With the bagging of the Power Finance Corporation’s huge project by being the lowest bidder, Sterlite Energy has broken decades-long monopoly of the PowerGrid Corporation, which is run by the government.

In all, 8 companies – including Reliance Power Transmission Limited (RPTL), of the Anil Ambani Group, and Essar Power – had taken part in the bidding process for 3 ultra-mega-transmission projects (UMTP) that are totally worth Rs 5,650 crore.

Sterlite Energy Limited is the lowest bidder for one of the 3 projects – the East-North Interconnection System, of the Power Finance Corporation. The lowest bidders for the two other power transmission projects have not been announced.

It was in 2008 that the Rural Electrification Corporation (REC) and the Power Finance Corporation (PFC) had commenced the process of awarding the 3 transmission projects: the North Karanpura Transmission System, the Talcher Augmentation Transmission System (Talcher-II), and the East-North Interconnection System.

Altogether, 13 companies responded to the request for qualification the stage for the Talcher Augmentation Transmission System (Talcher-II) and the North Karanpura Transmission. A total of 16 companies expressed interest in the East-North Interconnection System.

While the REC Transmission Projects, the wholly owned subsidiary of the Rural Electrification Corporation, invited bids for the first two projects – the Talcher Augmentation Transmission System (Talcher-II) and the North Karanpura Transmission System – the Power Finance Corporation’s East-North Interconnection Company invited bids for the development of the East-North Interconnection System.

Sterlite Energy Limited is a part of the London-listed Vedanta Resources PLC. Vedanta Resources, a major metals and mining company, undertakes mining of copper, aluminium, iron and zinc ore in India, Zambia and Australia.

Sterlite Energy Limited, a subsidiary of Sterlite Industries (India) Limited, was set up to develop, build and operate power plants in India.

It was after the Union Ministry of Power allowed the entry of private companies in extra-large power transmission projects that private players started participating in ultra-mega-power projects (UMPP).

Already, the Central Government has identified 14 projects for power transmission, to be developed under the tariff-based competitive bidding mode. The development of all the 14 projects is to be awarded on the ‘build-own-operate’ basis.

This is Reliance Power’s third contract in a row, after Sasan in Madhya Pradesh and Krishnapatnam in Andhra Pradesh.

Reliance bid for an amount of 1.77 Rs. per unit, leaving behind other competitors like NTPC who bid for 2.34 Rs. per unit and Jindal Steel and Power Limited who bid 2.67 per unit. The other bidders included Vedanta group and Sterlite and Lanco. The bid by Reliance Power as per analyst is a very aggressive bid as the gap between the top two is comprehensive, although this bid is bigger than the 1.19 per unit made for the Sasan project.

Initially, eleven companies were qualified for the Tilaiya UMPP project, but due to the continuing worldwide slowdown credit crisis saw many back away from the bid. Those who backed out include companies like Tata Power, Essar Power and Larsen & Tubro.

“Given the turmoil in the global markets, it would take more time before conditions are conducive for financing such large projects,” Lanco Infratech which withdrew from the bidding said in a statement to the Bombay Stock Exchange after coming out as the highest bidder.

The Tilaiya project is assumed to be cheaper than the Sasan project as there is a slide in steel price and the ease which Jarkhand coal mines provides. The project will use domestic coal which will be mined from a captive expanse that will be allocated for the project developers. The complete project will cost somewhere around 16000-17000 crores with a debt equity ratio of 70:30.

The coal mine in Jharkhand is estimated to have 972 million tones of coal reserves which is 86% more than what is required for the plan and will help the project all the more. Reliance Power will need to dig 2 tones of earth to mine out 1 tone of coal.

An I-sec report recently said that any tariff of above 1.70 per unit will be a profitable bid which will also be helped by low input costs.

“We expect the contract to be signed in a month,” the PFC official said. The bids were started by a high-level committee inclusive of representatives from the governments of Bihar and Jharkhand

Once the results are out officially the Reliance Power will be officially making use of the services provided by the Jharkhand Integrated Power limited, as they will be equipped with special purpose vehicle for the Tilaiya project.

The government intended to complete the bidding of Tilaiya UMPP project before June 2007 and give away 5 other UMPP’s over the next few months which could be delayed now due to issues like establishment of an appropriate site, access to water resource and other mandatory clearances.

India needs to spend $600 billion on adding capacity to meet electricity demand, which may triple to 335,000 megawatts by 2017 if the country’s economy maintains its current pace of growth, McKinsey & Co. said in June 2008.