Pvt cos target PowerGrid in fight for transmission pie

NEW DELHI: The government’s plan to build transmission lines worth Rs 1 lakh crore through auction over the next few years may come unstuck as private players fear they may not be able to compete against PowerGrid’s predatory bidding, a charge the state-run utility squarely denies.
Transmission capacity has surfaced as a bottleneck as it failed to keep pace with rise in generation capacity, currently pegged at over 272,000 MW.Private players say they have increasingly found it difficult to compete against a company that has such a near-total market dominance, which they claim gives the state entity undue advantage and bid 25-30% lower than others.
Executives of private companies say PowerGrid won five out of seven projects auctioned in recent times. “This has driven many private developers, including international players, away from the transmission sector,” an executive of one company said on condition of anonymity.
The Gadarwara A and Gadarwara B projects auctioned earlier this year are cited as a case in point. More than 10 firms expressed interests for the projects but only four, including PowerGrid, submitted bids. Tata and L&T as well as two European firms -- Isolux Corsan and Inabensa -- pulled out before technical bids.
PowerGrid chairman R N Nayak calls it a case of grapes being sour. “Before projects were awarded through bidding, private companies said PowerGrid’s costs were high. Now when we win projects in an open competition by reducing transmission cost, why are they unhappy? Lower transmission cost ultimately benefits consumers. That is the government’s objective and we are meeting it,” he told TOI
The devil may be in financial detail. As a financially sound company with no record of default, PowerGrid is able to get funding at a cheaper rate than private players. It can also bid with a lower rate of return, something the private players find hard to match. Most private players bid through project financing and their funding itself can cost as much as 12%.
This gives rise to a piquant situation for the government. PowerGrid already has an order book of about Rs 1 lakh crore. And if the next lot of projects also goes to the company, it may find the load difficult to cope with on time.
The government started auctioning transmission projects with a view to increasing wheeling capacity at a faster pace by attracting private investment. Private sector acounts for 3% of transmission capcity, while it stands at 38% in generation. Transmission projects are bid out through lowest tariff, which is valid for 35 years.