Home >Industry >Energy >Centre may invoke Electricity Act to protect investor interest in AP
Experts say any political interference will lead to depletion of confidence among investors. (Pradeep Gaur/ Mint)
Experts say any political interference will lead to depletion of confidence among investors. (Pradeep Gaur/ Mint)

Centre may invoke Electricity Act to protect investor interest in AP

  • NDA aims to ensure that the Andhra govt does not walk out of the PPAs signed by the previous regime
  • The Act states that power offtake can only be curtailed for safety reasons

The National Democratic Alliance (NDA) government is looking to ensure that Andhra Pradesh chief minister and YSR Congress Party (YSRCP) chief Y.S. Jagan Mohan Reddy does not default on payments to clean energy developers.

The Centre has pulled out all stops to impress upon the state government not to cancel the power purchase agreements (PPAs) inked by the previous Telugu Desam Party (TDP) government.

As part of its move, it also plans to take legal recourse under the Electricity Act of 2003, which states that power offtake can only be curtailed for safety reasons.

The Centre has directed Power System Operation Corp. Ltd (Posoco), which oversees India’s electricity load management functions, to see if Andhra Pradesh is backing down on electricity procurement because of grid safety, and has asked it to prepare a report on this.

“In the event of the state government doing so for reasons other than grid safety, it will have to pay for the power contracted for according to the PPA," said a senior Union government official, requesting anonymity.

The national load despatch centre (NLDC) helps Posoco fulfil its responsibilities. While the regional load despatch centres (RLDCs) responsible for maintaining grid discipline, supervising optimum scheduling and delivery of electricity in their regions function under Posoco. State load despatch centres (SLDCs) usually act as part of state governments. The country has 33 SLDCs, five RLDCs—for the five regional grids—and one NLDC.

Experts said the Union government’s plan has merit. “A PPA is a contractual document, which, after execution by the parties, can be dealt with only according to the terms of the agreement and extant laws. Any political interference will only lead to depletion of the confidence of investors," said Chandan Mishra, an independent power sector expert.

“Second, the law today provides for a must dispatch scenario for all renewable generation. Even the Act allows for the load despatch centers to act to backdown scheduled generation only in the case of grid insecurity / instability," Mishra added.

“Investment in the energy sector is long-term and investor interest needs to be protected to maintain the flow of capital. The Electricity Act and regulations provide such a framework and these will be legally tested during situations where one party refuses to honour legally binding contracts," said Debasish Mishra, partner, consulting, Deloitte.

Investors, including Japan’s ambassador to India, had expressed concerns over the Andhra CM’s controversial decision to scrap PPAs signed by his predecessor, as it could bring 5.2 gigawatts (GW) of solar and wind energy projects, with an estimated debt exposure of more than 21,000 crore, under stress.

“The Andhra Pradesh chief minister is of the view that his predecessor Naidu indulged in corrupt practices and got into PPAs at higher tariffs. We are examining it. We are saying that if you have any evidence in any particular case, you initiate legal proceedings. However, you can’t open all PPAs en-masse. If you do this, nobody will come and invest," the government official added.

“Power supply can only be curtailed for reasons of safety. Now, if anybody curtails power supply without that reason then he will have to pay that entire cost of power in line with the PPA. Once the Posoco report comes, the Union power ministry will write to the state government stating that if the backing down of power is not on account of grid safety, it will have to pay the entire cost."

This comes at a time when India’s emerging green economy is expected to require investments of around $80 billion till 2022, growing more than threefold to $250 billion during 2023-30. India has become one of the top renewable producers globally with ambitious capacity expansion plans.

A senior Andhra Pradesh government official who didn’t want to be named countered by asking, “Where is the money with the state to pay? Andhra Pradesh has the highest industrial tariffs in the country. In such a scenario how can we attract investors?"

“We are willing to renegotiate the PPAs and already have a figure in mind. We are comfortable with a tariff of 2.44 per unit. Let’s see what is the mutually acceptable tariff after the final negotiations with the developers,"the official said.

The Andhra Pradesh government has, however, softened its stand and clarified that they will not open all PPAs, but only in those cases where malfeasance is established. Andhra Pradesh has around 7,700 mega watt (MW) of solar and wind projects.

“People have faith in the Indian legal system and that is why we don’t see that this would affect our future bids. The Indian renewable energy sector is supported by investments from across the globe. Our stand is very clear. Any legal contract that has followed the due process can’t be negated unless a malafide or corruption case is established," new and renewable energy secretary Anand Kumar had earlier told Mint.

Some of the largest overseas investors in India’s green economy include Canada Pension Plan Investment Board, Caisse de dépôt et placement du Québec, Singapore’s GIC Holdings Pte Ltd, Abu Dhabi Investment Authority, the UK government’s CDC Group, French energy firm Engie SA, and Japan’s JERA Co. Masdar-owned by Abu Dhabi government’s sovereign wealth fund Mubadala Investment Company is also scouting for opportunities here.

“Already people are very shaky. A majority of our funding in the sector comes from overseas. There are pension funds involved. They are very touchy. So, it has to be very safe," the Union government official said.

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