Tariff based

Competitive bidding
(TBCB) Model
Oct 30, 2023
 • Background
• Process for participation in TBCB
• Legal & Regulatory Compliance
FLOW OF DISCUSSION • Areas of capacity building
• Risk assessment
• Assessment of bidding price
considering viability of project
• Options for Project Financing
• Financial Reporting and Accounting
• Case Studies

11/10/2023 2
 Background
MPPTCL has been developing projects on cost plus approach in the state of MP wherein the tariff is
determined by MPERC on cost-plus basis.

Considering the huge investment opportunity in tariff based competitive bidding (TBCB), MPPTCL
is exploring the opportunity of participating in such bids as a ‘bidder’.

MPPTCL, previously has been awarding greenfield projects under TBCB to private developers,
however, wants to explore the opportunity as an investor.

TBCB is a different model than cost-plus, hence, it is required to understand the process, major
components and associated risks

Eight interstate projects of approx. cost 4697 Crs through TBCB mode are expected in near future

11/10/2023 3
Process for
participation in TBCB
 TBCB Model- Evolution

Tariff based Competitive-

Guidelines for encouraging
bidding Guidelines for Release of Standard
Competition in
Transmission Service Bidding Documents, 2008
transmission sector, 2006
released by MOP, 2006

Policy for incentivizing

MoP resolution on
early commissioning of Revised National Tariff
exemptions from TBCB,
Transmission Projects by Policy, 2016
2010
MOP, 2015

Delegation of power to
Reconstitution of NCT
approve the schemes Draft ISA 2020
and RCP(TP), 2019
under TBCB scheme, 2018

11/10/2023 5
 Central Regulations
Electricity Act National Tariff Policy| 6th Jan 2006/2016
• Seeks to encourage competition with appropriate regulatory • Tariff of all new generation and transmission projects of
intervention. PSUs shall be determined on the basis of competitive
bidding unless otherwise specified.
• Competition expected to yield efficiency gains and result in
quality supply of electricity to consumers at competitive • Intra-state transmission projects shall be developed by State
rates Government through competitive bidding process for
projects costing above a threshold limit (decided by SERCs)
• Section 61 & 62 of the Act provide for tariff regulation and
determination of tariff of generation, transmission, wheeling • Investment by transmission developer including CTU/STUs
and retail sale of electricity by the Appropriate Commission. would be invited through competitive bids in accordance
with the guidelines issued by the Central Government
• Section 63 of the Act states that –
• Central Government may give exemption from competitive
“Notwithstanding anything contained in section 62, the
bidding for
Appropriate Commission shall adopt the tariff if such tariff
has been determined through transparent process of bidding • specific category of projects of strategic importance,
in accordance with the guidelines issued by the Central technical upgradation etc. or
Government”. • works required to be done to cater to an urgent
situation on a case-to-case basis.
11/10/2023 6
TBCB Bidding - process (1/2)
Pre-liminary Pre-bid
survey report Submission of meeting Issue of written
Issuance of RfP
Incorporation of SPV Clarifications clarification & Revised
(Zero Date)
(Zero Date+20 days) RFP (Zero+38 days)

Shortlisting & announcement Submission of Bids (tech. Issuance of Final RFP

Opening of Technical Bid
of Qualified Bidders on portal & financial) amendments
(Zero + 63 days)
(Zero + 71 days) Zero + 63 days (Zero + 48 days)

Opening of Financial Bid E-RA Process Selection of successful RFP signing & SPV
(Initial offer) (Zero + 73 days) bidder & LoI transfer
(Zero + 72 days) E Days E + 8 days E + 18 days

7
 TBCB Bidding - process (2/2)
• Technical & Financial bids are
submitted with RFP.

• Financial Bid comprises of 2 E-reverse Auction (e-RA)

rounds (Only Initial Offer to be
submitted with RFP)
Shortlisting of bidders • e-RA starts with the lowest
• Once, Technical requirements are
met, Initial offer is opened and levelized tariff discovered
ranked in ascending order • Top 4 qualify for the e-RA after the initial offer of the
Qualified Bidder
• TSP quotes two components
Technical and financial bid of Tx. Charges in Financial Bid • In e-RA the tariff has to be
submission (Escalable & Non- reduced by 0.25% of the
Escalable) prevailing tariff

• Escalable can’t be more • Initial period of e-RA is 2 hrs.

than 15% of Non Escalable Time is extended by 30 mins
if bid is received in the last 30
• Ratio of min. & max. Quoted mins
Tx. Charges during the term
of the TSA must not be less
11/10/2023
than 0.7 8
Legal & Regulatory
Compliance
 Approvals – legal and regulatory
Particulars Description
SPV acquisition SPV acquisition by the successful bidder

Transmission license Obtaining transmission license from the relevant regulatory commission

Adoption of tariff Obtaining adoption of tariff (Sec 63) from the relevant regulatory commission

Approval under section 164 Obtaining approval of section 164 of the electricity act

Project Initiation Execution can be started for alignment where environmental/forest clearance is not
(Environmental Clearance) required

ROW compensation is based on 85%/15% adopted by most of the states wherein 85%
ROW compensation
land cost is paid for Tower and 15% for corridor compensation

11/10/2023 FOOTER GOES HERE 10

Capacity building
 Areas of capacity building

Design and Engineering • Transition from over-designing to optimum designing

• Survey and BoQ preparation

Pre-bid activities • Pricing of items and partnerships

• Financing modeling and costing

Bid preparation • Compliance with technical requirements

Construction • Use of technology and effective project management

Operation & • Use of technology and predictive maintenance

maintenance
11/10/2023 FOOTER GOES HERE 12
Risk assessment
 Risk Assessment – Transition from utility to developer
Project Parameters Cost-plus TBCB
Low High
Willingness to introduce new technology

High
Innovation in design Medium

Low High
Construction cost risk

Construction schedule risk Low High

Lifecycle cost risk Low High

Operating performance risk Medium High

Financing risk Medium High

Summary Assessment Focus on recovery of cost, hence Focus on efficiencies, innovation and
tariffs may be higher. Innovation is value engineering
secondary
11/10/2023 14
Assessment of bidding price
Bid Components
Survey

Route

Financing BoQ
terms
BID

Schedule Pricing

11/10/2023 FOOTER GOES HERE 16

 Survey

Risks and Levers Differentiators

Risks
❖ Right of way (RoW)
❖ Forest/ Wildlife/ Environment ❖ Early start
❖ Approvals (Time for
detailing and
Survey ❖ Terrain
project
❖ Soil strata
selection)

Levers
Route ❖ Route Length
❖ ROW cost
❖ Technology
❖ Extensive data collection for Intervention
clearances and approvals
❖ Terrain Mapping
11/10/2023 FOOTER GOES HERE 17
 Design & Engineering

Risks and Levers Differentiators

Risks
❖ Tower Design failures
❖ BOQ Variance (Change in assumptions) ❖ Early start
❖ Foundation design failure
D&E
❖ Oversizing leading to bid loss

❖ Design library
Levers
Bill of Quantity
❖ Optimum Tower Design
❖ Optimized foundation volumes ❖ Technology
❖ Efficient Substation Layout Intervention
❖ Substation Soil Strata Mapping

11/10/2023 FOOTER GOES HERE 18

 Sourcing

Risks and Levers Differentiators

Risks
❖ Price Variance
❖ Commodity Movement ❖ Early start
Sourcing ❖ Change in Contractual framework

Pricing Levers
❖ Payment terms
❖ Partnership
❖ Business Scale
models
❖ Procurement model

11/10/2023 FOOTER GOES HERE 19

 Execution approach

Risks and Levers Differentiators

Risks
❖ Schedule Delays
❖ Interconnection Risks ❖ Involvement of
projects team
❖ Availability of contractors / gangs
Execution during the bid
❖ Quality and safety process

Levers
Schedule
❖ Field Validations
❖ Detailed Resource planning ❖ Execution Ready
❖ Early commissioning Bids

❖ Interconnection Analysis

11/10/2023 FOOTER GOES HERE 20

 Financing

Risks and Levers Differentiators

Risks
❖ Timely financial closure and
disbursement
Financing ❖ Change in debt terms ❖ Early financial
closure
❖ Refinancing risk

Competitive debt Levers

Terms & Conditions
❖ Robust balance sheet
❖ Credit rating ❖ Past Track Record
❖ Financing terms/Instruments

11/10/2023 FOOTER GOES HERE 21

 Component-wise break of costs
Transmission line Substation
S.No Cost component Tentative % S.No Cost component Tentative %
1 Towers - Supply 37-39% 1 Transformers – Supply 30-35%
2 Reactors – Supply 5-10%
2 Conductor - Supply 33-35%
3 Control room 10-15%
3 Insulator – Supply 2-4%
4 Switchyard – Supply 20-25%
Hardware and other Erection and
4 3-5% 5 5-10%
supplies – Supply commissioning
5 Services* 18-20% 6 Civil 10-15%

*Cost for ROW compensation, forest and other clearances ranges between 7-10% of the overall capex
11/10/2023 FOOTER GOES HERE 22
Options for Project
Financing
 Options for Financing
Strategy adopted by existing
transmission companies
• Debt financing during
construction period through
banks/FIs/NBFCs
• Refinancing post
achievement of COD
through bonds or post
transfer to InvITs
• Equity financing through
securitisation of operational
projects or on balance sheet
• Strategic equity investors
11/10/2023 FOOTER GOES HERE 24
 De-risking to achieve optimum debt financing

De-risking of underling SPVs to generate and release surplus cashflows for Transmission Business
Mgmt. throughout Project lifecycle
De-risking integrated in Capital

Project Financing Stabilization

HoldCo. Financing Post-Stabilization Phase
SPV level Phase

LCs & short-term funds to Ensure senior debt availability Ensure availability of Debt Capital market refinancing at lower interest
finance equipment for Project Construction working capital rate, longer tenure and terms akin to stable assets

Fully-funded Growth De-risking of Liquidity Risk

Development Phase Stabilization Post-stabilization Phase

Existing HoldCo Sr. Regular Finance –

Future Plans

to continue Construction finance for

other projects Working Capital Future USD bonds raise via. DCM Broaden
facility to continue capital pools – 144A / RegS and SEC
Go to Market Facility to Registered issuances
Existing NFB lines to
be upsized to fund
continue
confirmed growth assets

Maximising Stakeholder Value & De-risking projects with Disciplined Capital Management
1. USD/ INR = 82.04 2. Includes INR PF of 127 bn and other ECB of 45 bn | 3. Exchange rate as of transaction date
PF: Project Finance; LC: Letter of Credit; SPV: Special Purpose Vehicle; RG1: Restricted Group 1 ; RG2: Restricted Group 2; NFB: Non-fund based; WC: Working Capital
11/10/2023 25
POWERGRID Infrastructure Investment Trust (PGInvIT)
Investors
• Incorporated in 2021, PGInvIT, sponsored by the state-run
Sponsor
POWERGRID, is the second listed InvIT in the Indian power sector

• PGCIL is the largest power-transmission company in India, with 168,457

ckms worth of transmission lines and 440,310 MVA substation capacity as
of June 30, 2021

• Has AAA rating from CRISIL

• The initial portfolio consists of 5 infrastructure transmission projects,

comprising 11 transmission lines(c.3,699 cKms) and three substations
(c.6,630 MVA)

• Valuation as of December 31, 2020 was ~USD 1.39 Bn (INR 103.87 Bn)
on a discounted cash-flow basis

• InvIT units listed at a premium of 4 percent, at an initial trust valuation of

~USD 1.22 Bn (INR 91Bn)

• Following a positive response, PGCIL is planning to merge 18 more assets

into the InvIT
11/10/2023
Financial Reporting
and Accounting
 Financial reporting

• SPV transferred to the successful bidder

• All costs (capex, opex etc.), loans and revenues are booked in the financial statements of the SPV

• The SPV, post acquisition can continue to be a subsidiary of the successful bidder or can be
merged with the successful bidder

– No past precedence of the SPV being merged with the successful bidder

– Transfer to InvITs or strategic equity partnership becomes easier with SPV model

11/10/2023 FOOTER GOES HERE 28

Case studies
 TBCB in India so far…
• Total transmission projects awarded – 88 with investments of more than 1.25 lakh Crs. in the last
14 years

Status Market share

4
20%
38%

38 46 23%

19%

PGCIL Adani Sterlite Others

Commissioned Under construction Cancelled
11/10/2023 FOOTER GOES HERE 30
Analysis of tariffs (1/2)
WINNING TARIFF VS STARTING OFFER (INR CRS.)
Winning Tariff Starting Tariff at RA
(INR crs.) (in crs.)

324
257
233

220
220
179

146

137
131

126
124

122

116
106

103
100
100
99
95

95
85
83

80
80
72

69
Analysis of tariffs (2/2)
LT/Capex %
25.0%
21.0%
20.0% 17.9%

15.0%
11.2% 11.3%
10.3%
10.0% 8.7% 8.9% 8.8% 8.4%
7.9% 7.6%
7.0%
6.0% 6.1%
5.0%

0.0%
 Way Forward

As-is Post approval of

Suggestions to plug Capacity building
assessment of Presentation to MPPTCL, Develop Hand-holding
the gaps and of MPPTCL
MPPTCL and provide support relevant tools support for one
MPPTCL to present the
seek approval in identified and policies
team on tools
bid process
assess the gaps requirements and policies
areas

Phase I
Timeline: 4-5 months
Phase II
Timeline: 8-10 months
 THANK YOU

11/10/2023 34