Andhra Pradesh chief minister Y.S. Jagan Mohan Reddy.
Andhra Pradesh chief minister Y.S. Jagan Mohan Reddy.

Central government warns Andhra Pradesh against cancelling PPAs

  • Tariffs are fixed by independent regulators and PPAs are binding on all signatories, power minister RK Singh said
  • If a clear-cut finding is made of malfeasance in signing PPAs, then they can be cancelled, and not otherwise, Singh warned

MUMBAI : The central government is attempting to steer the newly elected Andhra Pradesh government away from altering existing power purchase agreements (PPAs). In a letter dated July 9, RK Singh, Minister of State for Power and New and Renewable Energy, has asked Andhra chief minister YS Jagan Mohan Reddy to not cancel PPAs unless there is a clear evidence of corruption.

Mint has seen a copy of the letter.

“The renewable energy sector has brought a lot of foreign investment. Almost all the major pension funds of the world are invested in India through renewable energy companies," Singh said in his letter. “If the impression goes out that the rule of law does not prevail or that contracts are not honoured, then investments will dry up and growth ill come to a halt."

Tariffs are fixed by independent regulators and PPAs are “binding on all signatories", Singh said. He also said that tariffs vary from state to state depending on solar insolation for solar energy and wind speeds for wind energy and are not standard across the country. If a clear-cut finding is made of malfeasance in signing PPAs, then they can be cancelled, and not otherwise, Singh warned.

After coming to power, Reddy’s new Andhra Pradesh government decided to examine existing PPAs with high tariffs, to scrap the 960MW Polavaram Hydroelectric Power plant and to cancel an energy storage proposal for which its predecessor had invited expressions of interest. Mint had earlier reported on the 19 June discussion by the Andhra Pradesh Power Coordination Committee.

The state government has attributed the high-cost wind and solar power PPAs to the large power purchase dues from the discoms to the power generators, and thus has recommended reviewing the high cost wind and solar agreements and to negotiate and bring down the prices of wind and solar power PPAs.

However, investors and industry analysts have criticised this move, saying attempts by state power distribution companies (discoms) to renegotiate power purchase agreements will bode poorly for investors in the sector. The receivable position for wind and solar power producers in Andhra Pradesh has worsened to about 8 to 10 months as of June 2019 against less than 4 months as on March 2018, exposing the private developers in the state to higher credit risks.

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