In its fag end, the Jayalalithaa government is finally witnessing an alleged corruption-scandal breaking out in the media. In the past four years of its rule, the opposition has hurled several allegations of financial irregularities and ‘scams’ on the Jayalalithaa government, but there was little proof or enthusiasm by the media to take it up. But the questions being raised over the solar power tariff set by the Tamil Nadu state government could pose a problem for Jayalalithaa in the run up to the 2016 Assembly elections if taken up by opposition parties.
On July 18, Times of India reported that ‘questions were being raised’ over a 25-year long power-purchase contract between Adani group and Tamil Nadu government owned TANGEDCO (Tamil Nadu Generation and Distribution Corporation Limited) for a price of Rs. 7.01 per unit of electricity from a 648MW power plant to be setup in Ramanathapuram district in Tamil Nadu.
The report states that the same company was offering Madhya Pradesh government solar power at the cost of Rs. 6.04 per unit, and even that was rejected because another company was offering solar power to the MP government at Rs. 5.04 per unit. So why was the TN government accepting such an expensive proposition, especially since the TANGEDCO already has an accumulated loss of Rs. 54,000 crore? The opposition in Tamil Nadu, including DMK, PMK and TN Congress have hit out hard at the Jayalalithaa government for the suspicious deal. Media reports and political opposition in the party have pegged the annual loss to the government due to the expensive deal at an amount as high as Rs. 9000 crore.
Suspicious sequence of events – the somersaults made by TNERC
The controversy is over the ‘control period’ set for the cost of Rs. 7.01 per unit of solar power set by the Tamil Nadu Electricity Regulatory Commission. The control period is the time period for which a particular price for power is mandated by the government so that market fluctuations don’t affect prices too erratically and private players do not make monstrous profits or terrible losses. The Commission is an independent body which oversees the power sector in the state and is responsible for setting control period and tariff for sale of electricity, be it thermal, wind or solar power.
To understand why questions are being raised over the deal, one must look at the sequence of events leading up to the present controversy.
In September 2014, the TNERC released a comprehensive order setting the tariff for solar power for a period of one year. This period of one year was the ‘control period’, which means that any solar power contract signed during this period would be at the set cost of Rs 7.01 per unit. After that, the selling price of solar power would be reduced further. While the usual control period set by various commissions across the country is two years, owing to the fast-reducing costs of production of solar power, the TNERC consciously set the period as 1 year. The detailed order, which can be found here, lists out the sound reasoning and logic for its decision.
In March 2015, the first reports of the Adani solar power project emerge in the media. ToI reported on March 15 that Adani plans a 1000 MW solar power at Ramanathapuram in Tamil Nadu. A senior official of Adani group ‘neither confirms nor denies’ the deal to ToI.
On April 1 2015, in a surprise suo-motu order based on no petition or appeal from any stakeholder, the TNERC decides to extend the control period by six months. So solar-power players would now have a one-year window (from April 2015) to sign contracts at the highly profitable rate of Rs. 7.01. What is interesting is that the same commission disagreed to extend the control period just a few months ago. However, the suo-motu order by the commission comes along with the dissent note by one of the three members heading the commission, thrashing the entire order systematically. It is this dissent note which could land the Jayalalithaa government in trouble.
In July 2015, Adani group signs contract with the Tamil Nadu government to supply power to the TANGEDCO at Rs. 7.01 per unit.
“What is interesting is the timing of the events. The extension gives the exact time for the Adani group to set up the project and avail the higher price set for the control period,” says Gandhi, an activist based in Chennai who has been keeping a watch on the power sector for several years. Interestingly, in yet another order on April 30, the commission does another somersault and refuses to extend the control period by a year as requested by other solar power generation players. The tell-all dissent note The Commission comprises of three members.
The surprise suo-motu order on April 1 was signed by two members, S Akshaykumar, also the Chairman, and G Rajagopal. It is the dissent note by another member, Nagalswamy, that makes for interesting reading.
TNERC Member Nagalsamy, the sole dissenter to ordering extension of control period In his dissent, Nagalsamy says, “Commission never met during these months and discussed this issue. Nobody asked for extension of control period. It is still a mystery that who is instrumental in prompting my colleagues to undertake this exercise which is not legally correct. Learned Chairman mentioned in his note that there is urgency in the matter. 'More the delay in issuing this order would result in further extension in the control period'. Why this urgency? Who is the beneficiary? Certainly not the consumers and not the TANGEDCO.”
Nagalsamy points out both financial and legal violations of the move. Here is a gist of his objections.
1. The price of Rs. 7.01 is too high since the price in 2015 has already come down to Rs. 5.87.
2. In 2014, the cost of solar panels has come down by 14%, reducing the capital cost for companies like Adani by Rs. 1.5 crore per MW of electricity.
3. The contract with Adani will cost TANGEDCO a loss of Rs. 10,700 to 23,000 crore in 25 years.
4. When neither consumers nor TANGEDCO had petitioned for extension, and even the petition by earlier private electricity generators was denied, then why was the decision being taken now, he asks. Nagalswamy then lists out 5 reasons for him rejecting the order. Read the whole dissent note here (from page 5 onward).
More questions emerge
Following the questions raised on pricing of the Adani deal, several other controversial aspects of the deal have now come to the fore. To encourage the use of renewable energy, the TNERC had placed a ‘renewable purchase obligation’ on TANGEDCO, meaning that a percentage of all electricity purchased by the state from private players has to be from renewable energy sources like wind and solar power. According to present regulations, 1% of the power purchased has to be from solar power players. Deccan Chronicle reports today that the TANGEDCO is buying more solar power than it is obliged to. While solar power is now priced at Rs. 7.01 unit, wind energy is available even at Rs. 3.50 per unit in Tamil Nadu. Why then is TN government going for more expensive purchase, adding further to its losses?
An industry expert who wished to remain anonymous also points out that the transmission lines from South Tamil Nadu, where the Adani project will be based, do not have the capacity to wheel-in electricity from both wind and solar energy sources. The southern districts of Tamil Nadui also have numerous wind farms. In such a situation, he asks why the government not going for the cheaper wind energy. Attempts to reach TNERC Chairman Akshaykumar proved futile. Gandhi says that the government must encourage the use of solar power, but it cannot be done at such an industrial capacity. "Instead, it should be done in a decentralized manner with smaller power stations and units to be used. This way, there will be no transmission loss and the question of land also does not arise," he says.