Risk of corruption clouds Andhra Pradesh solar bids

Industry claims vested interests are likely to take advantage of lax bidding rules for 1,000 MW solar power

By Jonas Hamberg, Ankur Paliwal
Published: Wednesday 06 February 2013

The recent bidding guidelines launched by the Andhra Pradesh government for 1,000 MW of solar power projects, leave enough room for corruption. It’s been less than a month since the document has been put out and rumors are already circulating that local politicians have begun taking advantage. The guidelines were released on January 9 and bidding closed on February 7. The 1,000 MW solar power from these projects is enough to give clean electricity to about 1.8 million people in the state where power cuts are an everyday occurrence.

The solar power bids in Andhra Pradesh were eagerly awaited by solar power developers as the state's power utilities are among the few in the country to have surplus money. They generated a surplus of Rs 469 crore in 2011. This assures developers that their payments will be made in time. However, certain lax rules in the bidding guidelines and contracts have made unfair play possible. Local politicians can make use of these loopholes and intimidate developers into not bidding for projects, so that they themselves can bag high tariff payment for the projects (see 'How reverse bidding works') and sell these projects later, much like 2G spectrum. The intention is clearly to make money and not power generation. 

As per the guidelines, each company bids for a certain available capacity per district and electricity sub-station. The lowest bidder per sub-station will get to set up a plant and receive the tariff payment. There are 161 sub-stations where capacity is available.

According to industry sources, local vested interests have started calling prospective bidders telling them not to bid for certain locations, implying that they will make it impossible for any developer to set up project in that area. "There is no transparency and no consistency in this bidding, there are 161 seperate bids and in one place someone could get a tariff of Rs 8 per unit and in the next someone gets Rs 17 per unit! Local strongmen can make life miserable for a developer who bids below them in their area of influence, without taking their consent."

Solar policy safety measures compared
  Andhra Pradesh Centre Karnataka Rajasthan
Benchmark tariff for bids No Yes Yes Yes
Demand on keeping share of project for a certain time No 51 % upto 1 year after commissioning 51 % upto 3 years after commissioning Yes
Net-worth needed to be eligible to bid 1 crore/MW 3 crore/MW 3 crore/MW 3 Crore/MW
Bank Guarantee needed to be deposited 10 lakh/MW 50 lakh/MW + bid bond dependent on bid 20 lakh/MW 20 Lakh/MW
Different Bids for Different sub-stations Yes (161 bids) No (1 bid) No (1 bid) No (1 bid)


Measures to check speculation ignored

To limit unscrupulously high bids, the Centre and other states which have launched solar policies have set a benchmark tariff. It works as a ceiling for bids and was set at Rs. 10.39 per kWh in 2012-13 by the Centre, which means no bidder could hand in a bid above Rs. 10.39 per kWh. But in Andhra Pradesh solar policy no such benchmark exists, making it possible to bid as high as they want.

The Centre's, as well as Karnataka's, solar policies go one step further in discouraging wrongdoings. It has a clause that 51 per cent of the shares in a project needs to stay in the hands of the bidder until one year after the project is completed. This is to avoid speculative bids from agents who only aim to make a quick buck from winning the bid and then selling them to developers without adding any value. This clause is also not there in the Andhra Pradesh guidelines.

Absence of these clauses coupled with the fact that politicians can hinder land acquisition and permits needed to set up a plant near a local sub-station, corruption could become rampant in clean energy projects. By threatening to hinder projects this way, politicians can become the only and, thereby, winning bidder even if they bid outrageously high tariffs.

Since project contracts can be directly sold under the Andhra guidelines, the politician can turn around and sell this now highly profitable contract to a real developer while taking a cut, the loser being the state power utility and, in the long run, Andhra's power consumers. Even if this effect only raises prices of the solar power by Rs 1 per kWh on average, it is still a loss of some Rs 166 crore per year for the state.


How reverse bidding works
  • A reverse bidding system for providing power works in that the developer that gives the lowest per kWh price, wins the bid and gets to set up the specified amount of power producing capacity and get paid the bid price from the buyer, in this case the state power utility. For example, if company A says it will set up 10 MW of solar power and needs a tariff of Rs 8 per kWh and company B says it will set up 10 MW of solar power and will need only Rs 7 per kWh, then company B wins the bid and gets the contract receiving the tariff they had bid per unit of electricity their solar plant then provides for 20 years.
  • Sub-station: collects and feeds power into the electricity grid as well as distributes it to households. Each sub-station can handle a certain amount of power; however, the rationale for selection of only 161 sub-stations available and the corresponding capacity limits for each one is unclear, with 50 per cent capacity getting bunched up in four to five districts around Hyderabad, most of them with low solar radiation compared to other areas of the state.


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