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For forthcoming renewable energy tenders, the Ministry of New and Renewable Energy (MNRE) has reintroduced the earnest money deposit (EMD) requirement and set it at 2% of the expected project cost.
It also instructed the implementing agencies, which include the Solar Energy Corporation of India (SECI), NTPC, and NHPC, to set the performance bank guarantee for all upcoming tenders at 4% of the estimated project cost– when the procurer specifies the site and 5%– when the generator chooses the site.
In November of last year, the Ministry of Finance reduced the performance bank guarantee for bidders from 5%-10% of the contract amount to 3%.
It also eliminated the EMD clause and allowed for a bid security statement in forthcoming tenders. In the event of unusually low bids, the implementing agencies were instructed not to need extra security deposits or bank guarantee clauses.
A top executive of a large renewable energy developer business said that they will now be required to present an EMD as well as a performance bank guarantee, which is a substantial sum. This will stifle operating cash that could otherwise be used for operational expenditures, and prefers it to be eliminated.
Another developer had similar concerns, saying, “The bid declaration was also beneficial since developers were able to bid on many projects. The performance bank guarantee had previously existed, although it was somewhat lower. I believe that the EMD’s reinstatement will have a detrimental influence on subsequent tenders, since the money would be trapped.”
On the other hand, a renowned developer disagreed and thinks that a minor fee for EMD or performance security should not be a disincentive to organizations interested in participating in a long-term infrastructure project procurement involving billions of dollars in investment.
Previously, MNRE reduced the performance security deposit and eliminated EMD provisions in order to alleviate financial constraints caused by pandemic-related interruptions. However, now that the sector has recovered, the EMD provisions have been reintroduced, said the developer.
In response to developer pleas to alleviate liquidity in the industry, MNRE said in March last year that it was evaluating alternate arrangements for EMDs and performance guarantees submitted by developers to SECI and NTPC for solar, wind, and hybrid power projects.