17_Order_dt_10_04_2006_CN_01 of 200500009

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Public Hearing Process: Record of Proceeding
DATE OF HEARING : 27th Sep, 2005

CASE NO.                : 1 of 2005

MATTER                  : Procurement of power by MSEB from Bhandardara Hydro electric
                        Project (Phase II)

8.1    The list of participants in the public hearing were as follows:

Participants who attended the Public Hearing held on 27 th September, 2005 at Vista Hall of
World Trade Centre are as follows:

Sr No Name                              Designation                 Organisation

 1.    Vikram Rajadhyaksh               CEO                         DLHPPL
 2.    PS Paunnikar                     Director                    DLHPPL
 3.    David Hetzler                    Bis Dev                     DLHPPL
 4.    Shyam Vaidya                     MD                          DLHPPL
 5.    Rakesh Kothari                   Asst Mgr (Sys)              DLHPPL
 6.    Prakash Tharade                  Manager A/C                 DLHPPL
 7.    SK Mulani                        Asst CE (E)                 GoM
 8.    GH Khatti                        CE                          GoMWRD
 9.    VM Kulkarni                      Dy Secretary                GoMWRD
 10.   SK Ghanekar                      Under Secretary             GoMWRD
 11.   AD Sant                          Section Engineer            GoMWRD
 12.   Subhash Gupta                    Dy EE                       MSEDCL
 13.   Ambekar LN                       EE                          MSPGCL
 14.   JV Agavekar                      EE                          MSEDCL
 15.   DD Ulangikar                     SE                          MSEDCL
 16.   KS Jaiprakash                    EE                          MSEB (Holding)
 17.   RA Mulla                         TD                          MSEB (Holding)
 18.   VK Bhojani                       AE                          GoMWRD
 19.   AA Inamdar                       Dy Engineer                 GoMWRD
 20.   DK Datar                         EE                          GoMWRD
 21.   DS Dahedar                       Dy Engineer                 GoMWRD
 22.   ST Pathak                        SE                          GoMWRD
 23.   N. Abhyankar                                                 Prayas
 24.   Sardul RK                        Manager                     Crisil
 25.   B Sheshan                        Head Power                  Crisil
 26.   Rasika Gokhale                   S Off                       REL
 27.   V.H. Wagle                       Manager                     TPC

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Sr No Name                             Designation                Organisation

 28.   AD Mahajan                      S Mgr                      SICOM
 29.   M.N. Bapat                      Tech. Expert               SICOM
 30.   Tushar Sud                      Consultant                 PwC
 31.   Sambit Basu                     Consultant                 PwC
 32.   Jogendra Behera                 Consultant                 PwC
 33.   Anupam Ray                      Consultant                 PwC

Dodson-Lindblom Hydro Power Pvt. Ltd. (DLHPPL)

8.2    Mr Rajadhyaksha presented the case of DLHPPL and made following observations:

       (a)    DLHPPL bid an amount of Rs 60 Crore upfront and a further total of Rs
              262.70 crore in yearly instalments so that the NPV of all payments would be
              Rs 92 Crore.

       (b)    DLHPPL had retained an independent expert to make complete inspection of
              the plant and determined that plant needs significant repair and refurbishment
              to improve availability of the plant. The estimate of repairs and refurbishment
              was approximately Rs 10 crore. Due to inadequacies, the plant has only
              generated an average of 27.28 MU as against design generation of 36 MU over
              last six years despite of availability of water. He also stated that whereas in
              case of Bhandardara I the availability have been 99.9% when water was
              available, the same figure stands at 50% in case of Bhandardara II.

       (c)    The tariff proposed by DLI starts at Rs 3.05 per unit and escalates at 5% per
              year upto 12 th year, stays constant for 5 years and then escalates at 4% per
              year until it reaches Rs 8.69 per unit. In case CERC norms are followed, the
              first year tariff works out to be Rs 5.25 per unit which goes down to Rs 2.50
              per unit until 11th year and steadily increases to about Rs 9.35 per unit in 30th
              year. He pointed out that the proposed tariff is back loaded and the rate
              proposed would be affordable to MSEB and at the same time enable the
              developer to ensure payments to GOMWRD, paying operating expenses and
              meeting debt-service obligations.

8.3    DLI submitted that Commission had received some erroneous information from
       various sources and further clarified that the per MW cost of Rs 9.96 crore worked out
       by M/s CRISIL was not correct as they had considered an aggregate of all the
       payments for 30 years in absolute terms. However, if the NPV of all future payments
       are considered, the per MW cost stands at Rs 3.14 crore.

8.4    DLI also submitted that the tariff comparisons for Nathpa-Jhakri, Uri, Chamera and
       Rangit cited by CRISIL was not appropriate as these projects are located in
       Himalayas with perpetual flowing rivers and have capacity in hundreds of MW with
       PLF in excess of 60%.

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8.5    PRAYAS submitted that BHEP II has not been used as a peaking plant as Nilwande
       dam would be completed only by 2007. The coming two years would be most crucial
       for MSEB particularly from peaking power point of view.

8.6    PRAYAS observed that the proposal has the following lacunae:
       (a) Extremely high tariff: The levelised tariff over 30 years is Rs 4.36 per unit.
       (b) Exorbitantly high R & M cost: The proposed repairs and maintenance cost of
           Rs 10 crore amounts to 17% of Rs 60 crore (the amount to be paid upfront).
       (c) Other factors: The high capital cost of the project is also on account of
           Commitment charges to FIs (2% of loan), consultant & legal fees (2% of
           upfront payment), performance bank guarantee (3% of upfront payment).
           These other costs add upto 12% of upfront payment of the capital cost (Rs 60
       (d) No comparison with alternatives have been considered for the project. The
           comparison of the project should be with an alternate source of peak power or
           a peak power reliever like Agricultural feeder segregation, open cycle gas
           turbines, mass scale DSM scheme using CFLs. That is comparing cost of
           saving incremental power requirement during the peak period against the cost
           of providing incremental power from the Bhandardhara project.

8.7    PRAYAS proposed that mass CFL scheme is the most viable alternative as the energy
       benefits would be 18 times the annual cost to be paid to Bhandardara project over
       next 30 years. In addition, the mass CFL scheme has huge employment potential. The
       Commission pointed out that the peak deficit shall remain inspite of the DSM
       measures and additional generation would be required to meet the same. The objector
       agreed with Commission’s contention that few stations would be required for meeting
       the peak demand. The Commission also enquired whether PRAYAS could provide
       suggestions in the matter of tariff of peaking power. In reply PRAYAS stated that for
       short term peaking power could be as high as Rs 5/- per unit and also pointed out that
       this (Bhandardara II) is a case of long term power purchase.

8.8    PRAYAS also raised the issue of obligation of MSEB to purchase power from
       Bhandardara and submitted that MSEB is under no obligation to purchase power from
       Bhandardara II as stated in para 3.5.13 of the bidding document and therefore it
       should not be made mandatory for MSEB to procure power from BHEP – II. The
       promoter is free to sell the same to any trader or in the market. But maintained that
       whether the need for Bhandardhara II as peaking station is justified at such high cost
       as it won’t be available for the next two years when need for peaking power is high.

Maharashtra State Electricity Distribution Company Ltd. (MSEDCL)

8.9    Mr Mulla submitted that MSEDCL would need to purchase peak power as there is
       significant deficit during the peak time.
8.10   It was submitted that there has been no identical proposal for long term peak power
       purchase with any of the SEB’s / utilities in India.

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8.11   Mr Mulla submitted that the capital cost of Rs 92 crore for the project was outcome of
       bidding process and therefore MSEDCL has nothing to comment on the same.
       However, he submitted that Commission’s decision on the additional expense of Rs
       10 crore would be acceptable to the company and also that the tariff determined by
       the Commission would be acceptable to the company. The Commission enquired
       whether the bidding was for power project or for the hydro project. Mr Mulla
       submitted that it was only the power project cost which was taken in the bid. The
       Commission also asked whether the bidding process would absolve the company of
       its responsibility, more so when there was only one bidder and there was no price
       discovery as such.

8.12   The Commission also observed that there were no CERC norms for peaking power.

8.13   Mr Mulla submitted that the current peak power cost was around Rs 3.45 – Rs 3.50
       per unit, which is much higher than the proposed rates.

Government of Maharashtra Water Resource Department (GOMWRD)

8.14    Mr Kulkarni, representative for GOMWRD, expressed that the cost of Rs 92 crore for
       the project was reasonable and was outcome of a transparent competitive bidding
       process. The Commission observed that it seems that the objective of GOMWRD was
       to optimise their gains through the bidding process at the cost of the power utility, and
       also expressed doubt whether the bidding process can be truly considered competitive
       when only one bidder responded.

8.15   The Commission enquired what would happen in case the developer was not given
       the price comfort and thus finally the plant is not handed over to this bidder
       (DLHPPL). Mr Kulkarni submitted that the department would look for alternative and
       again go through the bid route. He also pointed out that in that case the bid value
       could be higher.

8.16   The Commission also asked the GOMWRD representative to comment on the Rs 10
       crore additional cost asked for by the developer. Mr Kulkarni stated that a detailed
       reply has already been submitted vide letter dated 12 August 2005. He clarified that at
       present additional expense of Rs 10 Crores is not required but cannot comment on any
       requirement that may arise after four to five years. Mr Kulkarni also informed that at
       present there were no problems in running the machines at full load and it had been
       tested recently. DLHPPL expressed that Rs 10 crore was required to increase the
       availability at Bhandardara II to 99% from the existing 50% (approximately).

8.17   The Commission enquired whether it is appropriate to account for the entire expense
       in respect of power plant or a part of the expense should also be booked against
       irrigation expense. Mr Kulkarni submitted that the price of Rs 92 crore did not include
       any irrigation component at all. To a pointed query from the Commission on the
       release of water for power generation without linking irrigation needs, Shri Kulkarni
       replied that after completion of Nilwande Dam Project, the Bhandardara - II shall be
       used for power generation exclusively based on water availability.

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