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Saturday, January 8, 2011

Financial Management & Power Sector Series_Bidding assumptions

Generally in a tender involving multiple year supplies, assumptions about inflation, operating efficiency changes etc are vital. In nearly all tenders, the bidder runs the risk of wrong estimation but in the power sector there is too much at stake.

If a bidder(for power project) cannot complete a project due to under-costing, everyone loses. Also, there are many technical details at play. The regulator who scrutinizes all the firms may be in a better position than the bidding firms,  to estimate the various variables for bidding. That is why the CERC itself notifies the various rates to be used for bidding evaluation and payment. In the interest of transparency, the detailed methodology of calculating these rates is also mentioned so that people who differ, can use their own internal rates. For anyone with an interest in macroeconomics/financial management, the methodology document is a goldmine.

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