Late Payment Surcharge for Gencos and Trancos


  • By way of a press release dated August 22, 2020, the Ministry of Power (MoP) noted that the rate of Late Payment Surcharge (LPS) is quite high and in many cases is up to 18% per annum. this has adversely impacted DISCOMs during the lockdown.
  • The MoP has therefore advised generating companies and transmission companies to levy the LPS at a rate not exceeding 12% per annum (simple interest) for all payments made under the Liquidity Infusion Scheme of Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) under Atmanirbhar Bharat.

Our view: The COVID-19 pandemic has adversely affected liquidity of all stakeholders of the power sector, especially DISCOMs. The aforesaid announcement by the MoP will help alleviate the financial stress in the power sector. Further, all measures taken to ease the financial stress would also eventually benefit the consumers by way of smooth power supply and reduction in charges.

Partial release of Performance Security/Bank Guarantees to the extent contracts are partially completed


  • The MNRE issued an office memorandum dated August 19, 2020 (PS/BG OM) pertaining to the partial release of Performance Security/Bank Guarantees, to the extent contracts are partially completed.
  • Vide the PS/BG OM, the MNRE forwarded the office memorandum dated May 13, 2020 issued by the Department of Expenditure, Ministry of Finance and the subsequent clarification dated June 25, 2020, for due compliance by the Solar Energy Corporation of India Limited, NTPC Limited and NHPC Limited.
  • Our analysis of the office memorandum dated May 13, 2020 issued by the Department of Expenditure, Ministry of Finance is available here.

Public Procurement (Preference to Make in India) to provide for Purchase Preference (linked with local content) in respect of Power Sector


  • The Government of India, Department for Promotion of Industry and Internal Trade (DPIIT) had issued the "Public Procurement (Preference to Make in India), Order 2017" for encouraging 'Make in India' and promoting manufacturing and production of goods and services in India with a view to enhancing income and employment. The aforesaid order was revised by the DPIIT on June 4, 2020.
  • In the light of the Public Procurement (Preference to Make in India) Order 2017, the MoP had notified the purchase preference (linked with local content) for the hydro and transmission, thermal and the distribution sectors.
  • On July 28, 2020, the MoP issued the following directions (MoP Order) in supersession of the aforementioned orders:
    • For the procurement of all goods and services or works in respect of which there is sufficient local capacity and local competition, only "Class-I local supplier" would be eligible to bid irrespective of purchase value.
    • For procurement of all goods, services or works not covered by the preceding paragraph, and with estimated value of purchases less than INR 200 crore, in accordance with Rule 161(iv) of the General Financial Rules, 2017 (GFR), Global Tender Enquiry (GTE) would not be issued except with the approval of the competent authority as designated by Department of Expenditure. Only 'Class-I local supplier' and 'Class-II local supplier' would be eligible to bid in the procurement undertaken by procuring entities, except when GTE has been issued. In Global tender enquiries, 'Non-local suppliers' will also be eligible to bid along with 'Class-I local suppliers' and 'Class-II local suppliers'.
    • Works would imply all works as per Rule 130 of the GFR and also include 'turnkey works', Engineering, Procurement and Construction (EPC) contracts and service contracts including System Integrator (SI) contracts. This order would be applicable to Tariff Based Competitive Bidding (TBCB) projects as well.
    • A committee would be constituted for independent verification of self-declarations and auditor's/ accountant's certificates on random basis and in the case of complaints.
    • Another committee would be constituted to examine the grievances in consultation with stakeholders and recommend appropriate actions to the Competent Authority in MoP.
  • A complaint fee of INR 2 lakhs or 1% of the value of the local item being procured (subject to maximum of INR 5 lakhs), whichever is higher, is to be paid. In case the complaint is found to be incorrect, the complaint fee will be forfeited. In case, the complaint is upheld and found to be substantially correct, the deposited fee would be refunded without any interest.
  • This order will be applicable:
    • in respect of the procurements made by all attached or subordinate offices or autonomous body under the MoP,
    • Government of India including Government Companies as defined in the Companies Act,
    • the States and Local Bodies making procurement under all Central Schemes/ Central Sector Schemes where the Scheme is fully or partially funded by Government of India, and /or
    • in respect of funding of capital equipment by PFC/ REC.
  • Procuring entities have been advised to revise their tender documents fully complying with the said DPIIT's Order and the subsequent Orders that would be issued in this regard by DPIIT/MoP from time to time.
  • All tenders for procurement by Central Government Agencies have to be certified for compliance of the PPP-MII Order by the concerned procurement officer of the Government Organization before uploading in the portal.
  • Equipment used in the power sector which are manufactured under license from foreign manufacturers holding intellectual property rights and where there is a transfer of technology agreement as specified in the MoP Order. The items specified in the MoP order will undergo regular review to check for items for which sufficient local manufacturing capacity and competition have gotten developed and which meet minimum local content requirement of 50%.
  • General guidelines have also been stipulated.

Our view: The MoP order will augment the Make in India initiative of the Government. We have observed that tenders issued post the DPIIT order have not implemented the guidelines in an effective manner. As a result, several clarifications were needed in order to understand the eligibility criteria for such tenders. Accordingly, it would be important that the MoP Order is implemented in a manner that does not create further uncertainty

Download - Infrastructure and Energy Digest - August 2020

Originally published 11 September 2020

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