The Ministry of Power has announced amendments to its Standard Bidding Documents (SBDs) for the procurement of Inter-State Transmission Services through the Tariff Based Competitive Bidding (TBCB) process. The Ministry has decided to include Insurance Surety Bonds (ISB) and Payment on Order Instruments (POI) as alternative security mechanisms to enhance flexibility and encourage wider participation from transmission developers.
This decision comes in response to representations from transmission developers seeking diversified options beyond traditional bank guarantees for participating in bids and fulfilling contract performance obligations under Section 63 of the Electricity Act, 2003. The amendments modify the existing Request for Proposal (RfP) and Transmission Service Agreement (TSA) documents, which were initially issued on August 6, 2021, and subsequently amended multiple times.
Key Changes to Security Instruments
The core of the amendment lies in expanding the definition and acceptance of financial guarantees for both Bid Bonds (submitted with technical bids) and Contract Performance Guarantees (provided after a Letter of Intent is issued).
I. Insurance Surety Bonds (ISB)
Bid Bonds will now be accepted in the form of unconditional and irrevocable Insurance Surety Bonds issued by insurance companies authorized by the Insurance Regulatory and Development Authority of India (IRDAI).
Similarly, for Contract Performance Guarantees, selected bidders can now provide an Insurance Surety Bond as an alternative to a bank guarantee. New standardized formats (Annexure 14A for Bid Security and Annexure 15A for Contract Performance Guarantee) have been introduced for these instruments.
II. Payment on Order Instruments (POI)
A completely new financial instrument, the “Payment on Order Instrument,” has been defined and introduced. This instrument is a Letter of Undertaking that can be issued exclusively by three non-banking financial institutions under the purview of the Ministry of New & Renewable Energy (MNRE) or Ministry of Power (MoP):
- Indian Renewable Energy Development Agency Limited (IREDA)
- Power Finance Corporation Limited (PFC)
- REC Limited (REC)
These Letters of Undertaking will carry the same effect and validity as a Bank Guarantee issued by any public sector bank, promising to pay the Nodal Agency on demand within a stipulated time in case of default by the Transmission Service Provider (TSP).
Transmission Service Providers (TSPs) can obtain these POIs by offering due security to IREDA, PFC, or REC. Crucially, the Nodal Agency will only accept POIs from these three specified institutions, ensuring a regulated and trustworthy alternative. New formats (Annexure 14B for Bid Security and Annexure 15B for Contract Performance Guarantee) have been prescribed for these instruments.
Impact and Significance
This step by the Ministry of Power is expected to bring several positive impacts to India’s power transmission sector. By offering a wider array of financial instruments, the Ministry aims to reduce the financial burden and operational constraints associated with exclusively relying on bank guarantees. This can free up capital and credit lines for developers. The added flexibility is likely to encourage more developers, including potentially smaller and newer players, to participate in the competitive bidding process for transmission projects.
Easier access to security instruments can streamline the financial closure process for projects, potentially leading to faster development and commissioning of critical transmission infrastructure.
The inclusion of insurance companies and specialized financial institutions diversifies the sources of financial security, potentially mitigating systemic risks.
