Friday, August 17, 2012

Response of Ministry of Power to CAG Report on the Performance Audit of Ultra Mega Power Project

The CAG report on Ultra Mega Power Projects was tabled in Parliament today.The Ministry of Power has given a written response to the media. Placed below is the detailed text of the response .
“In its report, CAG has made observations on some of the qualifying criteria of the bidders, modifications in some of the conditions of the bid and allocation of surplus coal.
2.         The policy of developing Ultra Mega Power Project with a generation capacity of 4,000 MW each  costing about Rs.20,000 crore was one of the major initiatives taken by Ministry of Power to increase generation capacity in the power sector.  This was in pursuance of the emphasis laid in the XI Five Year Plan on removing infrastructure bottlenecks for sustained growth.
Qualifying Criteria and Bid Evaluation
3.         UMPP was a concept being tried for the first time in 2006.  Power projects were not implemented on such a large scale in the private or Govt. sector earlier .  Comparison made in the Report with smaller projects like one of the projectsof  DMRC is not proper as one UMPP involves investment to the tune of Rs. 20000 crore.  Adopting the criteria of net worth as in the case of DMRC would have adversely affected the bidding process and limited competition which would result in higher tariff. If the technical and financial requirements of similar organizations like DMRC were adopted as it is into the SBDs of UMPPs as stated by audit, none of the private sector or public sector organization would have  qualified except perhaps NTPC which would have throttled the UMPP initiative at that point of time. The Qualifying Requirements enabled wide competition among the bidders and this had a reflection in the lower tariff of UMPP projects, thus protecting the interest of the consumers. 

4.         UMPP concept can not be compared with the PPP projects.  In UMPP the ownership of the project is with the developer. Concept of UMPP of providing allocation of captive coal block, acquisition of land citing public purpose, Government facilitating all clearances were in the direction of reducing the risk related to these important pre-project development activities and hence build confidence of the bidders so as that bidders can take up the construction of the project once the project is awarded.
5.         CAG’s observation that only capital cost of the project commissioned during the last 10 years was eligible to be counted for project experience is not as per the technical requirement specified in the RfQ.  As per the RfQ,  the bidder must meet technical requirement of having experience of developing projects in the last 10 years whose aggregate capital costs must  not be less than Rs.3000 crore.   Out of these projects the capital cost of atleast one project should be equivalent to or more than Rs. 500 cr.  Evaluation of the UMPPs were carried out on the basis of certification furnished by the auditor as this is the standard practice followed in many PPP projects as well. The evaluation of bids was carried out as per what is stated in the bid document.
6.         The Evaluation committees were headed by Independent experts like for SasanShri Deepak Parekh, forKrishnapatnam – Shri E. Shridharan, for MundraShri S.S. Kohli and for Tilaiya – Shri Shunglu.
7.         Audit has observed that few conditions were softened in the SBD.  It is clarified that during the course of bidding amendments were carried out in the SBDs from time to time after considering reasonable suggestions of the bidders and recommendations of PFC.  This was done at the  pre-bid stage. The response of the stake holders to the bid document needed to be taken into account to encourage competition and to attract investments.  All the changes were carried out before the bids were submitted and the changed provisions were known to all the bidders.  At any stage there was no question of favoritism or any vitiation of the bidding process.
Permission to use surplus coal
8.         EGoM on 14.8.2008 decided to recommend to the Coal ministry the use of incremental coal from coal blocks allocated to Sasan UMPP by other projects of RPL subject to certain safeguards, such as Sasan UMPP will always have the first right and overriding priority over all coal produced from the allocated blocks and the power generated by utilizing such coal would be sold through tariff based competitive bidding.
9.         Tata Power, one of the bidders challenged the decision in the High Court Delhi in Jan, 2009 on the ground that the Govt. has, post the award of the contract, made a change in terms on which the bids were invited, thereby changing the economics of the Sasan UMPP. MoP has submitted in the High Court that permission to use surplus coal given by the EGoM has not vitiated the commercial condition in bidding of the Sasan UMPP.  As all the conditions including the use of surplus coal (clause vi & xii of the allocation letter) were known to every qualified bidder upfront and before financial bids were received, therefore, there is no deviation in any commercial conditions.  The High court dismissed the petition filed by Tata Power on 13.4.2009 on the grounds that the company has no locus standi as it opted out of the race by not extending the validity of their bids when requested and suppression of material fact..

10.       Tata Power thereafter appealed in Supreme Court in May, 2009.  MoP has submitted in Supreme Court  thatthe decision of the EGoM to allow the use of incremental coal from the coal blocks allocated for Sasan UMPP was taken after considering all relevant factors, more particularly the need to augment power availability in the State of Madhya Pradesh, which has been facing power shortage to the tune of 14.4% of peak shortages (1075 MW) and 19.0% of energy shortage      (8206 MU) which was one of the highest in the country. Thus, the decision is based purely in public interest.

11.       CAG recommended that the decision of EGOM dated 14.08.2008 – permitting the use of surplus coal in other projects of RPL be reviewed.  In view of CAG’s above observations and other facts,  Ministry of Power placed the matter before EGOM.    EGOM sought the opinion of Learned Attorney General for India.  AGI opined that the decision taken by the EGoM on 14.8.2008 was a well considered decision. In view of Ld AGI opinion and keeping all facts and circumstances of the matter, EGOM in its meeting on 28.4.2012 decided that the permission given for the use of surplus coal of Sasan Coal blocks to Chitrangi project need not be withdrawn.

12.       In its report, CAG has assessed the overall financial benefit to RPL due to impact of the difference in tariff at Rs.29033 crore with a net present value of Rs.11852 crore.  It is stated that the cost and tariff of two projects cannot be compared as the tariff would vary with the capital employed in the project, the size of the project and the technology used.

13.       CAG was informed of the EGOM decision and all relevant papers including the legal opinion given by the LdAGI was sent to CAG.  CAG has not  taken cognizance of all these relevant  facts in its final report.

14.       It is clarified that MoP is at present reviewing the Standard Bidding Document (SBDs)  and CAG’s observations will be taken into account while finalizing the revised SBDs. The effort of the Govt. is to strike a balance between the twin objective of competition and accelerated capacity augmentation in the country.  It is asserted that the Ministry has always followed a transparent and fair competitive bidding process and would continue to adhere to the tariff based competitive bidding policy for the benefit of the common consumer.

15.       Ministry of Power will place all relevant documents and its views before Public Accounts Committee (PAC) as and when asked for. “

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