Jagan in a Catch-22 situation over power purchase agreements

Nearly two months into governance, Andhra Pradesh chief minister Y S Jagan Mohan Reddy is facing the first serious dilemma over an issue that will test his manoeuvring skills.

The chief minister is caught in a Catch-22 situation over his government’s order to review of Power Purchase Agreements (PPAs) firmed up by the previous Telugu Desam Party (TDP) government. He can neither afford to antagonise the Centre, which is strongly opposed to the review, nor can he backtrack on the poll promise.

For Jagan, who has no prior administrative experience, the row over the PPAs is turning out to be a conflict between his sense of political correctness and the compulsions of pragmatic policy making.

PPAs are contracts between two parties, one of which generates electricity and another is looking to purchase electricity. The power sector in India is under the concurrent list of the Constitution and is administered both by the State and Central governments.

The Union government is opposing Jagan Mohan Reddy government’s move to review the PPAs inked by the previous TDP government would hamper the flow of foreign investments into the renewable energy sector.

Also read: Why Tollywood’s filmy families are yet to warm up to Andhra’s new CM

Political narrative

The alleged corrupt deals of the TDP regime formed one of the key campaign themes of the YSR Congress Party. PPAs with private producers of solar and wind power were targeted by Jagan and his party colleagues.

Soon after taking the oath as chief minister on May 30, Jagan had announced that his government would re-open the agreements and expose corruption.

On June 26, while reviewing the performance of the power sector in the state, Jagan took a dramatic decision to constitute a five-member cabinet sub-committee to probe alleged corruption involved in the signing of PPAs.

The allegation is that the TDP government had purchased solar and wind power at exorbitant rates from select companies, ignoring the cheaper rates quoted by others in competitive bidding.

Centre red-faced

However, the issue threatens to set Jagan on a collision course with the Centre as the latter raised serious objections over the move. The Union Minister of State for Power and Renewable Energy R K Singh has warned that re-opening the PPAs would hamper the flow of foreign investments into the renewable energy sector, which holds key to meet environmental and power needs of the country.

According to official sources, Jagan is planning to send a team of senior officials to Delhi to brief the Centre on the circumstances which forced him to order the review.

Jagan wants to avoid the impression that his two-month-old government is at loggerheads with the National Democratic Alliance (NDA) leadership on an issue like promoting renewable sources of energy. He is expected to depute his principal adviser and former chief secretary Ajeya Kallam and the top brass of the energy utilities to the national capital soon to hold discussions with officials of the Union Power Ministry.

Also read: What next for Amaravati, the dream Andhra capital?

Politically, it may be suicidal for Jagan to antagonise the BJP leadership since the illegal assets case is still hanging over his head. At the same time, he is keen to prove that there were ‘irregularities’ in the power purchase agreements signed by the previous regime.

His argument is that the Chandrababu Naidu government had made excess payments to the tune of ₹2,636 crore to the producers of solar and wind power.

Confrontation with the Centre is certainly not an option for the chief minister as he has inherited messy finances and needs generous help from the Union government to fund ongoing projects as mentioned in the AP Reorganisation Act.

Interestingly, the Union minister has virtually ruled out irregularities in signing PPAs. In a recent letter to the chief minister, he had attached documents pertaining to bidding by the power producers and pointed out that the tariffs were fixed by the Central Electricity Regulatory Commission at national level and the State Electricity Regulatory Commission in respective states.

“Power purchase agreements are contracts binding on all signatories. If the contracts are not honoured, the investments will stop coming. For the above reasons, it will be wrong and against the law to cancel all the PPAs,” he wrote to the Chief Minister.

Only if there was prima facie evidence of corruption in the signing of any PPA, the state could order a probe and take action, Minister RK Singh pointed out. “There should be concrete evidence of malpractice in a particular case. Otherwise, the PPA cannot be cancelled,” he said.

Last month, Union energy secretary Anand Kumar had also written a similar letter to State chief secretary L V Subrahmanyam, asking him to prevail upon the chief minister to withdraw the move to cancel the PPAs. He said that the Centre had set a goal to achieve 175 gigawatts (GW) of renewable energy by 2022. Revisiting the PPAs would affect the flow of investments, he warned.

The Centre has fixed a target to states to see that at least 20 per cent of their energy needs are met from renewable sources so that the country’s dependence on imports and fast depleting coal reserves can be reduced significantly.

There are as many as 133 PPAs in Andhra Pradesh and of them, 88 were signed by the Chandrababu Naidu government between 2014 and 2018. While ordering a re-look at the PPAs, Jagan wanted legal action to be initiated against the top officials of the energy department responsible for the deals. The sub-committee, headed by Finance Minister B Rajendranath Reddy, will now re-negotiate with the solar and wind power producing companies and cancel the PPAs, if the companies did not fall in line.

The TDP leaders have alleged that Jagan’s move was aimed at discrediting the previous government and punish private power developers who had invested in Andhra Pradesh responding to the call given by Naidu.

Naidu himself clarified that the PPAs were signed taking into consideration both the fixed costs and variable power charges prevailing at the time. “It is ridiculous to say that special favours were extended to the power developers,” Naidu said.