In December 2021, the Andhra Pradesh government entered into a significant power purchase agreement (PPA) to procure 7,000 MW of solar power from the Solar Energy Corporation of India (SECI) at a rate of Rs 2.49 per unit for 25 years. However, this agreement has come under scrutiny following allegations that the Adani Group paid bribes to state officials to secure the deal. These claims, raised by the US Securities and Exchange Commission (SEC), have prompted the Andhra Pradesh government to re-evaluate its position on the PPA.
Allegations of Bribery and Their Impact
The allegations suggest that the bribes were paid during the tenure of the YS Jagan Mohan Reddy-led government. With the current N Chandrababu Naidu-led administration in power, there is increasing pressure to act on these allegations. The state government, under Finance Minister Payyavula Keshav, has confirmed that a thorough review of the agreement is underway. The state cabinet is expected to discuss the matter on December 3 and explore possible actions, including the cancellation of the deal. Additionally, the government is examining internal files from the previous administration to understand the full extent of the issue.
The Power Purchase Agreement’s Terms and Delays
The PPA was structured in phases, with Adani Green Energy slated to supply 3,000 MW starting in 2024, and additional supplies of 3,000 MW and 1,000 MW by 2026. However, the delivery of power has been delayed due to issues related to the transmission infrastructure by the Central Transmission Utility of India. Despite the delays, Adani Green Energy has been selling power from the same project at a much higher rate of Rs 3.50 per unit on the open market, raising questions about the execution of the contract.
Reviewing the Options: To Cancel or Not to Cancel?
The Andhra Pradesh government now faces three main options. The first is to approach SECI and request the cancellation of the agreement while pushing for an investigation by a central agency. The second option is to put the deal on hold while a state-appointed committee conducts an inquiry. The third option involves completely annulled the contract, which could lead to legal complications involving SECI and the Andhra Pradesh Electricity Regulatory Commission, which approved the procurement plan.
Financial and Legal Implications of Cancellation
Cancelling the agreement would have serious financial consequences. If the state were to void the PPA, it would need to procure power from the open market, where prices are higher—around Rs 3.50 per unit. This could lead to an additional cost of Rs 2,800 crore annually for the next 25 years. Such an increase in expenditure would strain the state’s finances and potentially result in higher electricity costs for consumers.
Political Considerations in the Decision
Political factors also play a significant role in the decision-making process. The TDP government may see this as an opportunity to politically target the previous YS Jagan Mohan Reddy administration, especially if the bribery allegations are substantiated. However, the TDP’s alliance with the BJP complicates matters, as the Adani Group is known to have close ties with the Modi-led NDA government. Cancelling the deal could therefore create tensions within the political landscape and send the wrong signals to investors.
