Comments on: Cap on the number of Ultra Mega Power Plant (UMPP) licences: Defies the logic of the market http://www.indicus.net/blog/index.php/policy-regulation-competition/payal/cap-on-the-number-of-ultra-mega-power-plant-umpp-licences-defies-the-logic-of-the-market/ all about the Indian Economy and the consumer markets Tue, 22 May 2012 20:58:18 +0000 http://wordpress.org/?v=2.6.2 By: Ramrao http://www.indicus.net/blog/index.php/policy-regulation-competition/payal/cap-on-the-number-of-ultra-mega-power-plant-umpp-licences-defies-the-logic-of-the-market/#comment-476 Ramrao Tue, 17 Feb 2009 04:53:46 +0000 http://www.indicus.net/blog/?p=391#comment-476 It is right the government would not be doing any good to competition environment by putting cap of number of UMPP projects a player can get, especially when selection process is competitive bidding, in which the best fitting player gets the contract. However, BOO projects are complicated to monitor and manage. The problem of renegotiation under such projects is quite well known , where bidders quote lowest tariffs at the time of bidding and later on, on the basis of viability of projects they tend to renegotiate the tariffs. While it is important to put stringent performance guarantee mechanisms in place to ensure companies do not overstretch themselves to bag UMPPs, but the provision in BOO contracts does allow the incumbent to go for renegotiation later in the contract period under fair conditions. However, experience in Latin America and other countries showed that preventing unfair renegotiation under concession contracts is one of the main challenges every government face. Given the fact that concession contracts such as BOO and BOT are still at nascent stage in India, the government agencies hardly have any experience in this regard. Therefore, there is a lot more to learn about government’s ability to deal with renegotiation problem under concession contracts in India. It is right the government would not be doing any good to competition environment by putting cap of number of UMPP projects a player can get, especially when selection process is competitive bidding, in which the best fitting player gets the contract.

However, BOO projects are complicated to monitor and manage. The problem of renegotiation under such projects is quite well known , where bidders quote lowest tariffs at the time of bidding and later on, on the basis of viability of projects they tend to renegotiate the tariffs. While it is important to put stringent performance guarantee mechanisms in place to ensure companies do not overstretch themselves to bag UMPPs, but the provision in BOO contracts does allow the incumbent to go for renegotiation later in the contract period under fair conditions. However, experience in Latin America and other countries showed that preventing unfair renegotiation under concession contracts is one of the main challenges every government face. Given the fact that concession contracts such as BOO and BOT are still at nascent stage in India, the government agencies hardly have any experience in this regard. Therefore, there is a lot more to learn about government’s ability to deal with renegotiation problem under concession contracts in India.

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