Friday, August 28, 2009


Winds of change blowing across BOP bidding

The Central Electricity Authority has recently put out revised draft prequalification norms for Balance of Plant bidders. These indicate further dilution in pre‐qualification norms as it allows joint ventures to bid for turnkey BOP orders. By reducing bank guarantee requirements, it has
made consortium bidding financially competitive. Another significant change is the proposal to allow vendors from other industries, with similar experience, to bid for BOP packages in the power sector. We believe the proposed changes are likely to increase competition for turnkey BOP packages as bidding in consortiums and JVs becomes viable. Overall, the development may be adverse for established turnkey BOP contractors, while favoring material handling companies
and other BOP vendors.

Revised draft guidelines put out for BOP pre‐qualification norms
The Ministry of Power and the Central Electricity Authority on August 18‐19 hosted an international conclave on “Key Inputs for Accelerated Development of the Indian Power Sector for the XII Plan and Beyond.” The CEA has put out revised draft guidelines on qualifying requirements for bidders of BOP orders for coal/lignite‐based thermal power plants. The earlier guidelines were released in Jun08. These guidelines are not binding on State Electricity Boards; however, they have largely been following them while inviting bids.

Vendors from non‐power industries stand to gain
The CEA has changed several covenants in the Aug09 draft. The main change allows JVs to bid for BOP packages, from only consortium and individual companies earlier. The revised draft guidelines also mandate lower bank guarantees for JVs and consortiums. As per the earlier norms, higher financing costs were one of the key disadvantages for consortium bidders versus
individual bidders. The new norms allow vendors with relevant experience in other industries to participate in the power sector. This is likely to increase the vendor base and encourage bidding in consortium, while they were disqualified earlier on minor technicalities.

Dilution in norms to improve vendor base, increase competition
High entry barriers restricted the number of players capable and qualified to bid for turnkey BOP orders of 500MW and above from SEBs to five. We believe the number of vendors interested in entering the turnkey BOP space has increased. However, several companies at the conclave cited strict qualification norms that benefited existing players and were the key constraints for entering the space. The revised norms address several concerns and are likely to increase competition in turnkey BOP orders. The move to allow EPC contractors from other industries to participate in the power industry may not increase competition by much in individual packages as several domestic BOP package vendors (like those in material handling, civil construction and water treatment) operate in more than one industry.

To see full report: POWER SECTOR