India’s shift to tariff-based competitive bidding is one of the most important institutional reforms in the power sector since the Electricity Act, 2003. Section 63 moved the sector from administered cost-plus tariffs to tariffs discovered through transparent competition and subsequently adopted by regulators. The central government’s competitive bidding guidelines, along with standard bidding documents for Case-1 and Case-2 procurement, created a common national framework for long-term power contracting.
Under Case-1 bidding, procurers invite bids without specifying the project site or fuel source, leaving developers to arrange land, fuel linkages, and clearances. Under Case-2 bidding, the procurer specifies critical parameters such as location, fuel source, or project configuration, thereby allocating certain risks upfront. This structured differentiation clarified risk allocation, strengthened price discovery, and improved investor confidence. Over time, competitively bid capacity has come to constitute a substantial share of new generation procurement, embedding market discipline into tariff formation.
Stress points in post-bid costs
Competitive bidding is designed to be disciplined. Section 63 envisages competitive tariffs to be largely fixed, with only limited and clearly defined reliefs, most commonly through “change in law” provisions embedded in power purchase agreements (PPAs) and adjudicated through regulators and appellate forums. It is based on the logic that bidders price what they can foresee and manage, and consumers benefit from that competitive discipline.
The stress arises when statutory charges are revised after the bid cut-off date, particularly charges that originate outside the electricity law framework. Water-use charges are a good example because surface water supply to industry and power plants is typically governed by state irrigation and canal laws and departmental rules, many of which were drafted for a very different economic context. When such charges are revised materially, long after bids have been submitted and PPAs executed, they create a cost that bidders could not have reliably anticipated, and cannot control through operational efficiency alone.
Interpretation shifts commercial balance
The challenge also lies in the uncertainty that can arise when an existing policy is interpreted differently over time. There may be no amendment to the law, yet its meaning evolves. For projects awarded through competitive bidding, this can change the commercial balance years after tariffs are discovered. A useful example lies in the interaction between the Foreign Trade Policy 2004-2009 and the Mega Power Policy. When several projects submitted bids under Section 63 of the Electricity Act, 2003, the prevailing framework allowed certain duty benefits for non-mega power projects. Official clarifications treated major plant equipment, such as boilers and turbines, as eligible. Across the country, bids were structured on that understanding.
Subsequently, as the mega power policy expanded and eligibility criteria narrowed, disagreements emerged. Regulatory bodies and appellate forums examined the issue, and the Supreme Court, in its wisdom, interpreted the provisions more restrictively, leading to the denial of benefits that had been factored into bids. The concern is that when interpretation shifts after bids are locked in, commercial assumptions change. Similar issues have arisen with excise and indirect tax benefits. If interpretational stability weakens, bidders will price that risk into future tariffs, ultimately affecting consumers.
Preserving integrity of competitive bargain
India’s competitive bidding framework is still maturing. Some contracts and disputes have reached closure, while other aspects of change in law treatment continue to evolve. It is natural for a reform of this scale to go through phases of clarification. For the framework to stabilise and continue delivering efficient prices, responsibility lies with all stakeholders. Utilities, developers, regulators, policymakers and courts, especially, shape how risks are understood and allocated. Decisions taken in areas such as trade, taxation, water or environment may not be part of core power regulation. Yet, they can materially affect long-term electricity contracts.
A pragmatic and balanced approach to interpreting change in law provisions is therefore important. Competitive bidding has served consumers well and remains central to India’s power sector reform. Preserving that achievement requires consistency, clarity and coordination across institutions. Efficient price discovery depends not only on disciplined bidding at the outset, but also on the predictable treatment of policy assumptions over the life of the contract, particularly by the central and state governments, regulators, and, more importantly, the higher judicial court’s adjudication. letterschd@hindustantimes.com
The writer is a retired Haryana-cadre IAS officer. Views expressed are personal.
