Author: Sarita Chaganti Singh, Sudarshan Varadhan
NEW DELHI/SINGAPORE (Reuters) – India’s Solar Energy Corporation (SECI)’s Sept. 15, 2021 move was unexpected. The federal agency tasked with developing the solar energy sector wanted to know whether the southeastern state of Andhra Pradesh would like to sign India’s largest renewable energy contract.
Two years earlier, the Andhra Pradesh regulator in its 10-year forecast had said the state had no short-term need for solar power and should focus on other renewable energy sources that could provide round-the-clock power.
However, just a day after SECI approached the state government, the 26-member cabinet headed by Chief Minister YS Jagan Mohan Reddy gave preliminary approval to the deal, according to cabinet records seen by Reuters.
Although SECI’s Sept. 15 letter did not name the energy supplier, it was widely known at the time that the federal agency had entered into contracts with only two suppliers, the larger of which was controlled by billionaire Gautam Adani, according to previous statements by both companies. .
By November 11, the state government had obtained approval from the power regulator. On December 1, the state authorities signed a procurement agreement with SECI, which may ultimately be worth over USD 490 million per year.
According to documents related to the contract, verified by Reuters, as many as 97 percent of this will go to Adani Green, the renewable energy unit of the billionaire’s Adani Group conglomerate.
The news agency spoke to a former state power regulator and energy law expert who said that the 57 days between SECI’s approach to the state government and the approval of the Andhra Pradesh Regulatory Commission (APERC) for the 7,000 MW deal passed extremely quickly, although time frame as such offers may vary.
The solar deal is currently being investigated by U.S. prosecutors, who in November charged Adani and seven other executives with their alleged involvement in a bribery and securities fraud scheme involving several Indian states and one territory.
US prosecutors allege that the defendants offered an unnamed Andhra Pradesh official $228 million in exchange for ordering the state’s electricity distribution companies to purchase solar power supplied to SECI by Adani Green.
Reuters reviewed 19 state government documents, many of which had not been previously reported, and interviewed more than two dozen state and federal officials about the deal, as well as independent energy and legal experts. Most people spoke on condition of anonymity due to the sensitivity of the matter.
Together they paint a picture of how political leaders rejected the advice of finance and energy officials to approve the massive Adani deal. Some officials have publicly described the contract as having the potential to strain state coffers, potentially costing taxpayers thousands of megawatts of power that Andhra Pradesh doesn’t need.
Adani Green did not respond to Reuters’ questions about alleged corruption or the speed of the approval process. The Adani Group had earlier described the allegations as “baseless”.
SECI told Reuters in a statement that it is up to states and their regulators to decide how much power to buy. She refused to answer other questions.
The office of Reddy, who was not named in the U.S. indictment and lost power in this year’s elections, referred Reuters to a Nov. 28 statement in which he denied bribery and justified the deal on the grounds that it provided free energy to farmers. Reddy’s office declined to answer other questions.
A spokesman for Reddy’s party said after the story was published that state energy officials had carefully reviewed the contract. The official said Andhra Pradesh has signed a good deal as solar power prices have not dropped significantly from 2021.
APERC, which regulates state-owned energy and was responsible for due diligence on the deal, did not respond to repeated requests for comment on its processes and the U.S. allegations.
The current state government also did not respond to requests for comment.
DUE DILIGENCE
He told Reuters that for most of September 15, 2021, then Energy Minister Balineni Srinivasa Reddy was unaware of any potential solar deal.
However, slow in the evening he received a call from an unknown person in his office about a proposal that required his signature and was to be discussed in the cabinet the next day, said Srinivasa Reddy, who joined a rival party this year.
He had “never before” been in such a hurry to approve documents, he said, and he had not been given “details or time to study this matter.”
Srinivasa Reddy stated that he signed the agreement after being assured by a senior official in his department, whom he also did not identify, that SECI was a party to the agreement. He said he had “no idea the supplier was Adani”.
Srinivasa Reddy, who declined to comment, was the top government official in Srinivasa Reddy’s department at the time. Reuters was unable to determine whether Reddy had consulted him or provided assurances about the deal.
According to the minutes of the cabinet meeting, the next day the government approved the transaction “in principle”, which allowed the regulatory process to be accelerated.
On October 21, the Andhra Pradesh Power Coordination Committee (APPCC), which was entrusted with the task of examining the deal after initial approval, submitted a report recommending the deal.
The commission was set up by the state government to coordinate the activities of state distribution companies; its members include top state energy officials and company executives.
Seven days later, the Andhra Pradesh government formally committed to purchase 7,000 megawatts from SECI.
In doing so, she bypassed the advice of officials from the finance and energy departments that the contract was not a good value.
On October 28 – the same day as the cabinet meeting that approved the deal but before it was given the green delicate – the Department of Finance submitted a statement to the government saying that there was a trend in the industry towards falling solar prices and that future deals were likely to be cheaper, according to cabinet minutes.
Andhra Pradesh was found to have an impact because the government is the buyer, which provides assurance to the supplier that default will be unlikely.
The State Treasury also questioned the duration of the 25-year contract, especially since – according to the protocol – deliveries were to start only in 2024. The Treasury said it believed costs could continue to fall in the period between contract agreement and energy delivery.
The Department of Energy agreed with the Treasury’s advice.
The minutes of cabinet deliberations do not document any discussion of the concerns of the finance and energy departments, other than to state in the minutes that the government “duly rejected the financial consideration.”
As per the agreement, Andhra Pradesh will pay Rs 2.49 per kilowatt hour once the solar power is commissioned.
Spokesman Adani Green told Reuters that deliveries would be delayed beyond 2024, citing delays in “network availability.”
However, an analysis released by the office of Prime Minister N. Chandrababu Naidu, who ousted the Reddy government in this year’s elections, said the state would likely have to pay more because the deal did not include some taxes and duties that are usually included in such calculations.
A state official familiar with the matter said Andhra Pradesh would likely pay as much as 23% of the price agreed in the Adani deal, after taxes and duties.
Andhra Pradesh is currently seeking to suspend the deal in the wake of Gautam Adani’s accusation. An official told Reuters that a decision could be made by the end of the year.
If the Adani deal goes through, the treasury would be directly burdened with solar bills running into the hundreds of millions of dollars a year, according to a Reuters review of contract documents. Annual payments to Adani once electricity supply is fully operational will be approximately equal to state spending on social security and nutrition programs for the previous fiscal year.
($1 = 84.8380 Indian rupees)
