The Ministry of New and Renewable Energy (MNRE) has reinstated the earnest money deposit (EMD) requirements and set it at 2% of the estimated project cost for upcoming renewable energy tenders.

It also directed the implementing agencies, which include the Solar Energy Corporation of India (SECI), NTPC, and NHPC, to set the performance bank guarantee at 4% of the estimated project cost (in cases where the procurer specifies the site) and 5% (in cases where the generator chooses the site) for all upcoming tenders.

In November last year, the Ministry of Finance had revised the performance bank guarantee for tenders to 3% of the contract value from 5%-10%.

It had also removed the EMD provision and had allowed for a bid security declaration for future tenders. In case of abnormally low bids, the implementing agencies were directed not to have additional security deposits and bank guarantee provisions.

Effect on working capital

A top executive of a leading renewable energy developer company said, “Last year, the Ministry came up with a notification that relieved the developers from submitting the EMD, and only a bid security declaration was required. Now, we will have to submit an EMD and a performance bank guarantee, which is a big amount. This will block the working capital that could be used for operational expenses. We would prefer it to be removed as the bid declaration would be sufficient. This will impact upcoming tenders.”

Echoing similar sentiments, another developer said, “Earlier, the purpose of performance bank guarantee was to promote a sense of accountability as many projects were getting stuck, and it took a while for the PPAs to be signed. The bid declaration was also good as the developers could bid for multiple projects. The performance bank guarantee was there earlier also, but it was slightly lower. I think the restoration of the EMD will have a negative impact on upcoming tenders, as the money will be stuck.”

A measure to filter serious bidders

Voicing a different opinion, another prominent developer said, “In a tender involving billions in investments and long-term infrastructure development, it is prudent to have an entry fee. Earlier, MNRE initiated to reduce the performance security deposit and removed EMD provisions to tide over the financial bottlenecks resulting from the pandemic-related disruptions. But now that the industry is getting back on its feet, the EMD provisions are reinstated.”

The developer was also of the opinion that many bids in recent times have been aggressive due to the relaxation. For entities serious about participating in the tender, a small amount in the form of EMD or performance security is not a deterrent.”

Last year in March, MNRE had announced that it was considering alternative arrangements for EMDs and performance guarantees submitted by developers to SECI and NTPC for solar, wind, and hybrid power projects in response to developer requests to ease liquidity in the sector.

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