Bidding for a tender, especially in the renewable energy sector, is an expensive and time-consuming process. There are so many costs attached that medium-sized companies generally avoid participating in auctions for large projects.
Image via Mercom India
To participate in tenders, developers must submit Earnest Money Deposits (EMDs) in the form of bank guarantees with the Solar Energy Corporation of India (SECI), NTPC, and state agencies. EMDs can range between ₹400,000/MW to ₹1 million/MW, plus 18% GST. They are valid for about 240 days from the technical bid opening, and are submitted along with the technical and financial bids. In addition, the document and processing fees are non-refundable, and there are Performance Bank Guarantees and Success Charges as well.
If the tender is delayed or cancelled, EMDs can take around two or three months to be refunded; this delay affects the company’s ability to bid for other projects. “On top of this, highly competitive bids due to low tariff caps are also reducing chances of winning projects at a decent margin, and now you are seeing tenders being undersubscribed,” an executive at a Delhi-based solar energy company told Mercom India.
It might be a good idea to have an interest rate attached to the EMDs they are deposited with SECI or the concerned agency – slightly below the market interest rate if required – that comes into force once the time-frame for refunding the EMD has elapsed without said refund having been carried out. Any possible losses incurred due to the delay might be compensated through the interest thus accrued.
Another common bone of contention is the Performance bank Guarantee (PBG), an unconditional and irrevocable bank guarantee, deposited by the chosen developer(s) to SECI/NTPC, 30 days after the date of issue of the letter of intent (LOI). PBGs are meant to be returned to the developers immediately after the project has been successfully commissioned – but there are often delays in doing so.
In September this year, the MNRE attempted to address this by directing both SECI and NTPC to release PBGs for solar and wind power projects that have been commissioned. According to the letter, PBGs are to be released within 45 days from COD (Commercial Operation Date), provided all required documents have been submitted.
The prevalent market interest rate should apply to this transaction as well – if the agency retains the PBG beyond the stipulated 45-day period, the final amount returned should include interest accruing to the developer for the period of delay.
A provision of this kind would act as a deterrent against illegal and arbitrary delays by agencies to return developers’ dues. Developers, particularly upcoming local ones, should not suffer due to the inability of state bodies to respect payment deadlines- or failing that, not without compensation.
Image source: NTPC via PV Magazine