Adani deal under bribery scrutiny approved despite official advice

The action taken by Solar Energy Corporation of India (SECI) on September 15, 2021 was unexpected. The federal agency responsible for developing the solar industry wants to know whether the southeastern state of Andhra Pradesh is willing to sign India’s largest renewable energy contract.

Two years ago, the Andhra Pradesh Energy Regulator said in its 10-year forecast that the state had no short-term demand for solar energy and should focus on developing other renewable energy sources that can provide 24-hour energy.

But just a day after SECI approached the state government, the 26-member state cabinet led by Chief Minister YS Jagan Mohan Reddy gave preliminary approval to the deal, cabinet minutes seen by Reuters showed.

While SECI did not name energy suppliers in its Sept. 15 letter, it was known at the time that the federal agency had contracts with only two suppliers, the larger of which was owned by Controlled by billionaire Gautam Adani.

As of November 11, the state government had received approval from the energy regulator. On December 1, state authorities signed a purchase agreement with SECI for the deal, which will ultimately be worth more than $490 million annually.

Documents related to the deal reviewed by Reuters show that as much as 97% will go to Adani Green, the renewable energy unit of billionaire Adani Group.

The news agency spoke to a former state power regulator and an energy law expert who said the time between SECI approaching the state government and the Andhra Pradesh Electricity Regulatory Commission (APERC) approving the 7,000 MW deal was extremely Quick, though, the timeline for such transactions may vary.

The solar deal is now under review by U.S. prosecutors, who in November indicted Adani and seven other executives over their involvement in a bribery and securities fraud scheme involving several Indian states and a region.

U.S. prosecutors allege that the defendants provided $228 million to an unnamed official in Andhra Pradesh to instruct the state’s power distribution company to purchase solar energy provided by Adani Green to SECI.

Reuters reviewed 19 state government documents, many of which have not been previously reported, and interviewed more than two dozen state and federal officials, as well as independent energy and legal professionals, about the deal. Most requested anonymity due to the sensitivity of the matter.

Together they paint a picture of how political leaders overruled advice from financial and energy officials to approve the massive Adani deal. Some officials have said publicly that the contract could put pressure on the state’s coffers and could leave taxpayers on the hook for thousands of megawatts of energy Andhra Pradesh doesn’t need.

Adani Green did not respond to Reuters questions about alleged corruption or the speed of the approval process. Adani Group has previously called the accusations “baseless”.

SECI told Reuters in a statement that it is up to states and their regulators to decide how much power to buy. It declined to answer additional questions.

Reddy, who was not named in the U.S. indictment, lost power in this year’s elections. His office cited a Nov. 28 statement to Reuters in which Reddy denied receiving bribes and justified the deal on the grounds that it would provide free electricity to farmers. Reddy’s office declined to answer additional questions.

A spokesman for Reddy’s party said after the report was published that state energy officials had thoroughly analyzed the contract. The official said Andhra Pradesh has signed a good deal as solar prices have not fallen significantly since 2021.

APERC, which oversees the state’s electricity sector and conducted due diligence on the deal, did not respond to repeated requests for comment on its processes and the U.S. allegations.

The current state government also did not respond to a request for comment.

due diligence

Then-Energy Minister Balineni Srinivasa Reddy told Reuters that for much of September 15, 2021, he was unaware of any potential solar deals.

But Srinivasa Reddy, who joined a rival party this year, said he received a call late that night from an unnamed person in his office about a document that required his signature to be released the next day. Proposal discussed by Cabinet.

He said he had “never” been so rushed to approve documents and that he had not been given “details or time to look into the matter.”

Srinivasa Reddy said he signed the agreement after a senior official in his department, whose identity he also did not reveal, assured him that the contracting party was SECI. He said he “had no idea the supplier was Adani”.

Srikant Nagulapalli, then the top civil servant in Srinivasa Reddy’s department, declined to comment. Reuters could not determine if Reddy consulted or if he provided guarantees for the deal.

The next day, the cabinet approved the deal “in principle,” according to cabinet minutes, speeding up the regulatory process.

On October 21, the Andhra Pradesh Electric Power Coordination Committee (APPCC), which was tasked with studying the deal after preliminary approval, submitted a report recommending the deal.

The commission was established by the state government to coordinate relations among state-owned distribution companies; its members include the state’s top energy officials and company executives.

Seven days later, the Andhra Pradesh cabinet formally committed to procure 7,000 MW from SECI.

In doing so, it ignored advice from finance and energy sector officials that the contract did not represent good value.

On October 28, the same day that the Cabinet met to approve the deal, but before it was approved, the Treasury made a submission to the Cabinet stating that there was an industry downward trend in solar prices and that future deals could be cheaper, according to the Cabinet Minutes of meeting.

Andhra Pradesh allegedly has leverage because the government is the buyer, providing suppliers with assurances that they are unlikely to default.

The minutes of the meeting showed that the Treasury also questioned the length of the 25-year contract, especially given that supply is not expected to begin until 2024. The Treasury said it believed the cost between agreeing a contract and supplying electricity was likely to continue to fall.

The Department of Energy agrees with the Treasury Department’s recommendations.

The minutes of cabinet deliberations do not record any discussion of concerns about the financial and energy sectors, apart from a statement in the minutes that cabinet “appropriately vetoed financial remarks”.

Under the agreement, Andhra Pradesh will pay Rs 2.49 per kilowatt-hour when solar power is connected to the grid.

An Adani Green spokesman told Reuters supply would be delayed until after 2024, citing delays in “grid availability”.

However, an analysis released by the office of Chief Minister N. . in such calculations.

A state official familiar with the matter said that once taxes and duties are taken into account, Andhra Pradesh may pay 23% more than the price agreed in the Adani contract.

Andhra Pradesh is currently seeking a stay on the deal amid the indictment of Gautam Adani. An official told Reuters a decision could be made by the end of the year.

If the Adani deal goes ahead, state coffers will be directly responsible for hundreds of millions of dollars in annual solar costs, according to a Reuters review of contract documents. Once power supplies are fully operational, annual payments to Adani will be roughly equivalent to the state’s spending on social security and nutrition programs in the previous fiscal year.

(1 USD = 84.8380 Indian Rupees)

Disclaimer: This story was published from a news agency without modifications to the text.