The truth about solar mission
For the Government of India the first phase of the national solar mission has been a grand success. It not only managed to attract industry to invest in the generation of an energy considered …
The first phase of the national solar mission is to test the waters. Of the total capacity of 20,000 MW of grid-connected solar power targeted by 2022 under Jawaharlal Nehru National Solar Mission (JNNSM), 1,000 MW is to be achieved by 2013. The first batch projects were planned to be equitably distributed among companies so that it not only fosters competition and brings down prices but also manures a sprouting sector. The Ministry of New and Renewable Energy (MNRE) set the rules for the distribution of projects and used reverse bidding to reduce tariff.
The ministry reasoned that it was better to start with baby steps and, therefore, divided the first phase into two batches.
The first batch of 470 MW of solar thermal and 150 MW of solar photovoltaic (PV) was auctioned in November 2010. The second batch of 350 MW of solar photovoltaic was auctioned in December 2011.
The remaining quota was filled by migrating solar PV and solar thermal projects that existed before the mission.
While the policy and handling of the mission lie with MNRE, the mission document states that the contracting, buying and selling of the solar power are to be handled by public sector undertaking NTPC Vidyut Vyapar Nigam under the Ministry of Power.
But even with two ministries overseeing the solar mission, a big chunk of the first batch of solar projects in the first phase has been undeservedly awarded to one company.
Holdings of LANCO
When converted the preference shares will give LANCO a 99% ownership in each project. Each share gives a 0.001% dividend, so except for future ownership these shares give almost no benefit to LANCO
Smell a rat
The list of the winners of solar projects in the first batch seems innocuous apart from the fact that most of the companies that bagged these projects are unheard of—even the trusted Google could not locate some of them. When MNRE could not provide the details of the projects and company addresses, Delhi non-profit Centre for Science and Environment (CSE) visited the Rajasthan Renewable Energy Corporation (RREC) since Rajasthan is a favourite destination for solar projects. An officer at the corporation pointed to a bunch of projects being built at Askandara village in Jaisalmer and said LANCO was the engineering-procurement-construction contractor for all of them.
A visit to Askandara strengthened suspicion. Over 1,000 hectares were being prepared for solar power projects to be set up by LANCO. Nine projects were grouped at one huge site. There was no mention or board of any other company. Everyone working there said they were working for LANCO. Even records at RREC had one cell phone number for the nine companies.
In the winning bids for solar thermal, LANCO’s name appears at only one place, under Diwakar Solar Projects, which has bagged a 100 MW project. Another subsidiary of LANCO, called Khaya Solar Projects, appears on the list of 5MW PV projects approved under JNNSM (although LANCO is not specifically named).
If LANCO followed the rules it could have owned only these two projects worth 105 MW. Did it acquire the other seven projects—accounting for 130 MW—through shell companies? A CSE investigation revealed LANCO employees or their family members were directors of some of these companies. Others were set up by companies with strong commercial ties with LANCO.
A few of them changed hands several times; directors walked in and marched out. But at the end of the day, as LANCO’s own annual report shows, the energy conglomerate had a firm grip over the seven companies. In a few years LANCO could own up to 99 per cent stake in all of these firms (see ‘How front companies operate’).
Complex web of links
Take the example of DDE Renewable Energy (DDERE), which won a 5 MW solar PV plant. The company was set up by Krishan Lalit Bansal and three of his family members on November 17, 2009. Each of them became a director and owned a quarter of the company’s Rs 1 lakh equity. Bansal owned another company called DEE Development Engineers, which made pipes for thermal power plants, a business that forms the core of LANCO’s empire.
DDERE’s balance sheet for the financial year 2010, uploaded on the Ministry of Corporate Affairs’ website on October 8, 2010, lists the original members as it’s directors without any change in capital or shareholding pattern. Its bank balance was a mere Rs 99,850.
This was after September 24, the last day for submission of request for selection (RFS) documents. The RFS guidelines were clear that for a company to qualify for the mission, its net worth had to be at least Rs 15 crore a week before the RFS deadline. DDERE showed the balance sheet of DEE Development Engineers and qualified for bidding.
On November 16, when the bids were opened, it bagged 5MW solar PV project and on December 13, NTPC Vidyut Vyapar Nigam issued it the letter of intent.
A few days later on December 31, DDERE issued Rs 15.2 crore worth of preference shares to DEE Development Engineers, Bansal’s other company. But strangely enough in LANCO Infratech’s Annual Report of 2010-2011, these preference shares worth Rs 15.2 crore are shown to be in LANCO’s possession.
Reworking of company books did not stop there. On January 10, 2011, DDERE signed a power purchase agreement with NTPC Vidyut Vyapar Nigam. Less than a month later, on February 8, the company retroactively changed its balance sheets for the financial year 2009-2010, indicating a change in shareholders. In the new document, the company’s equity shares (implying ownership) had changed.
Bansal now held 23 per cent and the remainder 77 per cent was held by an unnamed corporate entity. On the same day two new persons, twins aged 21 years, Premchand Kurumoju and Sahithi Kurumoju, took over as directors of DDERE. The names of Bansal’s family members, apart from the grand patriarch, disappeared from the company rota. On March 31, ministry of corporate affairs documents show two companies now owned DDERE, one of them being Nice Infracon with majority stakes. Krishan Lalit Bansal no longer held shares.
On the face of it the entry of the Kurumojus should not raise eyebrows. But as LANCO’s in-house magazine reveals, they are children of Subhramanyam Kurumoju, a LANCO employee since 1983. The magazine glorifies Subhramanyam as a “loyal” and “devoted” employee of the company. He is currently attached to the LANCO chairperson’s office, says the company’s PR department.
Sifting through documents uploaded on the corporate affairs ministry website revealed that the Kurumoju twins were also directors of Nice Infracon, the holding company of DDERE. Which is the other stakeholder? LANCO Infratech’s annual report ending March 31, 2011, provides the answer. It states the company has bought 26 per cent stake in DDERE, which has a face value of Rs 26,000, but strangely enough paid Rs 16 lakh for it. So Nice Infracon controlled 74 per cent stake in the company.
LANCO then came one step closer to controlling Nice Infracon. On December 16, 2011, Premchand and Sahithi resigned as directors of Nice and were replaced by three other directors, Ravinder Singh, Kalyan Kumar Jagarlamudi and Anitha Jagarlamudi. Ravinder Singh was also appointed managing director of DDERE. On enquiry CSE was able to confirm that Ravinder Singh is an employee of LANCO Solar.
LANCO has also been sloppy while filing company information on the corporate affairs ministry website. The official email for DDERE has been filled as firstname.lastname@example.org. Kheterpal also happens to be the “Head of Legal and Secretarial of LANCO Solar Divison at LANCO Group”, according to LinkedIn. In another case, it seems documents giving details of Electromech Maritech, another front company of LANCO, were attached to DDERE on the ministry website, implying same people handled both the companies.
Six other companies apart from DDERE were used as front by LANCO (see ‘The LANCO story’) to win solar projects. All these companies had Rs 1 lakh or Rs 10 lakh in equity and no assets or reserves from the past. They were created for the bidding process. They solely relied on their promoter’s net worth to qualify for the bidding because the JNNSM guidelines were clear that the bidding company had to be worth Rs 15 crore for solar PV and Rs 220 crore for solar thermal.
Even though preference shares worth Rs 15.2 crore were sold by each of the PV companies and Rs 221.7 crore by the solar thermal company, none of it shows up in their cash reserves or bank balances. They are referred to as “loans or advances” in documents submitted to the corporate affairs ministry.
Most of the transfers took place in December 2010 just as the power purchase agreements were to be signed. The pattern of share transfer remains almost the same throughout. All the companies increased their authorised amount of shares and then issued preference shares worth Rs 15.2 crore (for solar thermal company, KVK, it was Rs 221.7 crore), on the same day, December 31, 2010. The shares did not directly go to LANCO. But by March 31, 2011, LANCO Infratech’s annual report shows it is in possession of the shares.
As a chartered accountant, who requested not to be named, explained “preference shares get paid dividend before normal equity shares but do not count as voting rights”. These shares were compulsorily convertible. “Compulsorily convertible means at some point they will have to be changed into normal shares and LANCO will get significant influence in these companies. It is as if LANCO bought the bus ticket and boarded but did not take a seat yet; at some point it will get a seat. LANCO has bought tickets on every bus there is,” the chartered accountant explained.
The preference shares when converted will give LANCO around 99 per cent ownership in the companies. In one instance, in the case of Electromech Maritech, documents uploaded on the corporate affairs ministry website suggest that the conversion of the shares will happen in the next three years. This strategy of future ownership suits LANCO; it helps it bypass JNNSM guidelines, which say that the original controlling shareholder has to remain for one year after the commissioning of the plant (see ‘MNRE guidelines that were flouted’). In the guidelines the controlling shareholder is defined as having at least 26 per cent of the voting rights. LANCO has ensured that in three other instances, KVK Energy Ventures, DDERE and Electromech Maritech, it controls the equity shares of the company as well.
KVK Energy Ventures was incorporated in May 13, 2009, with issued equity share of Rs 1 lakh. Two people, Kalindi Vijay Kumar (KVK), who is also the managing director of KVK Energy and Infrastructure Limited, and his son, had equal stakes in the company. On December 20, 2010, the authorised capital was changed from Rs 1 lakh to Rs 300 crore. Of this Rs 299.99 crore was in preference shares and the rest in equity. Sometime before March 31, 2011, preference shares worth Rs 221.7 crore were issued, and as LANCO Infratech’s report states, it has acquired them. Equity was still Rs 1 lakh, meaning voting rights rested fully with the KVK family.
However, on October 29, 2011, equity shares worth Rs 4.87 crore were allotted to LANCO Solar Energy, a direct subsidiary of LANCO Infratech, and Rs 5.07 crore to MMS Steel and Power, a gas power project of KVK Energy and Infrastructure. This meant that MMS Steel and Power got 50.95 per cent voting rights and LANCO 48.95 per cent. The original project developer KVK was left with only 0.1 per cent voting rights.
Shifting of shares has happened in the past. Nearly a decade ago LANCO took over a company named KVK Energy. Two years later its name was changed to LANCO Amarkantak Power, which is building the 1,200 MW Amarkantak power plant in Haryana. Its shareholding pattern kept changing and in 2006 LANCO had the majority stake in the company.
LANCO dealings with DDERE and Electromech are direct breach of the MNRE guidelines. Dealings of the other projects breach if not the letter than at least the intent of the guidelines.
The national solar mission is clear in its guidelines that shareholding pattern is not allowed to change at all between submission of the request for selection and signing of the power purchase agreement. The controlling shareholder is also not allowed to change from the time of signing the power purchase agreement to a year after the project is commissioned. Changes can happen only in 2013 as all the projects had a commissioning deadline of January 2012. These rules have not been followed. Issuing preference shares changes shareholding pattern—and this was done in December 2010, between submission of the request for selection and signing of the power purchase agreement. In the case of Electromech and DDERE the controlling shareholder has also changed, according to official corporate affairs ministry forms.
LANCO and its fronts bid for the PV projects in a unified fashion, quoting similar tariffs with 5 paise jump between each bid. The Detailed Project Reports—giving technical and financial details of the proposed projects—are almost identical for the seven PV projects and the two solar thermal projects. They use the same text and graphs with only slight modification. In the project reports of KVK and Diwakar Solar Thermal one can see adjustments made in the same handwriting—one person must have prepared both the reports. According to documents from the Jodhpur Discom, all of the seven PV projects are financed by Axis Bank.
LANCO has also been given a wide power of attorney by these companies and has signed lease agreements for the land. Documents at the colonisation department office in Bikaner show the contracts are signed by LANCO employees on behalf of the companies with the Government of Rajasthan. An official, when asked for more information on these companies, said, “You won’t find any. These are sister companies set up by LANCO because they could not otherwise bid for this much”.
LANCO could pull off this stunt only because MNRE and NTPC Vidyut Vyapar Nigam do not have a mechanism to monitor the activities of the companies that won the contracts. There were signs. Six of the projects now under LANCO had shown their locations at the same village in bid documents. After they won the bids, they together changed the location to another village, although changing location was discouraged by MNRE.
Detailed questionnaires were sent to LANCO, MNRE and NTPC Vidyut Vyapar Nigam both by hand and fax and were followed up with confirmations on phone. Till this issue went to press only MNRE had responded. According to Tarun Kapoor, joint secretary in the ministry, changes in the controlling stake of a company that has won a project in the mission are not allowed and can attract disqualification. “We had come across a company where preferential shares were given, and we had taken a legal opinion on this as at some point of time in the future preferential shares will be converted into equity, and had directed the company not to issue the shares,” he said. But if the controlling equity of the company changes hands, then it will be disqualified, he added. On signing land agreements for the projects, Kapoor said, “We have warned a company in one instance where they were buying land on behalf of another project and they backed off.” He did not name any company.
With contributions from Swati Singh Sambyal, Sharat Trehan, Sunanda Mehta, M Suchitra, Ankur Paliwal and Arnab Pratim Dutta
Solar energy production is rising in India, not manufacturing
The solar energy sector in India is looking up. After a sluggish growth for over two decades, solar energy picked up in the past two years. The spurt coincides with the drastic fall in the global price of solar modules, the backbone of the more popular photovoltaic solar plants, from US $4 per Watt of capacity in 2010 to less than $1.
Jawaharlal Nehru National Solar Mission (JNNSM) was launched at the right time to benefit from the price drop. Not only has it set the ball rolling to build a capacity of 1,000 MW, but also infused interest and competition in solar energy, where states have launched their own programmes. Gujarat is aiming at a capacity of 1,000 MW by itself. Maharashtra, Rajasthan, Karnataka and Tamil Nadu are following suit.
JNNSM awarded the capacity through bidding. This brought prices down from the benchmark of Rs 17.81 per unit to an average of Rs 12.04 per unit in November 2010. Although at that time people doubted the viability of the tariffs, today the prices appear generous. In the second bidding the price reduced further to an average of Rs 8.78 per unit; the lowest bid was at Rs 7.49. The winners of the first bid are going to make a lot of money. With prices of conventional electricity rising and that of solar falling faster than predicted, some analysts say grid parity—when solar electricity is as cheap as buying from the grid—can be achieved by 2015, a couple of years earlier than predicted.
Unlike a coal plant, solar plant incurs negligible running cost. In 2009 the cost of setting up a utility-scale solar plant was about Rs 17 crore per MW, while now contractors quote Rs 12 crore per MW. For a long time the cost of solar modules was 60-70 per cent of the total project cost. This has come down to 50 per cent.
Growth of solar energy in India, however, faces three major risks: rise in silicon prices, failing health of power utilities and increasing land prices. In January 2012 the price of poly-silicon, the main ingredient in most solar modules, began to rise since earlier stocks had been exhausted. Many state utilities are in the red and find it difficult to pay even conventional electricity producers. With more solar plants being set up the fight for land in the sunniest locations is hotting up. Around Phalodi in Rajasthan, which receives high solar radiation, land prices have increased 10 times in the past year, according to people in the area.
While JNNSM could spur solar power production, it is lagging in achieving its other main objective: to strengthen the domestic manufacturing of solar technology. In the first batch of the first phase of the solar mission demand for using Indian solar modules was introduced, but only for the more established crystalline silicon technology. The guidelines allowed importing modules made from thin-film technology on the ground that India had only one thin-film module producer.
It even allowed import of cells of crystalline silicon, leaving only assembling to be done in India. This led to half of the projects in the first batch of the mission to opt for thin-film and half for crystalline silicon.
In the second batch both cells and modules need to be sourced from India for crystalline silicon but thin-film is still exempted. This exemption has made thin-film popular in India. The US Export-Import Bank has been giving cheap loans to projects buying American-made thin-film modules. Chinese modules are popular too. The US had earlier threatened China with action in WTO for giving cheap loans, land and export credit to companies exporting solar technology. Indian manufacturers are now making similar noises.
The fact is that not even Indian solar module producers will buy their own product. Moser Baer opted for American modules when setting up a 30 MW project in Gujarat. An unnamed industry insider asks, “How can Indian companies, making 40-60 MW of modules each year, compete with the Chinese market leaders making 2GW and controlling the whole process of manufacturing?” Indian manufacturers, together producing 1.2 GW of modules in 2011—50 per cent more than in 2010—cannot match a large Chinese manufacturer, forget about the total Chinese production of 20 GW a year.
India is also almost unaccounted for in the first step of solar module production—the making of poly-silicon, ingots and wafers—which is also the step with the highest margins. A representative of manufacturer Maharishi Solar complained at the second batch bid meeting in December, “I have sunk some $500 million into this venture but cannot get the money back. There is no way we can keep up with R&D. In this business you have to reinvent constantly, and we don’t have the means.”
The outlook for solar electricity generation in India looks good, but will it come from imported technology?
Solar mission is too important to let doubtful dealings hijack it
In public perception the renewable energy sector is a do-good sector that promises environment-friendly and affordable energy. It is for this reason that this sector gets overwhelming support from all sections of society. Civil society organisations, including the Centre for Science and Environment (CSE), have worked hard over the years to increase awareness about renewable energy and have pushed the government policy towards ambitious programmes.
Renewable energy is important for India not only because of its environmental credentials, but also because it is going to play a major role in achieving energy security for the country in the future. And within renewable energy, solar energy has the most potential. It was in this context that when the prime minister announced Jawaharlal Nehru National Solar Mission (JNNSM) as part of the National action plan on climate change in 2008, civil society in general welcomed it despite it being the world’s most expensive solar energy programme funded by the public. The 20,000 MW grid-connected solar power that JNSSM plans to install till 2022 will cost the public more than Rs 2 lakh crore from 2012 till 2047. With so much of public support and subsidy, it is in everybody’s interest that the programme succeeds. However, like some other renewable energy programmes, we are finding JNNSM is also getting entangled in bad market practices.
Criticising the renewable energy sector quickly gets one branded anti-environment and pro-fossil fuel. This is the reason people avoid critically examining this important sector. But we at CSE believe strongly that though we want the sector to grow and flourish, we cannot allow it to be undermined by impermissible practices and indifferent bureaucracy. We don’t want the renewable energy sector to get such a bad name that it loses public support and goodwill. That is why we have tried to bring to the fore the lapses and have pushed for reforms.
In 2008, we published our research on wind energy showing the monopolistic nature of the business and how the wind sector was growing but not producing enough electricity. This was happening because of the upfront tax break the wind industry got, prompting even Bollywood stars to own wind farms. We were then roundly criticised and accused of killing a nascent sector. Today, the Ministry of New and Renewable Energy (MNRE) itself has recognises the problem and is contemplating removal of accelerated depreciation benefits for the wind sector. Similarly, we have highlighted the issue of biomass-based power plants that burn coal illegally but take preferential tariff. In JNNSM, we again find doubtful dealings.
When the winners of the reverse bidding for the first batch were announced in November 2010, there were whispers in the market that the winning companies had quoted low prices and that they had done this to grab projects on prime solar land and would later sell them to serious players at a premium. Most wining companies were unknown entities. Very few of them were from the energy sector, leave alone the solar energy sector, and fewer still had websites. The surprising part was that most of the established players in the energy sector, from AP Power Generation Corporation Limited to Moser Baer Power to Essar Power, were not able to win the bids. This should have rung alarm bells.
We now know that one company, LANCO Infratech, put up front companies and managed to get about 40 per cent projects of the first batch of the first phase of the solar mission by using unfair means. They were able to win the bids by clubbing projects and using the economy of scale to reduce prices. In doing so they throttled competition and stopped genuine players from entering the market.
What does this 40 per cent market mean in monetary terms? The tariff the state utilities (indirectly the consumers) will pay for 620 MW auctioned under the first batch of the first phase till 2037 (the projects will get preferential tariff for 25 years) itself will be close to Rs 35,000 crore. LANCO, therefore, will have assured revenue of about Rs 13,000 crore from these projects.
Both MNRE and power purchaser NTPC Vidyut Vyapar Nigam failed to check this scam even when there were signs of illegality. It is difficult to say whether it reflects complicity of MNRE and the power purchaser or sheer incompetence. What is clear is that such lapses in the renewable energy programmes have happened largely because of the non-transparency and questionable processes MNRE has adopted in implementing these programmes. For instance, in JNNSM it refused to disclose any information about the winning companies, apart from their names and project location (see ‘Information on solar mission …’).
India will be spending lakhs of crores of rupees in promoting renewable energy, especially solar energy, but all this will go down the drain if it does not put transparent and fair laws in place that promote competitiveness, innovation and attract serious businesses. With bad market practices and non-transparency that prevail today, energy security and sustainable energy will remain a dream. It is important that MNRE investigates further and learns from what happened during the first phase of JNNSM, punish the guilty and reform the renewable energy sector.
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