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Power Finance Corporation issues draft guideline for purchase of short term power in India

According to reports, distribution licensees will now have to procure short-term power (less than or equal to one year) through competitive bidding say the draft guidelines of the Power Finance Corporation (PFC). This is expected to reduce the overall cost of procurement of power.

The short-term power market presently comprises 10 per cent of the total electricity procured in India. PFC has convened a meeting with the representatives of distribution licensees on February 10 to discuss the modalities. Currently, the per unit rate of short-term power procurement stands at Rs 3.80 to Rs 4.

The draft guidelines, however, do not include the power exchanges. The Indian Energy Exchange has asked PFC to make power exchanges the preferred platform for transaction under competitive bidding in short-term power market for the period when the exchange contracts are available.

A PFC official told Business Standard: “Provisions of Electricity Act, 2003, are meant to encourage competition in the power sector. Cost of power purchase constitutes the largest cost element for distribution licensees which are currently reeling under heavy losses. Short-term procurement is crucial to the overall power purchase costs. The draft guidelines are issued with an objective to facilitate transparency and fairness in procurement processes; facilitate reduction of information and approach asymmetries for various bidders; and harness diverse sources of power such as co-generation, captive, wind power.”

The official said the guidelines have been issued under the provisions of Section 63 of the Electricity Act, 2003.

According to the draft guidelines, the minimum number of bidders should be two other than genco(s) owned (51 per cent or more) by the state governments. If the number of bidders responding to the request for proposal is less than two and procurer still wants to continue with the bidding process, the same may be done with the consent of the appropriate commission. This is to ensure competitiveness.

Maharashtra State Electricity Distribution Company welcomed the draft guidelines and clarified that it was procuring short-term power through competitive bidding and not through negotiations route.

“These guidelines will be applicable purely to those distribution licensees which are still resorting to negotiations route for short-term power purchases instead of competitive bidding,” the official observed.

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