MNRE is considering alternative arrangements for earnest money deposits (EMDs) and performance guarantees (PBGs) submitted by developers to Solar Energy Corporation of India (SECI) and the National Thermal Power Corporation (NTPC) for solar, wind and hybrid power projects in response to developer requests to ease liquidity in the sector.
Currently, EMDs ranging between Rs. 400,000/MW to Rs. 1 million/MW plus 18% Goods and Services Tax (GST) are being collected from the developers along with their bid. This is generally in the form of bank guarantee valid up to 9 months from the date of bid submission
MNRE is now proposing two alternatives to the prevailing EMD practice. The first alternative is giving a letter of comfort from the Indian Renewable Energy Development Agency (IREDA) or a similar agency. The second alternative is providing EMD in the form of a corporate guarantee. This will be with the condition that if the corporate guarantee is not honored, the agency implementing the bid process can blacklist the defaulting bidder for three years from the date of bidding. In essence, this would mean expelling such a bidder from participating in any tender issued by the agency during the three years that it is blacklisted. This blacklisting or expelling would include its subsidiaries, affiliates, group companies, parent company and any other company which has on its board directors common to the defaulting company.
When it comes to PBGs, they are to be deposited once the project is allocated, and PPAs are signed. PBGs are an irrevocable unconditional bank guarantee deposited by solar power developers to SECI/NTPC after 30 days from the date of issuance of the letter of intent. These are mandated to be valid for around six months beyond the commercial operation date (COD) of the project.
MNRE again has proposed two alternatives to replace the current practice of PBGs. One is a letter of comfort from the Indian Renewable Energy Development Agency (IREDA) or a similar agency.
The second is a renewable energy developer pledging promoter’s equity in the special purpose vehicle (SPV) for the operating project to the procurer or the intermediary procurer, as relevant. The book value of the unpledged portion of the equity value, which is duly certified by its statutory auditor, should be 1.2 times the amount considered for PBG. Additionally, the developer should also pledge the unencumbered revenue stream concerning the free cash available based on certified numbers from the past two years. Such revenue must be from his already commissioned projects where the power is bought by the same procurer.
For the pledging as described above, the renewable energy developer has to get the obligatory no-objection certificate (NOC) from the secured lender so that the procurer can create a second charge on the assets of the related renewable energy project.
