Clean energy project cancellations: Andhra faces global arbitration threat

File Photo of Andhra Pradesh CM YS Jagan Mohan Reddy. Source: PTI
Leading global financiers have warned the Indian government, through the Ministry of External Affairs (MEA), that they might drag Andhra Pradesh (AP) to international arbitration for cancelling clean energy projects. These were scrapped by the state government in July, citing wrongful bidding.

Sources in the government said several countries had reached out the MEA, expressing concern and indicating global legal action if the issue was not addressed soon. 

Nearly 7,000 Mw of solar and wind power projects face cancellation in AP, putting more than Rs 40,000-crore investment in danger. The investors are apprehensive AP will set a precedent for other states. 

Japan, Abu Dhabi, Canada, the US, and Singapore have funded projects through their sovereign and pension funds or their companies have set up projects in the state. Earlier, ambassadors of these five countries wrote to the Union Power Minister R K Singh, expressing concern over the cancellation of solar and wind power projects.

SoftBank Energy of Japan has 350 Mw of solar projects in AP. The Japan International Cooperation Agency, which is government-owned, has also lent to several renewable energy companies in India. 

Several other global financiers which have exposure in AP are IFC (World Bank), Brookfield, Goldman Sachs, Abu Dhabi’s sovereign fund Abu Dhabi Investment Authority, the Canadian pension fund, and the Asian Development Fund.

Some officials said most renewable power-purchase agreements (PPAs) did not have a clause for international arbitration. “So these countries will need to find the regulations wherein they can hold the government responsible,” said an official. 

The PPAs of AP could not be accessed. International commercial arbitration allows for resolution of dispute between two parties and avoidance of national courts. 

The YSR Congress government in Andhra Pradesh in July formed a high-level negotiation committee (HLNC) to “review, negotiate and bring down” the tariff of all renewable power projects that had been given by the previous Telugu Desam Party government. It cited the poor financial health of its discoms for the revision. As the companies protested against this decision, the state government curtailed the purchase of renewable power.

Renewable power project developers in the state moved the Andhra Pradesh High Court, which upheld the companies’ position. In an order on September 24, the court dismissed the HLNC. 

It also said: “The respondents (state government) are directed not to take any coercive step of any nature including curtailing production, stopping evacuation or the like except after giving due notice to the generators.”

Despite that, the state has continued to curtail power purchase from renewable projects. The government has filed a review petition before the high court against its earlier order. 

The renewable power project developers also moved the AP Electricity Regulatory Commission (APERC) against the government.

Amidst all this, payment to project developers is also stuck for over a year now. The total dues of states to renewable power projects was Rs 11,000 crore, of which AP has lion’s share of Rs 2,500 crore. 

“Such payment delays (in AP and Telangana), along with uncertainty over resolution of tariff issue for projects (in AP) and instances of grid curtailments have adversely affected the credit profile of wind and solar power projects,” said Girishkumar Kadam, sector Head and vice-president, corporate ratings, ICRA.

CRISIL in a recent report on the Indian renewable energy sector said the ongoing issue of tariff renegotiation in AP, along with prolonged payment delays not, only set a negative precedent, but also put at risk existing and planned investments.

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