The Power Grid Corporation of India Limited (PGCIL), a government-owned company engaged mainly in the transmission of Power, has issued new performance security guidelines.

According to the existing guidelines, the contract performance guarantee value is 10% of the contract price. Recently, the Ministry of Finance (MoF) issued a notification revising the performance security deposits for tenders to 3% of the contract value from the previous range of 5%-10%. This move is expected to help entities execute contracts and projects on time amid the COVID-19 induced economic slowdown.

Considering the government guidelines for reducing performance security, the contract performance guarantee for transmission projects under PGCIL will be reduced to 3% of the contract price. This new rule will apply to all tenders and contracts issued by December 31, 2021. The reduction in performance security will continue for the contract’s whole duration and even beyond December 31, 2021.

In the case of existing contracts, the change in performance guarantee to 3% will be incorporated as an amendment to the contract with the appropriate authorities’ approval.

The reduction will apply to all performance securities, including additional performance securities submitted by the main contractor or their associates. Further, the performance security submitted by the parent company or collaborator, or manufacturer in line with the bidding conditions will also be reduced to 3% of the value defined in the respective contracts. If the performance security is less than or equal to 3% of the contract value, the performance security will remain at the same level. This new rule will also apply to cases where options of withholding the retention money in place of performance guarantee or a combination of both are provided for.

The security amount reduction will not be applicable for contracts under dispute, where the legal proceedings have already started or are being contemplated. It will also not be applicable if the losses incurred by POWEGRID exceeds the aggregate of the balance amount due to the contractor and reduced performance guarantee of 3%.

PGCIL notes that wherever there is a compelling reason for performance bank guarantee above 3% in future transmission tenders, it would be done only with the approval of the next higher authority to the authority competent to finalize the particular tender.

Previously, Mercom had reported on the topic of stranded EMDs and PBGs and how they have been adding to developers’ liquidity problems. These costs, coupled with delays and extensions of tenders, have tied up millions in the form of bank guarantees.

Earlier this year, it was reported that the Ministry of New and Renewable Energy was considering alternative arrangements for earnest money deposits 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.