NEPRA greenlights KE’s open bidding for hybrid power project

ISLAMABAD: The National Electric Power Regulatory Authority (NEPRA) has approved K-Electric Limited’s (KEL) shift to open competitive bidding for its 200 MW Site Neutral Hybrid Power Project at Dhabeji Grid, marking a significant move away from the previously proposed fixed benchmark tariff system.

KEL’s request for proposal (RFP), submitted in July 2023, sought NEPRA’s permission to adopt a more flexible bidding approach due to the volatile market conditions influenced by economic challenges, geopolitical tensions, and the lingering effects of the COVID-19 pandemic.

The company argued that an open bidding process would allow investors to adapt to these uncertainties and offer more competitive tariff rates. Subsequently, NEPRA conducted public hearings in June and November 2023 to deliberate on KEL's requests, signifying a comprehensive review process.

In its decision, the Authority endorsed KEL's proposition to conduct open competitive bidding for the project without establishing a benchmark tariff. Furthermore, KEL has been instructed to delineate specific criteria for bid rejection, particularly in instances where the lowest bid is deemed imprudent based on the outlined considerations.

The evaluation criteria for the bidding process will primarily gauge the prudency of successful bids based on prevailing equipment costs and the cost of funds. Additionally, KEL is mandated to evaluate bids based on the overall tariff, encompassing transmission and wheeling charges, with the authority to reject bids found imprudent according to specified criteria.

The rationale behind KEL's selection of a hybrid project has been validated by the Authority, which acknowledges the potential synergies resulting from the integration of wind and solar energy. Moreover, KEL has been granted permission to hold a non-controlling equity share in the Special Purpose Vehicle (SPV) associated with the project, with the successful bidder retaining discretion over KEL's equity participation, capped at 25 percent.

The authority's decision also mandates the inclusion of prequalification criteria for prospective bidders in the RFP documents, with previously prequalified bidders exempt from undergoing the prequalification process again. The project's development will proceed under the Build-Own-Operate (BOO) regime, with qualified bidders required to incorporate the cost of land in their bids.

Approval has been granted for a quarterly tariff indexation mechanism, along with technical and financial evaluation criteria proposed by KEL. The Bid Evaluation Committee will comprise an independent member/consultant, with internal team members selected from KEL having no direct interest in the project.

While the Authority has not specified a bidding schedule, KEL has been tasked with concluding all auctions within the timelines stipulated in the relevant regulatory framework.

This decision establishes a structured framework for the bidding process, ensuring transparency, fairness, and adherence to regulatory standards in the development of the Dhabeji Grid hybrid power project.

However, concerns were raised by Mathar Niaz Rana, NEPRA (Tariff) Member, regarding the pre-qualification process's relevance given the bidding model shift. He suggested a fresh prequalification round to ensure equal footing among bidders.

He appended an additional note to the decision, expressing concerns regarding the pre-qualification process for the project. He stated that the pre-qualification process for the project was done earlier, before the initiation of the open competitive bidding process, rendering it irrelevant now as the procurement model has changed.

Placing the pre-qualification criteria in the technical evaluation part may provide an advantage to the previously pre-qualified bidders in terms of negotiating with potential lenders and suppliers before bid submission, compared to those who undergo pre-qualification through technical bids after submitting both technical and financial bids.

Rana suggested, “In my opinion, fresh pre-qualification under the guidelines given in Section 15 of the Public Procurement Rules 2004 may be done, so all pre-qualified firms may submit technical and financial bids on equal footing.”