Contract Performance Guarantee for Power Transmission Projects Reduced by Over 60%

The Ministry of Power has reduced the contract performance guarantee for tariff-based competitive bidding transmission projects by more than 60%.

The contract performance guarantee will now be charged at the rate of ₹525,000 (~$7,202)/km for the total line length and at the rate of ₹45,000 (~$617.35)/MVA for substations.

The performance guarantee so far was ₹1.35 million (~$18,520)/km for the total transmission line length and ₹112,250 (~$1,539)/MVA for substations.

The reduced performance guarantee will be applicable for all projects that are under construction. It will be valid for projects where the letter of award has been issued, but the performance guarantee is yet to be submitted, and for projects where the request for proposal has been issued, but the bids are yet to be submitted. It will also apply to projects where the request for proposal will be issued by December 31, 2021.

The reduction in the performance guarantee will be subject to the following conditions:

  • It will not be applicable for contracts under dispute where court proceedings have already been started or are contemplated.
  • The reduced performance guarantee will continue for the entire duration of the contract, and there would be no increase in the contract performance guarantee amount even beyond December 31, 2021.
  • If there are compelling circumstances to ask for a contract performance guarantee over the reduced value, it will be done only with the next higher authority’s approval.

The Ministry’s decision follows representations from transmission developers for a reduction in the contract performance guarantee in line with the Department of Expenditure’s order reducing the performance security from the existing 5-10% to 3% for all existing contracts and contracts to be concluded by December 31, 2021.

Recently, the Ministry of Power directed the state governments and the governments of union territories to relax performance security, earnest money deposit requirements for power project bids. It also asked them to refrain from demanding additional security deposits for abnormally low bids.

Mercom has previously written on the topic of stranded earnest money deposits and performance guarantees and how they have been adding to developers’ liquidity problems.

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