Australia Canada China India Japan Korea United States

Asia-Pacific Partnership Buildings and Appliances Taskforce

International Workshop to Promote the Integration of Energy Efficiency in Public Procurement

July 13-14, 2007 Hotel Imperial, New Delhi, India

Hosted by the Indian Bureau of Energy Efficiency with support from The Asia Pacific Partnership (APP) US State Department (USDOS), US Environmental Protection Agency (USEPA), US Agency for & International Development (USAID).

Purpose of Workshop

The primary purpose of workshop is to assist BEE in initiating the process for promotion of energy efficient purchases in all Government Departments. The presentation and discussion of experiences of the US, China, India and other APP member countries will also serve as an important input to the development of a handbook of good practices for market transformation to promote diffusion of energy efficient products. A background note on APP is at Annexure-I

Indian Situation

In India, different procurement rules apply at the Central level, in the states and territories, to the central public sector units, and to public sector enterprises. At the Central level, procurement is regulated through executive directives. The General Financial Rules (GFR), issued by the Ministry of Finance, lay down the principles for financial management, and - in chapters 6 and 8 - broad rules and procedures for the procurement of goods and services and for contract management. The Rules were revised in 2005 to provide greater flexibility while ensuring accountability in government transactions. The basic principles that these rules and regulation seek to introduce in the public procurement process are:

  • (a) Adequate information and announcement
  • (b) Transparency of bidding as well as evaluation process
  • (c) Accountability
  • (d) Non-restrictive bidding conditions to unlock market
  • (e) Non-discriminatory practices to provide equality of opportunity.

A Manual on Policies and Procedures for Purchase of Goods has been published to assist the procurement entities and their officers in procurement. An important number of instructions, issued by the Central Vigilance Commission (CVC), supplement these regulations, particularly since 1998 to bring in greater transparency and accountability. Specific sectoral procurement regulations exist in some areas, such as defense procurement.

At the Central level, procurement is administered by the individual government agencies. These agencies may issue more detailed instructions in conformity with the Rules; the individual procuring agencies are also responsible for developing their own handbooks, model forms, and model contracts. Most of these agencies have already developed model tender documents. Certain control and oversight functions are carried out by central authorities such as the Comptroller and Auditor General and the Central Vigilance Commission (CVC).

As public procurement in India is decentralized, all States/Public Sector Units have their own procurement organizations. In order to enable smaller public organizations, who do not have the capacity and capability to undertake such an elaborate exercise, to comply with the process, agencies like DGS&D, Kendriya Bhandar, NCCF have been in existence. These agencies provide demanded goods and services through a rate contract system of suppliers/ service providers. The Rate Contract Scheme is like the Framework Agreement used widely in countries like the UK, USA and Europe. Earlier the DGS&D had a major role in government procurement, but as part of liberalization, this has been largely decentralized. No centralized data on Central Public Procurement Offices at the Union and State levels is maintained.

Procurement of Energy Efficient Products

The Indian Government Sector (central, state, and municipal) presents a substantial opportunity for energy savings. The total planned annual energy-related expenditure for 2007-08 is $15.75 billion, which will include expenditure on capacity addition, energy distribution, implementation of various programs and procurement of energy-related products.

The Government Sector can mandate the purchase of energy-efficient and/or environmentally friendly products. This is important to allow government organizations to lead by example and be a catalyst for market transformation by using its substantial purchasing power to create a market for energy-efficient products. In addition to creating a market, the policy to procure energy-efficient products reduces energy costs without compromising quality.

Carefully orchestrated government purchase programs in which Governmental organizations create the complete framework enabling energy-efficient procurement of products can reap significant cost savings through bulk procurement contracts with leading vendors and manufacturers of energy-efficient products. Some state agencies serve as the procurement arm for other government units within the states. If energy-efficient products are on the approved list, the resulting cost and energy savings can be enormous.

Current Obstacles and Solutions

Despite the large savings potential for energy-efficient government purchasing, there are a number of obstacles to success. Some have to do with the core goals of public purchasing: to promote transparency (reduce corruption), lower the costs of routine purchasing, ease of placing orders, and simplify the process where possible. These barriers may make purchasing departments resistant to changes in procurement practices that seem to work well.

A few barriers to energy-efficient government procurement are indicated below:

1. Lack of Government Legislation:

The lack of an enabling government legislation directing (making it mandatory) government agencies to purchase energy efficient equipment based on technical criteria/specification to be set by a government agency (e.g. Bureau of Energy Efficiency in the case of India): While many states have passed Government Orders directing government organizations and Designated Customers (under Indian Energy Conservation Act of 2001), they are neither accompanied by energy efficiency specifications nor do they reference a program (e.g. BEE’s Star Rating System).

2. L1 based decisions as against life cycle costing as supplement to L1

EE products usually have a first cost comparative bias against them. L1 based decision making process places them at great disadvantages particularly in the quagmire of a plethora of rules, regulations, guidance, post-hoc audits/inspections, etc. While this leads to products or services with low first-cost, in the case of energy-using equipment this can also mean lower efficiency and increased energy and quite often maintenance cost over the life of the product. The obvious solution is to base purchase decisions on total life-cycle costs (LCC) but considering the challenges in effective a policy change so that call procurement decisions are based after conducting LCC analysis, an interim solution will be to include minimum energy performance or energy efficiency specifications for products that government departments have to purchase.

3. Enabling market for EE products by Public Procurement

The seemingly inadequate market for EE products needs a government champion. Overemphasis on first cost does not provide adequate instrumentality to stimulate this.

4. Lack of availability of EE products

This barrier is a direct corollary of the above point- market distortion in favor of EE products that public procurement could create, is absent.

5. Lack of a simple and easy to use EE Procurement manuals and Tip Sheets

It is often difficult or costly to evaluate LCC at the time of purchase. In the case USA’s Federal Energy Management Program (FEMP) - probably the most successful EE procurement program in the world, a number of tools, outreach, and purchasing aids for the government agencies (reference EE Procurement web sites of FEMP) have been created to help buyers have an understanding of the total cost of ownership (initial purchase, operation, and maintenance costs,). Sometimes training in use of the tools can help, along with easier access to data on purchase prices and energy costs - but many purchasing officials are more receptive to lists of pre-approved (energy-efficient items), with life-cycle cost used to justify exceptions, or for very large contracts.

6. Lack of awareness in procurement agencies

Business a usual approach in most government organizations, lack of awareness about the need to conserve energy and resources over a medium to long run too is a barrier. Buyers view energy-efficient purchasing as requiring technical skills or information they lack; others assume that it is up to the final user to specify the desired efficiency level. Users, on the other hand, may see their own influence as limited, believing that the purchasing office sets specifications. This role uncertainty may be more common where local officials have failed to set a clear policy or to recognize how energy efficiency can help lower operating costs.

7. Inadequate human and intellectual resources

Government purchasers frequently see themselves as facing too many decisions in too little time. This makes it hard to introduce new purchasing requirements or to get them to participate in training.

8. Inherent Disincentives for innovations in procurement

The plethora of rules and regulations that provide oversight, though well intended, has an unintended spin off of purging the process of any initiative and innovation. Post procurement audits, inspections and the tedious process associated with them have a counterproductive effect on EE procurement.

Objectives of Workshop

The workshop seeks to provide an opportunity to share experiences and lessons learned from government procurement programs across the six Asia Pacific Partnership (APP) countries, and provide advice and assistance to the Indian Government’s efforts to initiate a process for promotion of energy efficient purchases in government agencies in India. Participants will discuss key policy and logistical barriers and how they can be overcome and share ideas to forward the government procurement process in India. It will enhance understanding about the current process for procurement being followed by various Government departments in India. In addition it will:

  • Identify major stakeholders and partners;
  • Share lessons learned from successful energy-efficient procurement programs implemented in other countries in the Asia Pacific Partnership and develop consensus in India on good practices and lesson learned from the programs;
  • Distill the relevant points applicable and discuss adaptation to the Indian context;
  • Help BEE design a statute, ordinance, or policy statement requiring energy-efficient purchasing by Central and State owned Government departments;
  • Create a framework for Government Departments to lead by example through promoting energy efficient procurement;
  • Leverage the work being done under USAID’s ECO-III Program to identify opportunities and implement pilot energy-efficient government purchase programs at the state level
  • Identify the need for resources and training to promote and to institutionalize energy efficient procurement in India;

Expected Outcomes of the Workshop

The workshop seeks to bring together major stakeholders involved in the policy framework (MOF, CVC, C&AG), bulk procurement agencies (DGS&D), major public sector entities like NTPC, GAIL, NHPC, PGCIL and international experts who have implemented similar policies (Annexure-II). The expected outcomes of the workshop are:

  • A review and synthesis of good practices and lessons learned form government procurement programs in other APP countries
  • A comprehensive understanding of current procurement processes followed in India and points of intervention to develop a successful energy-efficient program
  • Identification of Government ministries and departments (central and state) as lead agencies to initiate energy efficient procurement
  • Identification of major stakeholders and their roles and responsibilities in the development of the energy-efficient government purchasing program
  • Identification and prioritization of energy-efficient products and a phased implementation plan for promoting energy-efficient government purchasing over the next three to five years;
  • Recommendations to develop an action plan for promotion of energy efficient purchases in India

Participating Agencies

  • Ministry of Power, Government of India
  • Bureau of Energy Efficiency (BEE), India
  • United States Environment Protection Agency (USEPA), USA
  • United States Agency for International Development (USAID), India
  • The National Development and Reform Commission (NDRC), China
  • The China Standards Certification Center (CSC), China
  • KEMCO, South Korea
  • Alliance to Save Energy, USA
  • Lawrence Berkeley National Laboratories, USA
  • Director General of Supplies and Distribution (DGS & D), India
  • Central Public Works Department (CPWD), India
  • ICF International, USA & India
  • International Resource Group (IRG), USA & India
  • Representatives from Ministries like Railways, Defense, etc (prospective agencies to initiate the EE procurement process)
  • Independent Experts (US and Indian)