To enforce PPAs, the tribunal will have a legal framework to recover money owed, even by attaching assets
The Centre has repeatedly cautioned the AP government against scrapping the power purchase pacts
New Delhi: The Union government plans to set up a new tribunal solely to enforce power purchase contracts, power and new and renewable energy minister Raj Kumar Singh said, creating an additional legal safety net for investors.
The National Democratic Alliance government, which is facing investor criticism over a controversial attempt by the Andhra Pradesh government to renegotiate clean energy tariffs with developers, plans to amend the Electricity Act of 2003 to create the tribunal that will be headed by a retired judge.
The tribunal will also deal with contract issues where electricity distribution companies (discoms) don’t buy the full quantum of electricity agreed upon in the power purchase agreement (PPA). It will function in addition to the Appellate Tribunal for Electricity and regulators such as the Central Electricity Regulatory Commission and respective State Electricity Regulatory Commissions.
To enforce a contract, the tribunal will be armed with powers that include a legal framework to recover the contract value of money owed, even by attaching property.
“A draft is almost ready, I believe. I propose to bring the amendment as soon as possible, providing for a tribunal which will be specifically for the enforcement of contracts in the field of energy," Singh said in an interview.
Mint reported on 18 November about the Centre exploring a law to protect investments affected by state governments’ decisions to scrap contracts. The Union government has pulled out all the stops to try and prevent the Y.S. Jagan Mohan Reddy-led state government from cancelling PPAs inked by the previous Telugu Desam Party government.
“They can’t do that. For this, you need actually a judicial forum, so it has to be headed by a judge. This forum will come to a finding that a valid contract subsists," Singh said. “Under that contract, party X has following obligations and party Y has the following obligations. And if any of the parties don’t follow those obligations, this tribunal will pass orders and it will be clothed with powers to enforce those obligations."
There will be one tribunal and possibly a number of benches, with every bench having one judge and one technical member.
The proposed amendment comes at a difficult time for India’s clean energy sector, with mounting dues to generators threatening to dent India’s image as a clean energy champion. With record low solar and wind power tariffs, banks too have become wary of lending to renewable energy developers as they suspect the viability of such projects.
“This would require an amendment to the Electricity Act. Since all states regulators will be bound by the Act, this will ensure the sanctity of contracts," said Sunil Jain, chief executive officer of Hero Future Energies Pvt. Ltd
Finance minister Nirmala Sitharaman, in her budget speech, had hinted about further interventions to protect investments. India is running what will become the world’s largest clean energy programme, with an aim of having 175GW of clean energy capacity by 2022. It plans to add 100GW of solar capacity by 2022. India’s emerging green economy may need investments of around $80 billion till 2022, growing more than threefold to $250 billion during 2023-30.
“The regulators will continue to do what they are doing but situations like Andhra Pradesh, where somebody opens the PPAs, etc., such situations will be dealt with by this tribunal," said Singh.
The Union government wants to impress upon the international investor community about the sanctity of contracts in India amid a severe demand slowdown and liquidity crunch. Global investors in Andhra Pradesh’s clean energy space include Goldman Sachs, Brookfield, SoftBank, Canada Pension Plan Investment Board, Japan’s JERA Co., Singapore’s GIC Holdings Pte Ltd, Global Infrastructure Partners, CDC Group Plc and World Bank’s International Finance Corp.
“The draft is almost ready. It is absolutely necessary. You can’t have any investment coming into the country without the sanctity of contracts," Singh said.
The Union government has repeatedly cautioned the Andhra Pradesh government against scrapping the PPAs, as that could hurt India’s ability to attract foreign investments and the perception about the sanctity of legal contracts.
“A contract has a number of obligations on both parties," Singh said. “So far as the buyer is concerned, the buyer undertakes to buy the power, which has been contracted for. And if he doesn’t do that, then he is violating the contract, and he will be coerced to receive it. Or the commensurate value of electricity, which he was supposed to take and has not taken, he will have to pay. And the tribunal will have the power to recover that money by attachment of property."
Discoms have so far been the weakest link in the electricity value chain. Poor payment records of state-run discoms have adversely affected power generation companies and contributed to stress in the banking sector.