Competitive bidding to help Railways cut Power Bill by Rs 3000 Crore per year

Thanks to the adoption of competitive bidding route for buying electricity, Indian Railways (IR) is expecting annualised savings of Rs.3,000 crore starting 2016-17 in maintaining the current level of traction

Competitive BiddingNew Delhi: Thanks to the adoption of competitive bidding route for buying electricity, Indian Railways (IR) is expecting annualised savings of Rs.3,000 crore starting 2016-17 in maintaining the current level of traction.

Last year, IR began purchasing power through the competitive bidding route as opposed to its earlier practice of buying directly from state-owned DISCOMs, which charge the transporter commercial rates.

Competitive bidding is a step in the initial public offering process whereby an underwriter submits a sealed bid to a company that is making its first issue of stock. After collecting competitive bids from several underwriters, the issuer awards the contract to the underwriter with the best price and contract terms. The new policy, which brought down the cost of power by nearly 40% in some cases, will be extended to most of its power purchases in 2016-17.

The deemed licensee status granted by the Central Electricity Regulatory Commission (CERC) also helped the transporter as it wouldn’t be burdened by cross-subsidy surcharge levied by states on consumers buying electricity from outside the state. The CERC ruling removed the hurdles in the way of procuring power from the cheaper sources.

IR Traction expenses“Our traction bill stood at Rs.10,600 crore in FY15 and Rs.10,200 crore in FY16. From FY17, we will be saving around Rs.3,000 crore annually.

Moreover, a lot of trains which used to run on diesel because the electricity cost was high on those stretches will now run on traction helping IR reduce its carbon footprint.” a senior railway official said.

As IR enters into power purchase agreements (PPAs) in the coming months for the entire amount of 2,000 MW that it uses, the annualised savings for FY17 is expected to come in at Rs.3,000 crore.

Apart from inking PPAs with independent power producers, IR’s own 1000 MW power plant in joint venture with NTPC is expected to feed its traction requirement from June, 2016.

The average cost of producing power from this plant would be below Rs.4/unit, sources in the ministry told.

The other half of IR’s traction demand is going to be met by competitive bidding route, in pursuance to which the transporter floated three tenders last year 160 MW, 220 MW and 205 MW for eastern, northern and western regions, respectively.

In February, Jindal Power emerged as the lowest bidder and won the contract for eastern and northern regions and will supply electricity to IR between Rs.3.50-4.11, including wheeling charges.

The tender for 205 MW for the western region has been opened and will be awarded to the lowest bidder by March-end. Railway ministry sources also revealed that the transporter is going to float a tender for procuring 350 MW of power for the southern region, sources add that its going to be a one year power purchase agreement.

“The shift towards competitive bidding has been discussed for many years. It has always remained a work in progress. The current minister (Suresh Prabhu) should be given due credit for executing the change and if the same kind of approach is taken in all the areas, it will help IR reduce its costs and compensate the burden of the 7th Pay Commission to an extent,” said Abhay Krishna Agarwal, Partner Infrastructure & PPP at EY.

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