launched in a hurry by the state run company in March 2024, before the code of conduct for the national elections came into effect. This was done without the basic requirement of obtaining MERC approvals. Also, as per the experts, the terms and conditions of the tender seem restrictive in a manner that not many in India would qualify. It raises a serious question of whether such restrictive terms can affect consumer tariffs in the future?
In accordance with the above logic, the MERC has sought MSEDCL explanation on: "Rationale for considering combined power procurement of (Solar+Thermal) through a single entity and clarify whether all future thermal power procurement would be on same principles?"
The proposed power procurement, which is being undertaken to meet demand of FY2033- 34 (10 years ahead) will start commissioning in 2 to 4 years. The Commission wants "MSEDCL to clarify whether such early contracting would create any stranded capacity?"
Further, the MSEDCL has submitted only a PowerPoint presentation on the project along with its petition and prayers and the Commission has asked it to submit the complete CEA (Central Electricity Authority) Report on the Resource Adequacy Study of MSEDCL since it is a mega power procurement contract.
MERC's scrutiny shows that the tender process by MSEDCL may raise significant concerns on fairness and encouragement of competition in the bidding process for power projects, which is emphasized under the provisions of India's Electricity Act, 2003 and the National Tariff Policy, 2016. Both the laws have a detailed framework on procuring Thermal and Solar power power through Tariff Based Competitive Bidding (TBCB) Guidelines. But the MSEDCL's petition suggests it is seeking to deviate from the framework.
"During the hearing, it is stated that use of weighted average tariff (thermal + solar) is not restricted to bid evaluation but it will be ensured that the said weighted average tariff is available throughout the PPA (Power Purchase Agreement) tenure. MSEDCL to highlight such provisions in bidding documents," MERC has said in its order.
The MERC order states in the hearing, it was stated that during Solar Hours, the Thermal Unit will run on a technical minimum and will be subsequently ramped up during the Non-Solar hours. If the required solar generation level is not achieved, then a penalty will be imposed. "MSEDCL needs to highlight such stipulations in bidding documents," MERC said.
Other Alleged Discrepancies
MERC further notes in its order that for the Thermal and Solar bid, MSEDCL is mandating the bidder to submit a bid for 100 percent capacity and bidding for part capacity is not allowed. Whereas quoting for part of capacity (minimum 100 MW) is allowed for Pump Hydro. The regulator wants MSEDCL to justify such a differential approach. "MSEDCL to demonstrate in quantifiable terms how such deviations proposed by it would be in consumer interest? Proposed power procurement is not location specific and hence possibility of setting up of projects outside Maharashtra cannot be ruled out. Under such circumstances when there is transmission constraint in bringing power into Maharashtra from another state, how is such an issue tackled?"
The MERC wants MSEDCL to submit a transmission capacity addition and strengthening plan to coincide with the proposed power procurement process. Also, the regulator wants to know how MSEDCL will ensure that it will not be subjected to a penalty for non-evacuation of power on account of transmission constraints?
Lack of Transparency And Anti Competition?
The tender’s structure, which restricts bidding to full capacity allocations and lacks provisions for part-capacity bids, limits participation and could potentially favor a singular bidder, contrary to the intended goal of fostering market competitiveness. Absence of prior approval for deviations from the competitive bidding norms and the use of a weighted average tariff for combined thermal and solar projects without clear procedural alignment raise additional concerns about transparency and adherence to statutory directives. The tender in the current form may undermine the integrity of the competitive bidding process and hence be detrimental to consumer interests and market efficiency.
Any interested party that wanted to participate in the tender may have had to obtain offers from equipment supplies and tie up financing and also arrange for other project essentials such as land, water and transmission. The tender did not afford any time for this.
Court Judgement / Regulations / Statutory Framework
The Tariff Based Competitive Bidding (TBCB) Guidelines and National Tariff Policy (NTP) explicitly mandates the promotion of competition and efficient resource utilization and underscore the importance of transparency and competition, necessitating the promotion of TBCB Bidding. Also, the law on Auction of Private Contracts is now well laid and in large public contracts, an element of Article 14 of Constitution of India is required to be considered. Article 14 says, "“The State shall not deny to any person equality before the law or the equal protection of the laws within the territory of India.”
The Supreme Court (SC) in Energy Watchdog v. Central Electricity Regulatory Commission & Ors. (2017) 14 SCC 80 has categorically held that NTP is a statutory policy and has the effect of law, being notified by the Central Government under Section 3 of the Act. The SC in the much celebrated Presidential Reference Judgment titled as Natural Resources Allocation, In Re: Special Reference No.1 of 2012 (2012) 100 SCC 1, after tracing down the entire law on this subject came to the unequivocal conclusion that although Competitive Bidding is not a Constitutional mandate, however, it is the most preferable method for alienation/allotment of public contracts. The SC reemphasized that the actions of the state must not be guided by extraneous considerations as it would deny equality and the principle emerges is that compelling reasons is the only rule for departure from the accepted norm of Competitive Bidding.
Not Allowing Part Bidding Wrong?
MSEDCL, although issuing a huge tender for thermal and solar power does not permit bids for part capacity, which could be against the guidelines. The TBCB Guidelines permit bidders to bid for part-capacity since the provision is designed to accommodate a broader range of bidders, enhancing flexibility and inclusivity in the bidding process. Not permitting bidders to bid for part-capacity reduces the pool of prospective bidders and may be anti competitive. Further, a single bidder is expected to invest Rs. 33,700 crore for the development of a large capacity. Requiring such a significant investment from a single bidder may discourage participation from smaller or newer entities, reducing competitive bidding and potentially leading to higher tariffs for consumers.
As per the TBCB Guidelines issued till date, distribution licensees are mandatorily required to seek prior approval of the Appropriate Commission for initiating the Bidding Process as well as for deviations. However, in the present case, prior to the issuance of the tender, MSEDCL has neither sought approval for the issuance of tender nor for the deviations. The TBCB Guidelines clearly require that any deviations from them must be approved by the Appropriate Commission before the Draft RfS and Draft PPA are issued by the Authority. In this case, it is acknowledged that MSEDCL did not obtain the necessary ‘Prior Approval’.
Judgment that supports the above was passed on August 6, 2021 in Appeal No. Appeal No. 150 of 2017 titled as Shri Rama Shankar Awasthi vs. UPERC & Ors. by the Appellate Tribunal for Electricity. The TBCB Guidelines serve as the fundamental framework for all competitive bidding processes related to the determination of tariffs and the procurement of power under Section 63 of the Act. As such, adhering to the structure and stipulations of the TBCB Guidelines is a statutory duty for any licensee engaging in a competitive bidding process for tariff determination. Any deviations from these guidelines without the required prior approval from the Appropriate Commission constitute a breach of the directive under Section 63 of the Electricity Act. Further, TBCB Guidelines have been issued in terms of Section 63 of the Act and as per the SC judgment in Energy Watchdog v. Central Electricity Regulatory Commission & Ors. (2017) 14 SCC 80 is statutory in nature.
