Saturday, May 26, 2012

Jharkhand Distribution Franchisee first pre-bid meeting

The first pre-bid meeting for Jharkhand Power Distribution Franchisee was conducted on 21st May, 2012 at Ranchi. It was attended by 10+ companies senior representatives; JSEB team - Chairman, Member Finance, Member T&D, Chief Engineer Commercial & Revenue; and Transaction advisor JInfra (50:50 JV of IL&FS and Jharkhand Govt.) team. 

The companies that participated were Tata Power, Reliance, NDPL, CESC, JUSCO, IPCL, Essar Power, Spanco, Essel Power and PTC. With existing strict Technical Qualification, likely 4-5 companies only can qualify for bidding, and this was well debated in the meeting, and next RFP revision is looked upon anxiously.

Mr. S.N. Verma, Chairman JSEB made the opening remark welcoming good participation and expressing his confidence on Distribution Franchisee (DF) model to aid Distribution reforms and bring AT&C losses from current high approx. 46% to atleast 20% level. He justified selection of Ranchi, Jamshedpur and Dhanbad urban circles for DF model first pilot at Jharkhand, based upon their high industrialisation, significant domestic load, high AT&C losses, no rural areas and good recovery potential. He added that post successful roll out of these 3 DFs, JSEB would want to further scale-up the model with learnings in other cities. (See pManifold earlier blog with DF attractiveness matrix for 3 Jharkhand regions and comparing them with earlier DF areas - Jharkhand releases RFPs: Quick comparative analysis with different states RFPs)

Some key points that were discussed in the pre-bid meeting were as follows:

1. Baseline data consistency: Bidders brought various inconsistencies in the RFP baseline data, including anomalies, mistake in calculations and typos. These deals with bid sensitive parameters like AT&C losses, various efficiencies, average tariff (or ABR) etc. JSEB was humble to accept that they have issues with consolidating baseline data, specially in light of some mishaps with their billing agency at Ranchi and Jamshedpur. 

2. Missing information in baseline: Different bidders brought different missing information; they seek in the baseline data. Some important ones were – base year R15 data; Revenue and cost breakup across all customer segments; Electricity duty breakup in collection figures, subsidy breakup etc. Few bidders requested that at the minimum JSEB should share audited base year data for Input energy and collection figures.

3. Base year fixation: The current RFP has 2010-11 as its base year; with clause that while signing DFA, if new data is available, then base year could be changed. This was completely unacceptable to most bidders. They demanded that Base year and associated ABR should be freezed now and cannot be changed. Few of them believed that even if base year ABR is wrong (low or high), they can accommodate in their corresponding bid value. (The ownership risk across life cycle for both Licensee and Franchisee from this one important parameter, base year ABR’s uncertainty, seems to be missing in the stakeholders) 

4. Qualifications: Non-qualifying bidders requested to relax the technical qualifications in favor of their company and overall competition to bring better price discovery to JSEB. Some of them with end-to-end distribution experience also, were not qualifying with either 3 years of operations, or 1.5lacs min. number of serving customers benchmark and requested relaxation of criterion. Most existing and new Franchisee operators also does not qualify existing technical criterion. Few of them would probably start looking for International tie-ups to qualify for bidding.

5. Clarity on Service tax and other asset usage charges: There was interesting query if at any point in the future, service tax gets levied on to DF business, then who should bear that additional payment risk. JSEB agreed that since DF will be only leased to work in Licensee region, any such future changes risk will be owned by Licensee. Bidders were also looking for clarity on the charges to be levied on DF for utilizing Licensee assets like IT systems etc. This was based upon contentions raised in some of previous DF operations.

6. Additional power procurement specifics: Bidders requested to have specifics on guaranteed annual input energy supply to DF. The current RFP has provision for DF to avail additional power from outside, and with Regulators approval levy and retain Reliability charges. However, specificity was sought to not have Reliability charges accounted in TIR (Tariff Indexation Ratio) calculation, and sharing benefit with Licensee.

7. AT&C loss reduction trajectory compliance, penalties, Regulatory risk and impact: The realism for given AT&C loss reduction targets was challenged by bidders, starting with 6% in first year itself. Also, there were questions if there will be any penalty clause for non-achievement of defined AT&C loss reduction trajectory in the RFP. One bidder brought to the attention that JSEB defined trajectory is not in sync with that defined by Regulators, and that currently used in ARR petition. This brought the need for proper co-ordination between Regulator and Discom for raising strong DF model.

8. Min. benchmark input bid prices: There are no current minimum benchmark rates for input prices set, though JSEB has indicated that it will release the same in next RFP revision. The bidders requested to have no benchmarks, to allow them innovating on their financial structuring. At pManifold, we support that there should not be any min. benchmark criterion set. There could still be other ways for utility to protect its interest, to prevent any bid cartel from bidders.

9. Min. mandated capex investments: The RFP has requirement for 50% of base year billed revenue equivalent mandated capex investment in first 5 years. Some bidders challenged that for place like Ranchi, if already planned Rs. 200cr. investment is properly made through R-APDRP scheme, then additional mandated capex of Rs. 125 cr. might not be required. The Member T&D, Mr. C.D. Kumar wondered, if bidders with their due diligence would be willing to share information on types of funds requirements for targeted AT&C loss reduction.

10. Capex leverage & risk (from R-APDRP): Every bidder was curious to understand the breakdown structure of investment in ongoing R-APDRP schemes, completion timelines and who will bear the interest payment liability. JSEB made clear that interest liability shall be on JSEB, and DF is expected to partner in prudent monitoring & integration. Bidders were looking for better assurance on R-APDRP funds, timelines, its alignment with their overall capex plan.

11. Performance Guarantee vs. Payment Security: Currently as stated in RFP, there is 2 months equiv. input energy price performance guarantee required in form of Letter of Credit. Compared with old DF bids, there is distinction between Performance Guarantee and Payment Security. This distinction seemed to be missed. 

12. Min. Tariff Indexation Ratio (TIR): RFP has a clause that states that if TIR goes below 1 for any month, it will be treated as 1. One bidder objected to this clause. 

13. ABR sensitivity: This was most pricing discussion by the bidders. They needed base year ABR to be feezed, whatever its value, right or wrong. They claimed there could be huge bid fall gain or bid fall loss because of this one most critical parameter. The risks would be so high, that they do not even want to chance the bid fall gain situation. 

14. Compliance: RFP has clauses for DF to follow all Regulatory compliances from the day of uptake. Bidders objected that they should be given a year time atleast to take charge and meet all necessary compliances. Since utility itself is not meeting various compliances, it will be unfair to force DF to meet all compliances from day one.

JInfra and IL&FS team assured revised RFP with all amendments and corrections to be released in early June. Respecting bidders request for sufficient time for on-field due diligence, it is likely that the bid submission dates will see a likely extension of a month or so. 

One thing that came out very strongly from this pre-bid meeting, was that the bidders have kept a good track of previous bids and there is emerging consensus in bidders community on the type of improvements they seek in the baseline information and DFA terms and conditions. It is now on utility guided by their Transaction Advisors to appreciate bidders concerns and address them rightly through all stakeholder engagement. Both JSEB and Jinfra (and IL&FS) seemed pretty co-operative - listening to bidders, encouraging their feedback and gearing to address their concerns in next amendments. 

Rahul Bagdia, Director pManifold participated in the pre-bid meeting, and met key opinion leaders from utility, different consumers, consumer representative, JSERC, JInfra, IL&FS etc. to capture their perspective on Jharkhand Govt. Distribution Franchisee initiative. One interesting thing to watch out will be coming public hearing on ARR petition and shape it takes, as it will have good impact on bid strategy.

We have released a survey to understand bidder's perspectives for Jharkhand DF. Bidders and viewers are requested to take the survey at the following link:
Suggestions for improvement of Jharkhand Distribution Franchisee Bidding .

It is hoped that with your kind support, this consolidated survey results could influence/guide potential favorable changes in the RFP. 

Post by: Rahul Bagdia @ pManifold

pManifold has done an organised research into all previous Input based Power Distribution Franchisee bids, their derived analytics, including the latest bid from Madhya Pradesh with a very detailed Financial modeling. The Market Research report 'Input-Based Power Distribution Franchisee Market in India 2012Q1' and the detailed Excel financial model are available. Our financial model replicate then participating all bidders strategies and numbers, and will be valuable for all Jharkhand interested potential bidders. We also undertake 'measurement based' field technical due diligence. (See our blog Importance of 'Measurements based' Technical Due Diligence)

No comments:

Post a Comment