Jagan Effect : Centre Plans New Law

Jagan Effect : Centre Plans New Law

Call it the effect of AP CM YS Jaganmohan Reddy, the Union Government is mulling over to bring new law to shield the foreign investors. The unilateral decision of AP government's decision to renegotiate the Power Purchase Agreements (PPAs) despite Centre's recommendation against it has put the Centre in tight spot. The Centre is now exploring to propose new law to protect the global investors. Jagan government renegotiated to reduce tariffs on signed PPAs resulting in foreign investors losing confidence.

India's two major renewable energy developers - Renew Power and SB Energy - are thoroughly backed by Japanese investments. Renew claims to be India's largest independent power producer with a capacity of over 7 gigawatts (GW). And the SB Energy has business dominance in natural power combined with artificial intelligence and electric vehicles. These two firms have been backed by Japan's investors who funded the two firms. So, any little impact on the business of these two companies would directly affect Japanese investors. The global investors in AP's clean energy space include Goldman Sachs, Brookfield, SoftBank, Canada Pension Plan Investment Board, GIC Holdings Pte Ltd, Global Infrastructure Partners, CDC Group Plc, EverSource Capital and World Bank's International Finance Corp. They have invested in Indian companies, including ReNew Power, Greenko, Adani Power, PTC India Ltd, SB Energy, Mytrah and Hero Future Energies.

Japan's embassy and India's Power Ministry have already sent letters to YS Jagan to reconsider his decision. The governments of France, Canada and Japan have openly opposed Jagan administration's decision to reopen the signed contracts. It can also be noted that earlier the Union Power and Renewable Energy Minister RK Singh had openly found fault with AP government over its move to renegotiate with renewable power producers.

Yet, YS Jagan is going ahead with his controversial move. According to investors, AP's decision could put 5.2 gigawatts (GW) of solar and wind energy projects at risk, with an estimated debt exposure of more than Rs 21,000 crore. "This has sent a very bad signal to international investors. The Act being explored is that in the event of investments reaching a certain stage, a state government can't arbitrarily cancel the contracts," an official in Union Government was quoted in Live Mint. He added, "In the event of any such step taken by a state government, it will attract penalties and will make it difficult for them to do so."

With this, the Union Government is keenly exploring the option of proposing new law to protect global investors coming to India. "Once the Act is brought in by the finance ministry, it will be binding on all states. Such kind of moves by the state governments are highly irresponsible and the Union government has been sending feelers to global investors that such a law may come into existence to assuage their concerns," the government official added.

Meanwhile, Jagan government has softened its stand on PPAs and clarified that it will not open all the PPAs, but only those where wrongdoing is established. AP has around 7,700 megawatts (MW) of solar and wind projects. Yet, the Centre is keen bring new law in order to prevent similar situation from other states.