States pull the plug on mega power equipment tender

Source: Business Standard, Jul 21, 2016

New Delhi: The Centre’s plan to procure electrical equipment on a mass scale under its two flagship schemes for power supply reforms in states might not take off, even though tenders for the same had been bid out. This is because state governments are not willing to follow a uniform norm.

Official sources said the central government’s plan to bring down the cost of power equipment, and eventually the power tariffs, faced stiff resistance from four states — Uttar Pradesh (UP), Maharashtra, Madhya Pradesh (MP), and Chhattisgarh — of which three are Bharatiya Janata Party (BJP)-ruled. Power is a subject in the concurrent list and state governments have so far been procuring equipment themselves.The Union Budget for 2016-17 had allocated Rs 5,500 crore for Integrated Power Development Scheme for urban power supply and Rs 3,000 crore for the Deendayal Upadhyay Gram Jyoti Yojana for rural power supply.

After selection of vendors and price discovery, funds were to be released to purchase equipment under these two schemes.

However, states have now demanded that the budgetary allocation be made to them directly so that they can procure the equipment themselves. According to a senior official in the MP state government, there was a price escalation of 20 per cent in the central procurement over the state’s own prices. “We have only asked the Centre to revisit the process as the price received is higher,” he said requesting anonymity.

UP state officials said that the standardisation process designed by the Centre did not match the specification of the state and, hence, it would continue with the ongoing procedure.

Central procurement was the idea of Piyush Goyal, minister of state for coal, power, mines and renewable energy. The tender was to be on the lines of mass procurement of light-emitting diodes (LEDs) and lowering of prices, as reported by Business Standard in February. This is the first National Democratic Alliance scheme, which has faced resistance from states.

Earlier, many other schemes, such as the coal block auction and Ujwal Discom Assurance Yojana (UDAY), had seen active participation by states. The mass procurement programme for LED had also witnessed states taking active steps.

According to officials in the Union ministry of power, prices have come down significantly just by bringing out the tender. “We cannot force states to follow a certain model. But, this tender has benchmarked the prices lower than the prevailing rates,” said the official in the know of matter.

The government decided to standardise price and specifications for last-mile equipment in the power distribution sector in December 2105. Two committees – ‘A’ led by Rural Electrification Corporation and ‘B’ under Power Grid Corporation of India – were formed for designing standards and executing the bidding, respectively.

The bidding was held last month for four equipment – cables, conductors, power transformers and distribution transformers. The Centre had issued tenders for 40 per cent of the aggregate demand of the country for these equipment. Officials refused to disclose the price and quantity of the tender, as it would stand cancelled now.

The procurement was done through the ‘reverse bidding’ mode, on the basis of national aggregate demand. Vendors were also selected, said a Rural Electrification Corporation official, but since they will all lose the tender, the names have not been disclosed.

The government was expecting that aggregation of demand would bring down the prices of equipment, leading to considerable savings to the state.

With four big states showing red flag to the ambitious programme, it would hit the government’s power reforms plan. “One of the parallel motives of the scheme was to put an end to the arbitrary procurement of electrical equipment, which is rampant in most states and design a singular tendering process,” said a senior central government official, who did not wish to be named.

The UDAY reform plan, apart from clearing the books of financially-stressed power distribution companies (discoms), also emphasises on operational efficiency and reduction in aggregate technical and commercial losses of each state to 15 per cent from the current level by 2018-19. It also aims to improve last-mile power transmission and distribution, reducing the difference between average revenue realisation and the average cost of procurement to zero by 2018-19. Along with it, the new tariff policy for electricity mandates the use of smart meters above 200 units of consumption.

State-owned power discoms, which sign up for UDAY, will have their future borrowing linked to efficiency parameters. The UDAY agreement envisages reforms to percolate till the last lineman.

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