What have we learned from EPGE’s 1060MW solar tender?

Proposals have been evaluated, preliminary winners have been selected. The focus on Myanmar’s largest ever competitive tender for renewable energy, launched in June, is now shifting to whether the winning bidders can indeed get their projects implemented, and do so within the strict time limits set out in the tender.

Much has been written about the nationality of the winners, the largest ones reportedly being the Chinese-based Sungrow Power Supply and the China Machinery Engineering Corporation Now that the competition is largely behind us, I wanted to re-examine the process and the result of the tender. Was this tender a success? What have we learned? Was the time to prepare a bid indeed too short? The original request for proposal (RFP) came out on May 18 and called for bids to be submitted by June 17. This was then extended to July 17. By then, 155 bids were received. Electric Power Generation Enterprise (EPGE) then took until September 4 to announce who passed the technical evaluation, a total of 108 bids. That’s roughly two thirds of the submitted bids.

You can’t argue that there were not enough bids. Out of 30 sites, essentially 30 projects, 27 received more than one bid. Only one site received no bids, and two sites
received a single bid. EPGE achieved a competitive situation for 27 out of its 30 projects, I would call that a success.

One month, or even two to prepare a bid for a 30 or 40 MW solar project is under any circumstance too short to be preferable. EPGE has lost some credibility with certain sponsors, especially by putting out the RFP with just one month to submit the bid. Some sponsors will have assumed the effort is not serious, or at least not sufficiently professional.

Some aspects seemed at a glance unreasonable, such as acquiring the land yourself or submitting originals during a travel ban. This has hurt the reputation of EPGE in the eyes of some but not all sponsors.

But the target group of EPGE was never “all the sponsors”. The target group for this effort was “sponsors who already have prepared many aspects of the project for
months, if not years”.

For years now, EPGE has been under siege by candidate sponsors offering to do solar projects in Magway, Mandalay, Bago, Sagaing, the same regions as were included in the tender. Investors have broken down the door for many years at building no. 27 in Nay Pyi Taw with drawings, reports and plans. It is not surprising that EPGE has assumed, in my view, correctly, that there is a large body of candidate investors who are “ready to go” and who have the necessary assets, partnerships and resources to amend an existing proposal to meet the RFP’s conditions rather quickly To safeguard its reputation among all sponsors internationally, EPGE would have done better to put out the RFP with a three months submission time. One month extra is a small price to pay for avoiding the criticism and scepticism they had to endure. But, EPGE was not wrong in its assessment. On hindsight, with 155 bids submitted, some sites having five, seven or even nine bids, they ended up being right on that front.

Are Chinese companies getting an unfair advantage? Much has been written about the nationality of the winners. Nearly all of the projects went to Chinese companies or to consortia with a Chinese company in it. Is that by [political] choice or did it just come out this way? In my experience, it is the normal commercial result of a difference in risk profile, competition between Chinese companies seeking an outlet for their manufacturing basis among increasingly rare overseas business, proximity to China and longstanding existing relationships which “the West” does not have due to past sanctions, and a forward leaning policy in Beijing to support outward projects with local money.

In direct negotiations we have seen the government award substantial projects to “western” and Japanese companies without a tender. I believe that when all else is
equal, the government prefers to have a balanced spread of investors from different parts of the world.

The dominance of the Chinese companies in the solar tender is, having been involved in preparing a dozen bids which were awarded as the preliminary winner, a result of proposing very competitive conditions made possible by assuming a different risk posture than other, more conventional bidders.

What about the tariff?

According to newspaper reports, the average tariff of the winning bids in this tender is around 4 US cents. That is remarkably close to a recent international tender for a 60 MW solar project in Cambodia.

EPGE got an even better deal than their Cambodian colleagues from Electricité du Cambodge (EDC). I say this because on the Cambodian project, the sponsors need not arrange for or pay for the land, which is a big difference with the Myanmar projects, and EDC pays for the better part in US dollars rather than the local currency.

Plus, I would consider the Cambodian power purchase agreement (PPA) perhaps more robust in many respects than the Myanmar PPA of the RFP. That being said, the Myanmar PPA is certainly not bad, but the current negotiations with EPGE to finalise the PPA are ongoing. EPGE is certainly going to pay less than their Vietnamese colleagues of EVN, who have set the solar tariff for 2020 at just over 7 US cents.

What next?

Winning a tender is one thing. But will the projects be built? And on schedule?

One of the many criticisms levelled at the RFP was the break-neck construction schedule. In this six-month period, the sponsor needs to finalise negotiations on the PPA, obtain a permit from the Myanmar Investment Commission, probably convert the land type, sign a lease contract, obtain import licenses and, of course, build the facility.

Converting the land type has long been a major obstacle to rapid project development, especially if it’s farmland. I would say that one simply cannot convert the land within a reasonable timeframe. You will need exceptional measures and shortcuts because the land laws, or at least the way they are presently applied, are just not compatible with project development requirements.

Even in normal circumstances doing all the above in six months is only possible if there are shortcuts you can take. And in the COVID-19 era, with government departments working on skeleton capacity and no way to travel within Myanmar, let alone internationally, I predict there will be plenty of force majeure moments.

Each one of those will push the commercial operation date (COD) out a little further.

So, it is very likely that the COD’s of most if not all of these projects will be delayed in any event, at least for a few months, even without sponsors dropping the ball.
Can we expect more tenders like this? Will there still be directly awarded projects?

The trend under this government is clearly towards more competitive tenders and less directly awarded projects. This trend is underscored by regulation and draft legislation pushing in that direction. But it is also clear that several important projects remain in the directly negotiated sphere. It appears there will be a role, likely a shrinking role, for unsolicited and directly awarded infrastructure projects.

This tender had some flaws and some of them are unnecessary and highly visible. But since 2012, particularly in the energy space, both the number and the quality of tenders managed solely by the government has increased very significantly.

Producing a detailed RFP with a full text draft PPA, clear comparable parameters and an fairly good apparatus of rules and documents to support the process, several rounds of written clarification and a sharply outlined objective by the policy maker are important improvements. the results speak for themselves: plenty of bids and a highly competitive tariff. You either make sure you can outcompet.

Source : mmtimes