Bhadrawati Project Information Memorandum (PIM)

Project Information
Memorandum
(Pre-Feasibility Report)
Bhadrawati Power Project
MAHARASHTRA INDUSTRIAL DEVELOPMENT

CORPORATION
India Infrastructure Initiative
Project Information Memorandum

Table of Contents
EXECUTIVE SUMMARY .................................................................................. 4
I.
BACKGROUND........................................................................................ 4
II. REGULATORY FRAMEWORK .................................................................. 4

III. PRELIMINARY REVIEW ......................................................................... 5
IV. COMMERCIAL VIABILITY ...................................................................... 6
V.
IMPLEMENTATION STRUCTURE ............................................................ 7
1.
BACKGROUND........................................................................................ 8
2.
REGULATORY OVERVIEW .................................................................... 10
3.
PRELIMINARY TECHNICAL REVIEW ................................................... 14
4.
COMMERCIAL VIABILITY .................................................................... 20
5.
VALUE PROPOSITION .......................................................................... 23
6.
WAY FORWARD ................................................................................... 24
ANNEXURES ................................................................................................ 25
1.
NATIONAL TARIFF POLICY .................................................................. 26
2.
COMPETITIVE BIDDING GUIDELINES ................................................ 31
3.
GENERATION TARIFF REGULATIONS .................................................. 33
LIST OF TABLES
Table
Table
Table
Table
1
2
3
4
Indicative Capital Cost of Chandrapur Project........................................ 20

Assumption for Capacity Charge ........................................................... 21
Assumptions for Energy Charge ........................................................... 21
Industrial Tariff in Maharashtra ............................................................ 22

GLOSSARY
BTG
CPP
FSA
GoM
GSI
IDC
IDFC
IPP
KWH
MERC
MSETCL
NOC
PGCIL
PLF
PSUs
SLC
SPV
Boiler-Turbine-Generator
Captive Power Plant
Fuel Supply Agreement
Government of Maharashtra
Geological Survey of India
Interest During Construction
Infrastructure Development Finance Company Limited
Independent Power Producer
Kilowatt-hour
Maharashtra Electricity Regulatory Commission
Maharashtra State Electricity Transmission Company Limited
No Objection Certificate
Power Grid Corporation of India Limited
Plant Load Factor
Public Sector Enterprises
Standing Linkage Committee
Special Purpose Vehicle

Executive Summary
I.
Background
I.I
MIDC was formed by Government of Maharashtra to achieve balanced

infrastructure development of Maharashtra with an emphasis on developing of
underdeveloped parts of Maharashtra. As a part of development process,
MIDC has conceived a power project with gross capacity of 1320 MW (+/20%) at Chandrapur district in the state of Maharashtra.
I.II
MIDC has retained Infrastructure Development Financial Company Limited

(IDFC) under their India Infrastructure Initiative facility (hereinafter referred
as III, or Triple-I), promoted jointly by IDFC and Feedback Infrastructure
Services (P) Limited, to provide services related to project preparation and to
select a private sector participant to undertake implementation of power
project.
II.
Regulatory Framework
II.I
The regulatory provisions applicable under Electricity Act 2003 and clearances
are as follows.
II.II Generating Company

II.II.I The Power Company shall be a generating company and therefore, shall not
be subject to regulatory oversight except in cases where Power is sold to
Distribution Licensees, under mechanisms other than tariff based competitive
bidding.
II.III Clearances for the Project
II.III.I Although under the present regulatory environment setting up a Generation is
a de-licensed activity; the plant would still require statutory and non-statutory
clearances for its construction, commissioning and operation. Of the required
clearances, Possession of Land, Environment Clearance and Water Allocation
Approval are critical to development of Power Project.
Page 4

III.
Preliminary Review
III.I Land
III.I.I The proposed site is about 125 km from the City of Nagpur, near the town of
Bhadrawati, in Chandrapur district in the state of Maharashtra. It is
understood that the land for the proposed power project is ~ 1300 acres and
MIDC is in the possession of the entire land (1300 acres).
III.II Water
III.II.I A letter from Department of Irrigation, Government of Maharashtra regarding
the availability of water and assuring that water would be made available to
the Project from the proposed Dindorra Barrage is available with MIDC.
Various options for construction of Dindorra Barrage are being worked out by
the State Government.
III.III
Fuel
III.III.I An application for long term Coal linkage of 6.29 MTPA was made to the
Standing Linkage Committee on 10th March 2008. The Project has been
recommended by CEA for coal-linkage and the recommendation has been
forwarded to Ministry of Power (MoP). MoP vide an office memorandum has
announced policy for granting coal linkages to the projects to be executed
under 12th Plan, which clearly lays down pre-qualification criteria and
weightages for prioritisation of the fuel linkages. This Project, based on
progress achieved, scores well on the criteria defined and would be amongst
the projects with highest marks for allocation of long term coal linkage. MIDC
has been submitting status update on the Project to Ministry of Power as per
their prescribed format, as required by them from time to time.
III.IV Power Evacuation & Transmission
III.IV.I In view of large capacity addition being planned in the region, MSETCL is
already considering putting up a 765 kV High Voltage Direct Current Line from
Chandrapur to Aurangabad to carry the power to load centres.
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III.IV.II Evacuation therefore should not be an issue. However, there is merit in

starting discussions for evacuation arrangements for the proposed Power
Project as well. This will facilitate an integrated system study and therefore,
save on planning and implementation time.
III.V Environmental Factors
III.V.I Terms of Reference (ToR) for Environment Impact Assessment (EIA) Study
were approved by Ministry of Environment & Forest (MoEF) on 10th day of
February 2009. The EIA Study based on the approved ToR has been
completed. The Application for final EIA clearance along with the EIA report
has been submitted to MoEF.
IV.
Commercial Viability
IV.I
Tariff
IV.I.I The complete capital cost of the project is estimated at Rs 6586 Crores
including the Interest During Construction. Considering the estimated capital
cost and Landed Fuel Cost of Rs 2360 per Metric Tonne, the levelised tariff at
80% PLF works out to Rs 3.71 per kWh.
IV.I.II The power generated from the project can be transmitted either through
MSETCL grid or through dedicated transmission lines. Considering MSETCL
transmission charges of Rs 7113 per MW per day & transmission losses of
4.24% and the total landed cost for HT consumer (transmission periphery) is
Rs 3.87 per kWh.
IV.I.III The current HT Industrial Tariff in Maharashtra, at 70% PLF, works out to
Rs 7.40 per kWh and Rs 6.72 per kWh for continuous and non-continuous
process industries respectively. Therefore, for non-continuous and continuous
process industries, the Project offers a Delivered Cost basis advantage of 285
paise per unit1 (73% of the current tariff) and 353 paise per unit (91% of the
current tariff) respectively.
1
Project structured as IPP using Linkage Coal & MSETCL Grid.
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IV.I.IV In view of the above, Chandrapur Project is found to be, prima facie,
commercially viable with improved viability in case a captive coal block is
available.
V.
Implementation Structure
V.I
The implementation plan envisages selection of a developer based on

International Competitive Bidding.
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1.
Background
1.1
Introduction
1.1.1 In view of the impending deficit of power availability, MIDC has conceived a
power project that shall encourage capacity addition for supply of power to
industries / licensees to meet their requirements of reliable power, under the
applicable laws.
1.1.2 The state of Maharashtra has been experiencing a deficit of 22.1% in peak
demand and 16.7% in energy (from April 2011 to March 2012). While the
availability is at 9,144 MW, the demand is at 10,981 MW. Going forward in
the 12th plan, the requirement of capacity is estimated to be is ~18000 MW.
This requires an additional capacity of almost 9000 MW in the next four years.
1.1.3 In order to augment the capacity in the state, as well as provide reliable
power industrial consumers and licensees in the state of Maharashtra, MIDC
has contemplated developing the Power Project.
1.2
India Infrastructure Initiative Partnership
1.2.1 MIDC has retained Infrastructure Development Financial Company

Limited (IDFC) under their India Infrastructure Initiative facility
(hereinafter referred as III, or Triple-I), promoted jointly by IDFC
and Feedback Infrastructure Services (P) Limited, to provide
services related to project preparation with an aim to be able to
maximise the benefits to MIDC and to attract private sector to participate in
the project towards undertaking the capacity addition of ~ 1320 MW at
Chandrapur.
1.2.2 Before offering the project for private participation, it is essential to undertake
the basic feasibility assessment, which then forms the basis for configuring
the project structure to be proposed for attracting the private sector
investment. Accordingly, Triple-I has conducted the Pre-feasibility study and
also Technical Feasibility Study besides undertaking other preparatory
activities for the Project.
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1.3
Pre-Feasibility Study
1.3.1 In order to proceed further on the project, a pre-feasibility study has been
carried out. This report outlines the following.

Chapter 2 covers the Regulatory Provisions that have an impact on the

Power project;
Chapter 3 reviews the technical feasibility of the project based on the
availability and adequacy of key inputs like water, fuel transportation,
transmission arrangements, environmental pollution norms, etc.;
Chapter 4 covers the commercial viability in terms of total cost of
generation and transmission and comparison with utility tariffs;
Chapter 5 outlines the way forward.
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2.
Regulatory Overview
2.1
Provisions Relating to Electricity Sector
2.1.1 Applicability of Electricity Regulations to Power Project

2.1.1.1 The Power Project, as contemplated, is subject to the provisions of the
Electricity Act 2003 for all aspects relating to the generation, transmission
and supply of electricity. As per the Electricity Act 2003, Power Project shall
be treated as a generating company under the Electricity Act, 2003.
2.1.1.2 The potential market for the Power Project could be Licensees/ Industrial
Consumers. Therefore, regulations and policies applicable to potential
buyers are, therefore, critical to the feasibility of the Power Project.
2.1.1.3 The review has covered the specific provisions of the Electricity Act, 2003
and the related regulations and policies namely National Tariff Policy,
Tariff Regulations, Guidelines for Determination of Tariff by Bidding Process
for Procurement of Power by Distribution Licensees, Open Access
Regulations etc.
2.1.2 Provisions relating to Generating Companies
2.1.2.1 The Power Project, under the Electricity Act, 2003 will be treated as a
Generating Company. The Electricity Act, 2003 has de-licensed generation
as an activity as per the Section 7 of the Electricity Act, 2003:
Any generating company may establish, operate and maintain a generating

station without obtaining a licence under this Act if it complies with
the technical standards relating to connectivity with the grid referred to in
clause (b) of section 73.
2.1.2.2 However, every generating company would need to follow the technical
requirements such as (i) Submission of technical details to the Appropriate
Commission and CEA; (ii) Co-ordinate with the Central Transmission Utility
or the State Transmission Utility, as the case may be, for transmission of the
electricity generated by it, etc.
Page 10

The Regulatory Commissions are quasi judicial bodies constituted under the
Electricity Act, 2003 in order to promote co-ordinated development and
regulation of the power sector, both at the central and State Level. While
the Central Electricity Regulatory Commission is primarily responsible for
overseeing the Central sector utilities, each State Commission is responsible
for regulating the utilities in the State.
2.1.2.3 The Generating Company is not subject to an regulatory oversight on its
costs and tariffs except in cases where:
Power is sold to Distribution Licensees based on a cost-plus arrangement
and not based on competitive bidding
National Tariff Policy
2.1.2.4 The Policy, as issued by Ministry of Power (MoP), Government of India the
apex policy making body in the power sector requires that Distribution
Licensees procure all long term power through transparent competitive
bidding process2. In line with the above, MoP has developed the
Guidelines for Competitive Bidding and the related standardised bid
documents for the same, which are to be followed for such process. Any
deviation in the same needs to be approved by the Appropriate Commission.
A detailed summary of the National Tariff Policy and the Competitive Bidding
Guidelines is outlined at Annexure 1 and 2 respectively.
NTP provides that, All future requirement of power should be procured competitively by
distribution licensees except in cases of expansion of existing projects or where there is a
State controlled/owned company as an identified developer and where regulators will
need to resort to tariff determination based on norms provided that expansion of generating
capacity by private developers for this purpose would be restricted to one time addition of not more
than 50% of the existing capacity. Even for the Public Sector projects, tariff of all new
generation and transmission projects should be decided on the basis of competitive
bidding after a period of five years or when the Regulatory Commission is satisfied that the
situation is ripe to introduce such competition.
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2.1.2.5 Distribution licensees can also set up their own generating stations to
arrange power for supply to their license area or for sale outside3. However,
the tariff for sale of power from such a plant for consumption within their
license area is regulated by the State Electricity Regulatory Commission in
accordance with the Terms and Conditions of Tariff for Generating
Stations.
2.1.3 Provisions applicable to Consumers
2.1.3.1 The Electricity Act, 2003 aims at increasing competition in the power sector
and providing greater choices to the consumers. Other than buying power
from the Power Project, the consumers have the choice to procure power
from the incumbent licensee or an independent trader. The consumer
may also set up a captive power plant.
2.1.3.2 The Unit can procure power from the incumbent Distribution Licensee
or Power Project, both of which shall be governed by the State Electricity
Regulatory Commission. The Unit will also have a choice can also procure
power from a trader by availing open access to the Licensees network. A
captive power plant set up by the consumers can avail open access on
payment of open access charges only (cross-subsidy surcharge shall not be
applicable for wheeling of power for own consumption).
2.2
Clearances for the Project
2.2.1 Although under the present regulatory environment setting up a Generation is

a de-licensed activity; the plant would still require statutory and non-statutory
clearances for its construction, commissioning and then its operation.
However not all clearances are required at one go or at the start of the
project, they can be staggered as per the development of the plant.
2.2.2 The necessary Clearances (typically required for such project), inter-alia,
required are as follows
Resettlement & Rehabilitation of displaced people
Land Conversion Certificate
Environment Clearance- Pollution and Forest Clearance
Water Allocation Approval
3
A Distribution Licensee is a deemed Trading Licensee and therefore, can sell power to other
licensees, trading companies and consumers in other license areas through open access.
Page 12

Chimney Height clearance

Village Panchayat NOC for start of Construction.
2.2.3 Of the above clearances, Land Conversion Certificate, Environment Clearance

and Water Allocation Approval are critical to the development of power
project. While land possession and status is vital to the project, Environmental
Clearance and Water Arrangements have a significant impact on the technical
aspects as well as capital costs of the project.
2.2.4 Typically, the environmental clearance process requires finalisation of Terms
of Reference with Ministry of Environment and Forest. Upon finalisation,
necessary studies need to be carried out before necessary clearance is
obtained.
2.2.5 In view of the above, it is critical to file for approval of Terms of Reference to
carry further studies and obtain necessary approval.
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3.
Preliminary Technical Review
3.1
Basic Site Details
3.1.1 The proposed site is about 125 km from the City of Nagpur, near the town of
Bhadrawati, in Chandrapur district in the state of Maharashtra.
3.2
Land and Connectivity
3.2.1 MIDC is in the possession of the entire land (1300 acres)

3.2.2 Considering that the Power Project is sized at 1300 acres of land and the fact
that site is generally flat without much gradient, it is considered to be prima
facie suitable and adequate for the envisaged project. The land can have a
capacity up to 1320 MW and such increased capacity as flexibility in
implementation may be considered during detailing stage.
3.2.3 The site is about 4 km away from the State Highway between Chandrapur
and Nagpur. The nearest airport is at the City of Nagpur..
3.2.4 The current access road - the ordnance service road is a single road with
water pipelines on both sides.
3.2.5 Currently two major transmission lines pass through the site a 400 kV
PGCIL Line and a 400 kV MSETCL Line.
3.2.6 A village is present on the banks of the River Wardha with substantial
population. However, the site is free of any population.
Page 14

Figure 1 Chandrapur Site Details
Page 15

Figure 2 Highway Access Point
3.2.7 The site (as shown in

Figure 2) is the land
on
which
MIDC
intends to set up the
project.
Figure 3 Ordnance Service Road
3.2.8 All in all, the land

available under the present conditions is sufficient and suitable for a power
plant.
3.3
Water and Related Issues
3.3.1 The typical water requirement

for a 1320 MW thermal power
plant would be around 4600
cubic metre per hour. The site
is close to the perennial
Wardha
River
flowing
at
distance of 2-3 km from the
site. The terrain between the
River and the site is hardly of
any undulating nature.
Figure 4 Wardha River and Site
Site
Wardha
River
Page 16

3.3.2 A letter from Department of Irrigation, Government of Maharashtra regarding

the availability of water and assuring that water would be made available to
the Project from the proposed Dindorra Barrage is available with MIDC.
Various options for construction of Dindorra Barrage are being worked out by
the State Government.
3.4
Power Evacuation & Transmission
3.4.1 The site is well-connected in terms of vicinity to transmission lines and substations. Two major 400 kV transmission lines pass through the site and a
PGCIL 400 kV sub-station is located about 3-4 kilometres from the site.
Another 400 kV sub-station owned by MSETCL, the utility responsible for
transmission in the state, is located in Chandrapur. In addition, MSETCLs 220
kV substation is about 10 kilometres from the site towards Nagpur on the
Nagpur-Chandrapur State Highway.
3.4.2 Power evacuation of
a 1320 MW plant is
generally done at
voltage levels of
400 kV and above.
In case the power
from the plant is to
be utilised within
the state, the plant
would
need
to
connect to the State
transmission
network rather than
the
regional
network of PGCIL4.
Figure 5 Tr. Lines at Site

MSETCL Line
PGCIL Line
The PGCIL sub-station or the MSETCL 220 kV sub-station can, however, be utilized to draw start up
and construction power.
Page 17

3.4.3 Considering the above, evacuation should not be an issue. However, there is
merit in starting discussions for evacuation arrangements for the Power
Project as well. This will facilitate an integrated system study and therefore,
save on planning and implementation time.
3.5
Environmental Factors
3.5.1 A power plant in itself does have an impact on the nearby environment but
the technology currently available does provide solutions to mitigate any
adverse impact on the environment. The site is currently at a remote location
with hardly any habitation in the vicinity. Also the fact that the nearest
reserved forest is about 50 kms away from the site augurs well for the
project. The site is currently covered with shrubs with not much agricultural
production. Prima facie the site does not provide any major environment
issues.
3.5.2 Terms of Reference (ToR) for Environment Impact Assessment (EIA) Study
were approved by Ministry of Environment & Forest (MoEF) on 10th day of
February 2009. The EIA Study based on the approved ToR has been
completed. The Application for final EIA clearance along with the EIA report
has been submitted to MoEF.
3.6
Socio Economic Assessment
3.6.1 The site in itself is under minimal habitation and agriculture production. There
is habitation present on both sides of the site but at a distance of around 3
km. The Rehabilitation and Resettlement issues, therefore, are negligible. An
ordnance factory is present at about 4-5 km from the site, and it provides
employment opportunity for the locals.
3.6.2 A power plant in that area would, in fact, greatly benefit the locals there since
it would provide them with employment on a sustainable basis, during the
construction period and the operation period. Considering all those a power
plant should have a positive impact on the socio economic situation of that
area.
Page 18


Land acquired for the site in adequate and sufficient for the project
Water Availability Letter from Irrigation Department available;
Evacuation of power through the MSETCL network is possible;
Environmental Clearance is not seen as a major issue;

ToR already approved
Application for EIA already submitted

No major R&R issues are expected
Sale to Traders is not Regulated
Coal requirement may be met through linkage or bidder may be
required to arrange the fuel
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4.
Commercial Viability
4.1
Capital Cost
4.1.1 The technical study indicates the various aspects of the project and does not
indicate any major deviation required for the project configuration. The broad
level industry norm for completed cost (Capital cost including IDC) of a
conventional thermal power plant of this size is around Rs. 5 Crores per MW.
4.1.2 Based on the pre-feasibility study, an indicative capital cost of the plant has
been worked out.
Table 1 Indicative Capital Cost of Chandrapur Project
Item Description
BTG & Auxiliaries
Balance of Plant
Preliminary Expenses
Contingencies
Total (Rs Crores)
Interest during construction
Margin for Working Capital
Total
Total per MW
Rs. Crores
3696
1584
329
132
5741
559
287
6586
4.1.3 While the total capital cost as indicated above is Rs 5741 Crores, the
completed cost shall be Rs 6586 Crores on account of addition of Interest
During Construction at about 10% of capital cost for a project to be
completed over a period of ~ 4 years.
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4.2
Base Case Generation Cost
4.2.1 Capacity Charge: The capacity charge has been computed based on the
completed cost stated in section 4.1 above.
Table 2 Assumption for Capacity Charge
Assumption for Capacity Charge
Capital Costs
Rs Cr per MW
O&M Expenses (2014)
Rs Lakhs per MW
Debt Tenure
Years
Rate of Interest
%
Interest on working capital
%
Return on Equity
%
Debt component
%
5.0
22.74
10.0
13.0%
13.5%
16.0%
70.0%
4.2.2 Energy Charge: The fuel costs for generation will depend significantly on
the coal-block. However, for the viability determination a base year cost of
Rs. 2360 per tonne including transportation (50 km from coalmine) has been
considered with an inflation of 5% per annum.
Table 3 Assumptions for Energy Charge
Base Year Energy Charge Calculation
Item
Unit
Amount
Gross Generation
MU
9251
Gross Station Heat Rate
kCal/kWh
2346
Specific Oil Consumption
ml / kWh
1.0
Calorific Value of Oil
Kcal / Litre
10,400
Calorific Value of Coal
Kcal / kg
5,000
Cost of Oil per KL
Rs / KL
30,000
cost of Coal per MT
Rs / MT
2,360
Auxilary consumption
%
8.50%
4.2.3 Levelised Tariff: As per the above assumptions, the levelised tariff at 80%
PLF works out to Rs 3.71 per kWh for the IPP.
4.3
Impact of Transmission Costs
4.3.1 Using the State Transmission: Using the MSETCL Network, the buyer will
have to bear the open access charges, that is, long term transmission open
access charges, cross subsidy surcharge and transmission losses of the
MSETCL system. The current long term open access charges and transmission
Page 21

losses for the MSETCL network are Rs 7113 per MW per day and 4.24%.
Therefore, the above tariffs will have to be adjusted for transmission open
access charges and transmission losses.
4.3.2 The resultant landed tariffs for an power project would be Rs. 3.87 per unit
4.4
Industrial Tariff in Maharashtra
4.4.1 The current HT industrial tariff in the state, as determined by MERC on the
16th August 2012, is:
Table 4 Industrial Tariff in Maharashtra
S No
1
2
3
4
Charge
Demand Charge
Energy Charge
Load Factor
Net Tariff
HTP-I
Continuous
Rs 190/KVA/month
Rs 7.01 / kWh
70%
Rs. 7.40 / kWh
HTP-I
Non-Continuous
Rs 190/KVA/month
6.33/kWh
70%
Rs 6.72 / kWh
4.4.2 Based on the current industrial tariff in Maharashtra, this Power Project offers
a Delivered Cost basis advantage ranging from 285 paise per unit (73% of the
current tariff) to 353 paise per unit (91% of the current tariff) as against noncontinuous and continuous HT Power tariff.
Page 22

5.
Value Proposition
5.1
Promotion of Industrial Activity
5.1.1 A 1320 MW Power Generating Station is in itself a significant industrial set up

and will lead to employment opportunities for the locals both on
salaried/wage basis and self-employment basis. However, the real objective
for which MIDC is keen on promoting this project is to promote industrial
development across the state.
5.1.2 Assured supply of power with a 1320 MW shall provide significant comfort to
the buyers in terms of reliability of supply. Further, the project would also
ease the pressure on the existing power infrastructure in the state. All in all,
the project can prove to be a boon to industrial development in the state.
5.2
Value Proposition for Potential Bidders
5.2.1 The project offers all the inputs water, land, environmental clearance to
set up the project. The value proposition will be further enhanced as the
power sale arrangements and fuel tie up is finalised. Further, to the private
participants who already have coal blocks allocated, this project offers a great
opportunity to tie up all the other inputs and monetise the asset.
Benefits available to all the stakeholders in the form of Industrial

development (state government), cheaper power (Licensees and
Consumers) and credit worthy market / ease of Implementation (IPP
Developer) making it a win-win proposition.
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6.
Way Forward
6.1
Land Related Issues
6.1.1 MIDC is in possession of entire land for the project.

6.2
Application for Water Allocation
6.2.1 Water Availability Letter from Irrigation Department is available and firm
allocation of water for the project would be needed.
6.3
Environment Clearance
6.3.1 As the ToR for the project has already been approved and application for final
EIA has been submitted, environment clearance from MoEF would need to be
followed up.
6.4
Implementation Plan
6.4.1 The Bid Process would be initiated with the issues of NIT in national and
regional newspapers for commencement of issue of RFQ documents.
6.4.2 Bidders will have to manage necessary processes for fuel tie up, water
allocation and environmental clearance.
6.4.3 The bidders shall be provided a period of 2 months to prepare their bids.
Page 24

Annexures
Page 25

1.
1.1
National Tariff Policy
Introduction
1.1.1 The National Tariff Policy was notified on January 5, 2006 by the Ministry of
Power, Government of India in compliance with section 3 of the Electricity
Act, 2003.
1.1.2 The National Tariff Policy was prepared in consonance with the National
Electricity Policy notified on February 12, 2005 by MoP. The National
Electricity Policy has set the following goals
Generation Capacity Addition of more than one lakh MW during the
10th and 11th Plan periods
Per capita availability of over 1000 units of electricity per year
Eliminate energy and peaking shortages; also have a spinning reserve
of 5% in the system.
Providing access for electricity to all households in next five years.
1.1.3 The tariff policy recognises that it is essential to attract investments to the
power sector as state and central budgetary resources cannot support such
huge plans.
1.2
Objectives of the Policy

Ensure availability of electricity to consumers at reasonable and
competitive rates;
Ensure financial viability of the sector and attract investments;
Promote transparency, consistency and predictability in regulatory
approaches across jurisdictions and minimise perceptions of regulatory
risks;
Promote competition, efficiency in operations and improvement in
quality of supply.
1.3
General Approach to Tariff
1.3.1 Tariff policy lays stress on introducing competition in power market besides
encouraging procurement of power through competitive bidding route by
distribution licensees. It lays down framework for performance-based cost of
Page 26

service regulation for generation, transmission and distribution as well. Some

of the aspects, which are common to all three, are listed below.
1. Return on Investment: Rate of return should be such that it allows
generation of reasonable surplus for growth of the sector. The rate of
return will be notified from time to time by Central Electricity
Regulatory Commission (CERC) for generation and transmission
projects. The rate of return as notified by CERC for transmission can be
adopted by State Electricity Regulatory Commissions (SERCs) for
Distribution with appropriate modifications for allowing distribution
margins in the business.
2. Equity Norms: For financing of future capital cost of projects, a
Debt:Equity ratio of 70:30 should be adopted. Promoters are free to
choose higher or lower quantity of equity provided in case of lower
equity below the normative level (70:30), the actual equity would be
used for determination of Return on Equity in Tariff computation.
3. Depreciation: The CERC may notify the rates of depreciation in respect
of generation and transmission assets. These rates will also be
applicable for distribution with appropriate modification as may be
evolved by the Forum of Regulators.
4. Cost of Debt: Structuring of debt, including its tenure, with a view to
reduce tariff should be encouraged. Savings in costs on account of
subsequent restructuring of debt will be suitably incentivised by the
Regulatory Commissions keeping in view the interests of the
consumers.
5. Cost of Management of Foreign Exchange Risk: Foreign exchange
variation risk shall not be a pass through in tariff.
6. Operating Norms: The Central Commission in consultation with the
Central Electricity Authority (CEA) will notify operating norms from time
to time for generation and transmission. The SERCs accordingly will
adopt these norms and notify for distribution networks with
appropriate modifications.
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7. Renovation and Modernisation: A multi-year tariff (MYT) framework will

be prescribed which will cover capital investments necessary for
renovation and modernization and an incentive framework to share the
benefits of efficiency improvement between the utilities and the
beneficiaries with reference to revised and specific performance norms
to be fixed by the Appropriate Commission. The appropriate
Commission will assess capital costs required for pre-determined
efficiency gains and/or for sustenance of high level performance.
8. Multi Year Tariff: As per section 61 of EA 2003, Appropriate
Commission shall be guided by Multi Year Tariff principles for
determining the terms and conditions for determination of tariff. The
MYT framework shall be adopted for any tariffs to be determined from
April 1, 2006.
9. Benefits under CDM: Tariff fixation for all electricity projects
(generation, transmission and distribution) that result in lower Green
House Gas (GHG) emissions than the relevant base line should take
into account the benefits obtained from the Clean Development
Mechanism (CDM) into consideration, in a manner so as to provide
adequate incentive to the project developers.
1.4
Generation
1.4.1 Procurement of Power: shall be in transparent manner through competitive

bidding mechanism.
1.4.2 Tariff Structuring and associated Issues: National tariff policy says
implementation of two-part tariff structure for all long term contracts to
facilitate Merit Order dispatch. According the Availability Based Tariff (ABT) is
to be introduced at State level by April 2006.
1.4.3 Harnessing Captive Power Generation: Appropriate Commission to create an
enabling environment that encourages captive power plants to be connected
to the grid.
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1.4.4 Non-Conventional sources of Energy Generation including Co-generation:

Appropriate Commission to fix a minimum percentage for purchase of energy
from such sources by Distribution Licensees.
1.5
Transmission
1.5.1 The transmission system in the country consists of the regional networks, the
inter-regional connections that carry electricity across the five regions, and
the State networks. The national transmission network in India is presently
under development. Development of the State networks has not been uniform
and capacity in such networks needs to be augmented. These networks will
play an important role in intra-State power flows and also in the regional and
national flows. The tariff policy, in so far as transmission is concerned, seeks
to achieve the following objectives:
1. Ensuring optimal development of the transmission network to promote
efficient utilization of generation and transmission assets in the country.
2. Attracting the required investments in the transmission sector and
providing adequate returns.
1.6
Distribution
1.6.1 Implementation of Multi Year Tariff (MYT) framework: The aim is to

minimise risks for utilities and consumers, promote efficiency and appropriate
reduction of system losses and attract investments and bringing greater
predictability to consumer tariffs. The framework should be applied for both
public and private utilities.
1.6.2 Framework for revenue requirements and Cost: The following cost
need to be considered in determining tariff:
All power purchase costs need to be considered legitimate unless it is
established that the merit order principle has been violated or power has
been purchased at unreasonable rates.
ATC loss reduction should be incentivised by linking returns in a MYT

framework to an achievable trajectory
1.6.3 Linkage of tariffs to cost of service: It has been widely recognised that
rational and economic pricing of electricity can be one of the major tools for
Page 29

energy conservation and sustainable use of ground water resources. As per

National tariff policy State government can give subsidy to extent as
appropriate encourages direct subsidy to support the poorer categories of
consumers than the mechanism of cross-subsidizing the tariff across the
board.
1.6.4 Cross Subsidy Surcharge and Additional Surcharge for Open Access:
National Tariff policy says that cross-subsidy surcharge should be brought
down progressively and, as far as possible, at a linear rate to a maximum of
20% of its opening level by the year 2010-11.
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2.
2.1
Objectives

2.2
Competitive Bidding Guidelines
Promote competitive procurement of electricity by distribution licensees;

Facilitate transparency and fairness in procurement processes;
Facilitate reduction of information asymmetries for various bidders;
Protect consumer interests by facilitating competitive conditions in
procurement of electricity;
Enhance standardization and reduce ambiguity and hence time for
materialization of projects;
Provide flexibility to suppliers on internal operations while ensuring
certainty on availability of power and tariffs for buyers.
Scope of the Guidelines
2.2.1 Scope of these guidelines for procurement of electricity by distribution

licensees (Procurer) for:
a. long-term procurement of electricity for a period of 7 years and above;
b. Medium term procurement for a period of upto 7 years but exceeding 1
year.
2.2.2 The guidelines will be applicable for procurement of base-load, peak-load and
seasonal power requirements through competitive bidding, through the
following mechanisms:
(i) Where the location, technology, or fuel is not specified by the procurer
(Case 1);
(ii) For hydro-power projects, load center projects or other location specific
projects with specific fuel allocation such as captive mines available, which
the procurer intends to set up under tariff based bidding process (Case
2).
2.3
Preparation for Inviting Bids
2.3.1 To expedite the bid process, the following conditions has to be met by the
procurer:
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(i) The bid documentation has to be prepared in accordance with guidelines

along with Regulatory Commission approval as per the standard bid
documents.
(ii) Approval of the Appropriate Commission is required prior to initiating the
bidding process in respect of the following aspects:
For the quantum of capacity / energy to be procured, in case the same
is exceeding the projected additional demand forecast for next three
years (Both for Case 1 and Case 2).
For the transfer price of fuel, in case of fuel specific procurement
enquiry, if such price has not been determined by government,
government approved mechanism or a fuel regulator (under Case 2).
2.3.2 For long-term procurement from hydro electric projects or for projects for
which pre-identified sites are to be utilized (Case 2), the following activities
should be completed by the procurer, or authorized representative of the
procurer, before commencing the bid process:
2.4
Site identification and land acquisition required for the project
Environmental clearance
Fuel linkage, if required (may also be asked from bidder)
Water linkage
Requisite Hydrological, geological, meteorological and seismological data

necessary for preparation of Detailed Project Report (DPR), where
applicable.
Bidding Process
2.4.1 For long-term procurement, two-stage process featuring separate Request for
Qualification (RFQ) and Request for Proposal (RFP) has to be adopted for the
bid process under these guidelines. The procurer may, at his option, adopt a
single stage tender process for medium term procurement, combining the
RFP and RFQ processes. Procurer or authorized representative has to prepare
bid documents including the RFQ and RFP in line with these guidelines and
standard bid documents.
Page 32

3.
Generation Tariff Regulations
3.1 Summary of Regulations

3.1.1 Tariff for generating station is determined stage-wise, unit-wise or for the
whole generating station. Irrespective of tariff is being determined for stage
or unit of a generating station, the Generating Company should adopt a
reasonable basis for allocation of capital cost relating to common facilities and
allocation of joint and common costs across all stages or units, as the case
may be:
3.2 Components of Tariff
3.2.1 Tariff for sale of electricity from a thermal power generating station comprises
of two parts, namely, the recovery of annual fixed charges and energy
charges. The annual fixed charges consist of recovery of the following:
a. Return on equity capital;
b. Income-tax;
c. Interest on loan capital;
d. Depreciation, including Advance Against Depreciation, and amortization of
intangible assets;
e. Operation and maintenance expenses; and
f. Interest on working capital
3.2.2 The energy charges covers fuel cost.
3.3 Multi Year Tariff
3.3.1 The Commission can determine the tariff for generating station, for a
Generating Company and/or for a Licensee under a multi-year tariff
framework with effect from April 1, 2006. The multi-year tariff framework will
be based on following elements, for calculation of aggregate revenue
requirement and expected revenue from tariff and charges:
i. Control period, at the commencement of which a forecast of the aggregate
revenue requirement and expected revenue from existing tariffs and charges
shall be submitted by the applicant and approved by the Commission;
Page 33

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Project Information

Bhadrawati Power Project

MAHARASHTRA INDUSTRIAL DEVELOPMENT

India Infrastructure Initiative

Project Information Memorandum

II. REGULATORY FRAMEWORK .................................................................. 4

IMPLEMENTATION STRUCTURE ............................................................ 7

REGULATORY OVERVIEW .................................................................... 10

PRELIMINARY TECHNICAL REVIEW ................................................... 14

COMMERCIAL VIABILITY .................................................................... 20

VALUE PROPOSITION .......................................................................... 23

WAY FORWARD ................................................................................... 24

NATIONAL TARIFF POLICY .................................................................. 26

COMPETITIVE BIDDING GUIDELINES ................................................ 31

GENERATION TARIFF REGULATIONS .................................................. 33

Indicative Capital Cost of Chandrapur Project........................................ 20

Bhadrawati Power Project

Project Information Memorandum

Bhadrawati Power Project

Project Information Memorandum

MIDC was formed by Government of Maharashtra to achieve balanced

MIDC has retained Infrastructure Development Financial Company Limited

II.II Generating Company

Project Information Memorandum

Bhadrawati Power Project

Project Information Memorandum

III.IV.II Evacuation therefore should not be an issue. However, there is merit in

Project structured as IPP using Linkage Coal & MSETCL Grid.

Bhadrawati Power Project

Project Information Memorandum

The implementation plan envisages selection of a developer based on

Bhadrawati Power Project

Project Information Memorandum

India Infrastructure Initiative Partnership

1.2.1 MIDC has retained Infrastructure Development Financial Company

Project Information Memorandum

Chapter 2 covers the Regulatory Provisions that have an impact on the

Bhadrawati Power Project

Project Information Memorandum

Provisions Relating to Electricity Sector

2.1.1 Applicability of Electricity Regulations to Power Project

Any generating company may establish, operate and maintain a generating

Project Information Memorandum

Project Information Memorandum

Clearances for the Project

2.2.1 Although under the present regulatory environment setting up a Generation is

Bhadrawati Power Project

Project Information Memorandum

Chimney Height clearance

2.2.3 Of the above clearances, Land Conversion Certificate, Environment Clearance

Bhadrawati Power Project

Project Information Memorandum

Preliminary Technical Review

Basic Site Details

Land and Connectivity

3.2.1 MIDC is in the possession of the entire land (1300 acres)

Bhadrawati Power Project

Project Information Memorandum

Figure 1 Chandrapur Site Details

Bhadrawati Power Project

Project Information Memorandum

Figure 2 Highway Access Point

3.2.7 The site (as shown in