An auction in Madhya Pradesh has become the trigger for allegations of corruption in Tamil Nadu.

On July 17, the Madhya Pradesh government held competitive bidding for solar energy projects. Participating in the auction, Adani Power offered to sell 60 MW of solar-generated power to the state at a price of Rs 6.04 per unit for 25 years. Another company, Mauritius-based Sky Power South East Asia Holding, quoted a lower price of Rs 5.05 per unit.

While Adani Power lost the bid, the price quoted became the subject of a political controversy in Tamil Nadu, where just two weeks ago, on July 4, it had entered into an agreement to sell 648 MW solar power at Rs 7.01 per unit.

Opposition parties in Tamil Nadu seized upon the price difference in both the states, claiming the lower bid price in Madhya Pradesh was evidence that the All India Anna Dravida Munnetra Kazhagam government led by J Jayalalithaa had favoured Adani Power, which is part of the Gautam Adani-led conglomerate.

The Dravida Munnetra Kazhagam leader MK Stalin called the agreement “a scam” while state power officials defended the agreement as part of the state’s push towards cleaner energy.

What are the facts of the case?

Fixed tariff, contested claims

In October 2012, Tamil Nadu came out with the State Solar Energy Policy which aimed to promote solar power projects in the state.

Accordingly, in September 2014, the Tamil Nadu Electricity Regulatory Commission fixed the tariff for solar power projects at Rs 7.01 per unit for the next 25 years. It also stipulated that to avail the tariff, the companies would have to start production before September 2015.

The state power company, the Tamil Nadu Generation and Distribution Corporation (TANGEDCO), began to sign power purchase agreements with companies willing to sell solar power to the state at the stipulated tariff. Several companies lined up to sign agreements for projects ranging from 1 MW to 59 MW.

In January 2015, when the first batch of power purchase agreements came to the regulatory commission for approval, it extended the time period for the start of production to January 2016. Justifying the decision to extend the deadline, the commission’s draft order said that since four months had lapsed, “within the said balance period of less than 8 months out of the control period of one year, execution of individual EPA [Energy Purchase Agreement] by the prospective developers, achieving financial closure thereafter, procurement, erection, testing and the commissioning of the solar plant will be very difficult.”

The draft order was placed before the members of the commission in April 2015. One of the members, S Nagalsamy, who had been appointed during the regime of the DMK government, disagreed with the decision and put up a dissent note. He pointed out that since the tariff determination in September 2014, “the price of solar power has come down by Rs.1.14 / per unit within this short period”.

By then, the state government had informed the commission that it had received applications from the solar power companies for projects up to 5366 MW. “If all the applicants are allowed at the old rate of Rs.7.01 per unit by extending this control period,” said Nagalsamy, “it will translate into a huge loss of Rs.23,000 crores to TANGEDCO for the period of next 25 years, as the contract entered now is valid for 25 years."

Ignoring Nagalsamy’s objections, the regulatory commission approved the January order. The state power utility went on signing more agreements under the price of Rs 7.01 per unit. On July 6, it signed an agreement with Adani Power to purchase 648 MW of solar power from five units in Ramanathapuram district. This was more than the total power capacity it had signed up with other 47 companies combined.

Three weeks later, Adani bid at Rs 6.04 per unit in Madhya Pradesh. That’s when the political storm broke in Tamil Nadu.

Opposition versus government

The main contention of the opposition is that Tamil Nadu will end up buying expensive power when solar energy prices are falling drastically across the country.

Officials at the regulatory commission, however, defended the tariff, citing the example of states like Karnataka and Gujarat. In October 2013, Karnataka Electricity Regulatory Commission fixed the tariff at Rs 8.40 per unit for solar plants starting production from 2013 to 2018 and at Rs 7.20 per unit for rooftop solar power installations. The official also pointed to tariff orders of the Gujarat Electricity Regulatory Commission, which stated that for a solar power project that started production by March 2015, the government would buy power at Rs 8.35 per unit for the first 12 years and at Rs 7 per unit for the next 13 years.

A senior official at the Tamil Nadu Electricity Regulatory Commission argued this showed that the tariff fixed by the state was competitive. “The price of Rs 7.01 will be applicable only if these power producers begin production within the stipulated period, which is January 2016. If they do not manage to begin production by January 2016, we will obviously take a relook at the prices and possibly reduce tariffs," he said.

The official also questioned the comparison with the Adani bid in the Madhya Pradesh. “The Madhya Pradesh project will begin production only after 18 months,” he said. “The price of Rs 5.05 per unit is valid only by then. We have fixed Rs 7.01 for projects up to January 2015. Next year, our tariff could be lower.”

But why did the state choose to fix tariffs through the regulator when it could have obtained lower prices through competitive bidding?

“Since this is a new technology, there is no standard bidding document available anywhere in the country,” said the official. He claimed the state government initially created bid documents based on the Transparency and Tenders Act, but they were scrapped later because they were not found “proper”.

“When the state government is pushing a solar policy, we have to act. We cannot simply sit and wait for prices to fall further,” he said. “Solar price is dynamic since the technology is evolving. It can go down, or maybe it will go up. If we wait and do nothing, the state will not have clean and efficient power for the future.”

But the trend of falling solar power prices across India and the world have made such explanations suspect in the eyes of the opposition. Adani didn't reply to a questionnaire emailed by Scroll.in.

DMK leader MK Stalin has demanded a white paper to look into possible irregularities and kickbacks to the ruling party leadership. In a statement to the press, he said: “The Electricity Minister has not explained why the TANGEDCO plans to buy solar power from Adani Group for Rs 7.01 per unit while wind power was available at Rs 3.50 per unit and thermal power at Rs 4 per unit.”