9 May 2012

Viability Gap Funding through PPP in Transmission Projects

In order to encourage private participation in the development of electricity infrastructure and in order to move towards tariff based competitive regime, the Ministry of Power has mandated that procurement of transmission services in new projects should be done on the basis of tariff based competitive regime. While 8 inter-state transmission projects have so far been allotted on the basis of competitive bidding which involves an estimated cost of about Rs. 14,000 Crores, the intra-state transmission projects would also be moving to the tariff based competitive system from January 2013 as per the tariff policy. 

In order to facilitate this shift from the costplus to the tariff based regime and to have greater participation of the private sector, Ministry of Power has evolved a Standard Bidding Document which has been used by some intra-state transmission projects. At the same time, a Viability Gap Funding (VGF) model has been evolved for intra-state transmission projects for which a Model Transmission Agreement (MTA) was developed by the Planning Commission. 

The MTA has the provision of VGF and evaluation of bids on the basis of minimum grant quoted by the bidders. It also determines the tariff through a transparent process of bidding and has been considered by the Ministry of Power for inclusion under the “Guidelines for Encouraging Competition in Development of Transmission Projects” issued by the Central Government for the purpose of Section 63 of the Electricity Act 2003. 

In a communication sent by the Ministry of Power to the States and Union Territories, they have been given option either to use VGF based MTA document or the Standard Bidding Document for procurement of intra-state transmission services. For the VGF based bidding, the unitary charges will require to be approved by the respective State Electricity Regulatory Commission prior to bidding. The experience of VGF based MTA is to be reviewed after three years. 

To enable the VGF based MTA document to be used by States, the “Guidelines for Encouraging Competition in Development of Transmission Projects” issued by Ministry of Power have been modified as under: 

“As far as intra-state projects are concerned, the State Governments may adopt these guidelines and may constitute similar committees for facilitation of transmission projects within the State. The States also have the option to use Viability Gap Funding (VGF) based Model Transmission Agreement (MTA) document of Planning Commission for development of transmission system in their States under Public Private Partnership (PPP) mode.” 

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