The Centre is considering restriction of coal supplies and all sanctioned loans and funding to Andhra Pradesh from central public sector units (PSUs) such as Power Finance Corp. Ltd (PFC) and REC Ltd, if the state government refuses to reconsider its decision to revise renewable energy contracts, according to two people aware of the development.

Such a measure is likely to be adopted in case of all states that renege on power purchase agreements (PPAs), as such moves send a negative signal to international investors and imperil India’s ability to attract overseas investments.

“This is not specifically targeted at Andhra Pradesh but will be applicable to every state that takes recourse to such a path," said a senior union government official, one of the two people cited above, requesting anonymity.

“If they (Andhra Pradesh or other states) don’t do so, there are so many ways to control. The sanctioned funding from PFC and REC for working capital towards discoms can stop. Their coal linkages for power projects can also get regulated. In that scenario, they won’t be able to generate electricity from their coal-fuelled power projects. They have been made aware of this," said the official.

Electricity distribution companies (discoms) are the weakest link in the electricity value chain, plagued by low collection, increase in power purchase cost, inadequate tariff hikes and subsidy disbursement, and mounting dues from government departments. Indian discoms owe 80,798 crore at the end of October for power bought from generation companies (gencos).

Mint reported on 2 January about state-run NTPC Ltd offering to buy 300MW of green power from Andhra Pradesh to broker a truce. The state owes 20,000 crore to all power generators.

Andhra Pradesh has around 7,700 megawatts (MW) of solar and wind projects and is home to India’s second-largest installed capacity of clean energy, accounting for around 10% of the country’s green energy capacity, with investments of 60,000 crore. The state has 4,092MW of installed wind power projects awarded through feed-in tariffs. Also, the resource-rich state has 3,230MW of solar power projects awarded through competitive bidding. Andhra Pradesh’s energy secretary N. Srikanth didn’t respond to a message and phone calls till press time. A spokesperson for the ministry of new and renewable energy (MNRE) didn’t respond to Mint’s queries emailed on Sunday. “As a principle, such a measure can’t be made state-specific but should be applicable to everyone. Given that electricity is in the concurrent list, the Centre must have some powers to exercise in the case of a state reneging on its commitments," said another government official, the second person cited above, who also did not want to be named.

The Union government has been trying to find a solution to the issue given that marquee investors such as Goldman Sachs, Brookfield, SoftBank, Canada Pension Plan Investment Board, CDPQ, JERA Co., GIC Holdings Pte Ltd, Global Infrastructure Partners, CDC Group Plc, EverSource Capital and World Bank’s International Finance Corp. have invested in the state’s clean energy space.

“They (Andhra Pradesh) are receptive of the idea and have understood our intent," said the first government official quoted above.

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