BEFORE THE UTTAR PRADESH ELECTRICITY REGULATORY COMMISSION LUCKNOW

Petition No. 632/2009

IN THE MATTER OF : Approval of Request for Proposal (RFP) & RFP Project documents - Transmission Service Agreement (TSA), Share Purchase Agreement (SPA) & Connection Agreement (CA) for selection of developer to establish “765KV Mainpuri - Bara line with 765KV/400KV AIS at Mainpuri and associated schemes/works (Package-1)” through tariff based competitive bidding process.

AND IN THE MATTER OF : Uttar Pradesh Power Transmission Corporation Ltd., 11th Floor, Shakti Bhawan Extension, 14-Ashok Marg, Lucknow – 226 001 :Petitioner AND Petition No. 633/2009

IN THE MATTER OF : Approval of Request for Proposal (RFP) & RFP Project documents - Transmission Service Agreement (TSA), Share Purchase Agreement (SPA) & Connection Agreement (CA) for selection of developer to establish “765KV S/C Mainpuri - Hapur & Mainpuri – Greater Noida lines with 765KV/400KV AIS at Hapur & Greater Noida and associated schemes/works (Package-2)” through tariff based competitive bidding process.

AND IN THE MATTER OF : Uttar Pradesh Power Transmission Corporation Ltd., 11th Floor, Shakti Bhawan Extension, 14-Ashok Marg, Lucknow – 226 001 :Petitioner

The following were present :

1. Shri Ashok Kumar, Executive Director (Transmission), UPPTCL 2. Shri A.K. Singh, Chief Engineer, UPPTCL 3. Shri P.K. Gupta, Superintendent Engineer, UPPTCL 4. Shri Munish Kumar, DVVNL, Agra 5. Shri A.N. Gupta, Assistant Engineer, UPPTCL 6. Shri Siddharth Mehta, Crisil Ltd. (UPPTCL’s Consultant ) 7. Shri Amit Goenka, Crisil Ltd. (UPPTCL’s Consultant )

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8. Shri Ignacio Campos, Isolux Corsan 9. Shri Alfonso Perez, Isolux Corsan 10. Shri R.R. Aiyer, Isolux Corsan 11. Shri Lalchand, Isolux Corsan 12. Shri Naveen Bansal, Cobra Instalaciones, S.A.

ORDER (Date of hearing 18 th March, 2010)

(1) U.P. Power Transmission Corporation Ltd., (UPPTCL) has been authorized to act as Bid Process Coordinator (BPC) by the Energy Task Force (ETF) of GOUP and in that capacity it has filed three corrigenda of RFP documents (corrigendum-1, 2 & 3) along with RFP Project Documents consisting of Transmission Service Agreement (TSA), Share Purchase Agreement (SPA) and Connection Agreement (CA) for the approval of the Commission. These documents have been submitted in continuation to the previously submitted RFP documents in the same petitions. The RFP & TSA documents are made in deviations to Standard Bid Documents, for selection of Transmission Service Provider (TSP) to develop the following on Build, Own, Operate & Maintain and Transfer (BOOT) basis : (a) “765KV Mainpuri - Bara line with 765KV/400KV AIS at Mainpuri and associated schemes/works”, called Package-1, which consists of thirteen 765/400 KV lines/LILO and five 765/400 or 400/220 or 132 KV substations and (b) “765KV Mainpuri - Hapur & Mainpuri – Greater Noida lines with 765KV/400KV AIS at Hapur & Greater Noida and associated schemes/works”, called Package-2, which consists of twelve 765/400 KV lines/LILO and seven 765/400 or 400/220 or 132 KV substations. Two-stage bidding process for tariff based competitive bidding under guidelines issued by GOI is being followed under these petitions. The Petitioner has made deviations in RFP and TSA documents from ‘Tariff Based Competitive Bidding Guidelines for Transmission Service’ and ‘Guidelines for Encouraging Competition

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in Development of Transmission Projects’ dt.13.4.06 of GOI (hereinafter referred to as Guidelines) and the Standard Bid Documents made there under by the Central Government. The deviations in these documents for both the petitions are similar and common in nature and put up for approval of the Commission as annexure-D of the RFP documents, annexure-1 of the TSA documents and RFP corrigendum-1, 2 & 3. RFQ documents, in the same petitions, have already been approved by the Commission vide order dated 15-10-09 through a public hearing dated 07-10-09. The modified RFQ documents have been issued by the petitioner according to the decisions and directions of the Commission. The Commission had not taken up the matter of RFP documents in the hearing of 07-10-09 as the petitioner did not submit the RFP Project documents by that time. The Petitioner has formed two Special Purpose Vehicles (SPVs), namely South East U.P. Power Transmission Company Ltd. for development of Package-1 and Western U.P. Power Transmission Company Ltd. for development of Package-2, which shall be transferred to the successful bidders.

(2) The Commission published Public Notices, No. UPERC/JD(T)/Secy/2010/1654 dt.19-02-10 and UPERC/JD(T)/Secy /2010/1659 dt.19-02-10 in the newspapers for inviting comments /objections/suggestions in writing from all stakeholders and interested parties for hearing in the matter of RFP and RFP Project Documents. The petitioner, UPPTCL, was directed to put the above mention petitions along with relevant RFP and RFP Project documents on its website and also make hard copies of the same available in its office for inspection of any person.

(3) Accordingly in the hearing on 18.03.10, RFP and RFP Project Documents for both the petitions were considered for discussion. The deviations made in making RFP & TSA documents have been

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listed in Annexure-D of RFP documents, Annexure-1 of TSA documents and RFP corrigendum-1, 2 & 3. Since deviations are similar in nature as such same for both petitions would be decided by this common Order.

(4) The petitioner intimated the Commission vide letter dated 09-03-10 that on the basis of recommendations of Bid Evaluation Committee, ETF has shortlisted the two bidders M/s Isolux Corsan Concesiones, SA and M/s Cobra Instalaciones, SA for issue of RFP documents and proposed to introduce a provision in RFPs to adopt “Swiss Challenge Method”, in case, the financial bids are not found competitive.

(5) The bidders M/s Isolux Corsan and M/s Cobra Instalaciones have not submitted any written comments to the Commission during or before the hearing, except a fax message dated 17-03-10 from M/s Cobra, requesting the Commission to postpone the hearing of 18-03-10 and fix another date as they need time to study the fresh RFP corrigendum-2 & 3, received from the petitioner, just one day before.

(6) The oral submissions made in the hearing are summarized as below- (I) Shri Siddharth Mehta made submissions on behalf of t he Petitioner. Shri Mehta made the following submissions :- a) After the issue of RFQs/RFPs, UPPTCL has come out with draft TSA documents, which is a major contract between the two parties, the developer and the Long Term Transmission Customers. The draft TSA documents have been made with certain deviations considering the complex nature of the project and certain amendments proposed by ETF, and for that purpose with the approval of ETF. Certain modifications were also made in the RFQ documents according to the decisions and directions

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of the Commission vide order dated 15-10-09. In order to align the RFP documents with deviations of TSAs and modifications of RFQs, some more deviations were made in RFP documents, which have been communicated through corrigendum-1, 2 & 3. b) A new clause has been added in the RFP documents vide corrigendum-3, according to which “Method to Ensure Competitiveness of Bids” (MECB) can be applicable, in case, the financial bids, submitted by the bidders are found to be non- competitive and the bidders shall not have any objections for implementation of MECB. Shri Mehta explained MECB method which is summarized as under :- If the State Govt. does not find the price bids competitive then it may apply MECB. The lowest original financial bid, received by BPC, would continue to remain valid till the conclusion of MECB process. The BPC under this process would issue a public notice inviting fresh bids with the same terms of eligibility as were applicable under the original bid. Any party, except the original lowest bidder, shall be eligible to submit the fresh bid under this process. The original lowest bidder shall have the right of first refusal for adopting the lowest financial bid received through fresh bidding process under MECB. In case the right of first refusal is not exercised by the original lowest bidder, the lowest bidder in the fresh bidding process under MECB shall have the right to award of the contract. In case he refuses to honour his bid, the bid bond shall be forfeited and the original lowest bidder, prior to MECB process, will be awarded the contract at original quoted rates. c) The Contract Performance Guarantee and the Bid Bond for the two packages were increased appreciably and while deciding them, weightage of substations have also been considered whereas in the Standard Bid Documents, the estimate is prepared on kilometer length of line basis only without the cost of substations. The calculation of the Contract Performance Guarantee and the Bid Bond in the two petitions has been done

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on the basis of the project cost, which includes the lines and the substations both and taken as 2.5% and 1.3% of the project cost respectively.

d) Clause 1.4 of RFP documents has been amended through corrigendum-1 which proposed that all the assets of SPV including S/S, lines and other related physical assets will be transferred to the permitted nominee of the State Government at zero value at the expiry of the TSA, instead of transferring them to Long term Transmission Customer(s) or nominee of Long term Transmission Customer(s) at the depreciated value, proposed earlier. Shri Mehta intimated that ETF has come out with this proposal in view of unpredictable status of the distribution companies after twenty five years, which might go for privatization in the future. e) Percentage Allocated Project Capacity of Long Term Transmission Customers has been revised through RFP corrigendum-1 based on the weighted average allocation of discoms from the upcoming generation of Bara, Karchana and Meja power stations. Earlier, Allocated Project Capacity was calculated on the basis of energy drawl of each discom.

(II) The representative of M/s Isolux Corsan, Shri R.R. Aiyer objected to the proposed bid evaluation method of MECB. He submitted that the prequalification process is completed and introduction of a third party, at this stage, is not justified. He further submitted that even if MECB is to be applied, it should be applied only to those bidders who have qualified in the bid prequalification process.

(III) The representative of M/s Cobra Instalaciones, Shri Naveen Bansal referred to the fax letter of 17-03-10 and requested to fix one more hearing in the matter.

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(7) The Commission sought clarifications from the petitioner on the following points of deviation :- a) The Commission observed that the transmission system of both the packages have been revised substantially. In revised transmission system of package-2, [400KV DC Greater Noida (765KV) – Noida (Sector-137) , 400KV DC Ataur-Indirapuram, 400 KV DC Indirapuram-Hapur(765KV) , 400 KV SC Indirapuram-Dasna , LILO of one circuit of 400KV Greater Noida (765KV) – Noida (Sector-137) at 400KV S/S Indirapuram and LILO of one circuit of 400KV Indirapuram – Hapur (765KV) at 400KV S/S Dasna ] are replaced by [400 KV DC Greater Noida (765KV) – Hapur (765KV), 400 KV DC Hapur (765KV) – Dasna, LILO of first circuit of 400 KV Greater Noida (765KV) – Hapur (765KV) at 400KV S/S Indirapuram and LILO of second circuit of 400 KV Greater Noida (765KV) – Hapur (765KV) at 400KV S/S Ataur ]. Similarly in package-1, [400KV DC Mainpuri (765KV) - Mainpuri (PG) line and LILO of 400KV Agra - Agra (PG) at Mainpuri (765KV) ] are replaced by [LILO of both the circuits of 400KV DC Orai – Mainpuri (PG) at Mainpuri (765kV) ].

In view of such a major change in the transmission system, the Commission inquired the petitioner whether the planning of the transmission system has been carried out in a coordinated manner in view of Section-39(2)(b) of EA’03 and clause 3.1.1, 3.4.13 & 3.4.15 of the Grid Code (UPEGC) and whether the approval of ETF & BOD of the transmission company has been obtained for such revision. Shri Mehta explained that the integrated planning has been done by CEA, on the basis of which they recommended some lines to be built by UPPTCL for proper evacuation of power from the upcoming generation of Bara, Karchana and Meja power stations. All the lines and substations, mentioned in the earlier proposed transmission system are the part of original CEA document and the revised technical changes are within the CEA

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recommendations only. He confirmed that BOD approval has not been taken for these technical changes but referred to the decision of ETF which has authorized BPC to make technical modifications, if necessary, and obtain approval of the Commission. The Commission is of the view that any technical change in the transmission system of 400KV and above, should be carried out with prior approval of BOD and ETF, followed by the approval of CEA. The Commission directed the petitioner to submit the approval of BOD of Transmission Company, ETF and CEA for such major revision of the transmission system along with the load flow studies including short circuit levels etc, mentioned in Annexure-E of RFP corrigendum-1. b) A new clause has been added in the RFP documents vide corrigendum-2, according to which the finalization of equipment parameters and reactive power management are in the scope of successful developer. Reactive compensation will be provided in 765 KV & 400 KV lines and bus bars at respective substations, the number and ratings of which will be decided after system studies by the selected bidder. Shri Mehta, on behalf of the petitioner, gave the justification that only the successful developer can decide the best specifications of the transmission system which is to be run by him for 25 years with 98% availability, Further, he also intimated that the same pattern has been followed by REC and PFC in central sector transmission system. The Commission was not convinced with the argument of the petitioner and directed that the aforementioned technical specifications of the transmission system be finalized by UPPTCL only. c) The Commission took up the issue of adoption of MECB method of bidding, introduced in clause 3.1.4.5 of the RFP documents vide corrigendum-3. Shri Mehta, on behalf of the petitioner, explained that in view of the fact that only two parties are left in

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the RFP stage and both of them are foreign parties, BPC has no option but to introduce a clause in RFP documents to ensure the competitiveness of the bids . He also referred to a clause of RFP documents which provides BPC to take adequate steps to ensure competitiveness in the bids and the inclusion of the new clause is only an extension to the existing clause of RFPs. The Commission desired the petitioner to confirm whether the “Swiss Challenge Method”, mentioned in para-4 is the same as “MECB method”, mentioned in RFP corrigendum-3. Further, in case it is not the same then the petitioner should submit the approval obtained for adopting MECB method. d) The number of Long Term Transmission Customers has been raised from four to five by including KESCO vide RFP corrigendum-1. Their Allocated Project Capacity has also been revised as follows :- Allocated Project Capacity Name of LTTC Previous Revised % Change PVVNL 33% 40% (+) 21% DVVNL 27% 15% (-) 44% PuVVNL 23% 20% (-)13% MVVNL 17% 20% (+)18% KESCO 0% 5%

The Commission observed that the percentage change in Allocated Project Capacity of the distribution companies varies from (-) 44% to (+) 21%. The petitioner submitted that the percentage Allocated Project Capacity of Long Term Transmission Customers has been revised based on the weighted average allocations of discoms from the upcoming generating stations. Earlier no allocation of discoms was available so energy drawl of each discom had been taken. The petitioner emphasized that Percentage Allocated Project

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Capacity has been worked out with the best data available in the UP System. The Commission directed the petitioner to submit the details how the revised figures of Allocated Project Capacity of each discoms have been arrived at along with the relevant documents. e) The Commission observed that RFP documents and its corrigenda have been made by the petitioner with the assumption that date of issue of RFP documents is same as that of RFQ documents; however vide para-6(b) of the Commission’s order dated 15-10-09, the petitioner was directed to make necessary amendments in the RFQ documents as per Standard Documents, where the phrase ‘RFP with RFQ’ was used in place of ‘RFQ’. In compliance to above direction of the Commission, the petitioner replaced the phrase ‘Issue of RFQ and RFP documents’ by ‘Issue of RFQ documents’ in point-7 of page-4 and clause 2.8 of page-27 of modified RFQs. The Commission directed the petitioner to modify important time lines and other associated dates in RFP and RFP Project documents, including the clause 2.16.2 of RFP corrigendum-3, in view of the above. f) The Commission took up the issue of acquisition of land, forest clearance and approval of the Government under section 68 of EA’03. The petitioner confirmed that they are under process and will be made available to the bidders fourteen days before the bid deadline. The Commission directed the petitioner to submit the detailed status of each of them. g) The Commission took up the issue of methodology of computation of Levelized Transmission Charges and directed the petitioner to submit the details, required as per clause 3.3.2.3 of RFP documents. h) The Commission pointed out that the Connection Agreement has

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been prepared in a generalized manner and directed the petitioner to make it specific to the present case, where it is to be signed by STU & prospective transmission licensee only.

(8) The Commission pointed out to the petitioner that there were more deviations in RFP & RFP Project documents, which had not been mentioned in annexure-D & corrigendum-1, 2 & 3 of RFP and annexure-1 of TSA, as briefed below :

a) Time Lines Time lines in points / clauses namely disclaimer-3 of page-3, clause 1.4, 1.5(b) of page-11, clause 1.5(e), 1.5(f), 1.5(g), 1.5(h) of page-11 and clause 2.3, 2.4 of page-14 of RFP documents had been modified. The petitioner submitted that these deviations were necessary in the proposed time table of the bid process in order to ensure commissioning of transmission system mentioned in Package-1 & 2 to match the commissioning of generating projects. The representatives of Isolux Corsan and Cobra Instalaciones were asked if they had any objection to the deviations made in aforementioned clauses. None of them made any objection.

b) In Disclaimer-2 of page-3, one portion of the paragraph is dropped, which in the Standard RFP document states that – “This RFP, along with its Annexure, is not transferable and will be issued only to the Bidding Company or the Lead Member of the Bidding Consortium who has been short listed by the BPC based on its response to RFQ” .

The petitioner submitted that it had been done to invite responses to RFQs and RFPs together. The representatives of Isolux Corsan and Cobra Instalaciones did not comment on this. The Commission considered it necessary to include this portion of the paragraph and directed the petitioner to include in the

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RFP documents in view of para-6(b) of the Commission’s order dated 15-10-09.

c) In the definition of ‘Share Purchase Agreement’ in RFP documents, the holding company of SPV is mentioned as UPPTCL, whereas in clause 1.5(g), 2.4(c) and 2.7 of RFP, it is UPPCL. The petitioner submitted that it is a typological mistake and the holding company of SPV is UPPCL. The Commission directed the petitioner to modify the RFP documents and submit Certificate of Registration and Articles and Memorandum of Association for formation of Shell Company.

d) Deviations made in the definition of “Long Term Transmission Customer”, clause-1.4, 1.6 and 2.15.1 (‘Note’) of RFP documents were discussed and the petitioner was directed to align it with the provision of Standard RFP.

(9) The only objection, raised by the representative of M/s Isolux Corsan, was related to the bid evaluation method of MECB, proposed by the petitioner vide RFP corrigendum-3 whereas M/s Cobra Instalaciones requested to fix up one more hearing in the matter as they did not get sufficient time to study corrigendum-2 &3, received from the petitioner only a day before. Since the petitioner has issued RFP corrigendum-2 & 3 on 16-03-10 only, which, apart from mentioning other deviations, also introduced a new concept of bid evaluation method, MECB; so it is quite obvious that the shortlisted bidders might not have got ample time to study and evaluate the new concept of MECB. The Commission also observed that there are number of documents and clarifications, mentioned above, which are to be submitted by the petitioner. Therefore the Commission is of the considered view that one more hearing in the matter of RFPs and RFP Project Documents is required to be fixed up.

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(10) The RFPs and RFP Project Documents under the above mentioned petitions shall be modified according to the decisions and directions of the Commission as above. The modified RFPs and RFP Project Documents shall be issued to M/s Isolux Corsan Concesiones and M/s Cobra Instalaciones within ten (10) days of this Order. Copies of modified RFPs and RFP Project Documents shall be sent to the Commission for information.

(11) The petitioner is directed to submit the relevant documents and clarifications mentioned above within ten (10) days of this Order and thereafter the date of the next hearing in the matter shall be fixed up.

(12) The next hearing in the matter of RFP and RFP Project Documents shall be held after the petitioner files the necessary documents, clarifications and modified RFPs & RFP Project Documents, as directed by the Commission.

(Rajesh Awasthi) Chairman Lucknow; Dated 25th March 2010

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