New Delhi: The Union government designed a solar power auction that discouraged competition and paved the way for Adani Group to secure contracts for assured purchase of its expensive power for thousands of crores of rupees over the next 25 years. 

The extraordinary auction conditions and a series of exemptions brought in by the Union ministries of power, the renewable energy and its arm the Solar Energy Corporation of India (SECI) in 2019 ensured that Adani Group was the dominant player in the competition with just two others in the ring--Azure Power India Limited and Navayuga Engineering Company Limited.

Even the sparse competition turned out to be embarrassingly empty as Navayuga Engineering bid the highest permitted tariff and lost. The exit came immediately after it signed a deal worth thousands of crore of rupees with Adani Group to sell its port in Andhra Pradesh, negotiations for which were going on while the two competed for the solar contract.

The other competitor, Azure Power, by now has become well known, with the US authorities accusing it of colluding with Adani Group to pay bribes of more than Rs 2,000 crore to state government officials to buy the expensive solar power that they sold to SECI, an intermediary that buys and sells power.

Public debate has been focused on the role of state-level politicians and officials in the alleged bribery scandal. The Reporters’ Collective investigation shows the role of the Union government and SECI in crafting a solar power auction tailormade for the Adani Group and helping bag contracts for 8 GW of power supply where it had originally bid for only 4 GW of projects.

Documents show it was done using the vast policy discretion available with the power ministry, the renewable energy ministry and SECI to auction solar power without adequate regulatory supervision.

Owing to the unique bid conditions, the price at which Adani and Azure bagged the tender would have potentially earned them an assured revenue of Rs 1.5 lakh crore over 25 years. Of this, Adani Group would have earned twice as much as Azure.

This is not the first time solar power tenders have been tailored to fit Adani Group. The Reporters’ Collective has previously exposed how two BJP-ruled state governments put out tenders that magically fit Adani Group’s ground plans and operations. The group had already bagged one tender when The Collective reported on it and was a favourite to win the other. But the second tender was withdrawn a month after we published our investigation.

Such tenders tie down states and governments to purchase the electricity at high prices for 25 years while technological improvement would continue bringing down prices of solar power. The state governments pass these high prices through higher electricity tariffs to consumers.

The Collective sent detailed queries (can be accessed here) to the government, SECI and the private firms. None replied despite repeated reminders.

Publicly, Azure announced that it is “aware of the actions announced by the U.S. Department of Justice and U.S. Securities and Exchange Commission against certain former directors and officers of Azure, as well as certain third parties.”

“Azure initially disclosed in January 2023 and in subsequent filings and annual reports, it has cooperated with those agencies and it will continue to do so,” it added.

Adani Group dismissed the indictment as “baseless” and said that it “has always upheld and is steadfastly committed to maintaining the highest standards of governance, transparency and regulatory compliance.”

The Unique Tender

Since 2011, SECI has been working as an intermediary, buying power from producers through auctions and selling it to states for a commission. While the power ministry sets broad auction guidelines, the renewable energy ministry and SECI have some freedom in scripting the auction details.

The board of SECI is led by a retired IAS officer, with other PSU officials as directors. Two senior officers from the renewable energy ministry are nominated, and currently BJP member Rajkumar Sudam Badole, a former Maharashtra minister, serves as an independent director.

In 2018, it decided to buy massive amounts of solar power from those companies that also produce solar power components, and called it manufacturing-linked auctions. In India, there are only a few who are into both the businesses, and even fewer operate at a scale that SECI expected. Adani Group was one of them.

SECI offered to buy a whopping six gigawatt (GW) of solar power from companies that were willing to also set up solar equipment manufacturing for up to 2 GW of power in total. 

The bidders had to commit to set up manufacturing plants that produce a minimum of solar power components of 500 MW capacity annually over a period of 30 months. They could buy more time.

For those who could afford to bid, this was a tempting offer because SECI, in effect, was offering to cross-subsidise a company’s cost of setting up a solar component plant by buying electricity from it at a massive scale for the next 25 years. They could plan to cover the cost and profit margins of both their businesses, not just one, by pricing the power they sell to SECI a little higher. So, even before the factory came up, the Union government was offering a steady income stream to the manufacturer who otherwise would have to compete in the open market to sell their products against many competitors.

In what would be a rare public outburst against the government, a key solar power component manufacturer criticised the ‘manufacturing-linked’ solar tender publicly.

“Solar tender is trying to force developers to take on a business venture, which is not their core speciality. Manufacturing requires high equity and low lending, while on the other hand project generation focuses on low equity and high lending, therefore asking a single entity to handle them together successfully is asking a lot,” wrote Vikram Solar Limited, about a similar tender SECI had issued in May 2018. This was part of its critique published on the company website.

The company caught the sleight of hand in the tender that turned the “Made in India” slogan into an empty rhetoric: the winner of the auction need not produce solar power using components from their plant or any other Indian manufacturer.

“…we need to highlight that although these tenders were suggested to be a support for domestic solar manufacturing industries, it did nothing to create demand for existing manufacturers, leading to un-utilization of their capacities.”

“Supporting the promising and existing industry is much more profitable than trying to create a new industry (solar project development + manufacturing) that has its own set of rules.”

The tender conditions were tweaked many times till 2019, making it even more tempting for the players who could afford to bid at the scale. Adani Group admitted as much in an investor call.

It would take SECI more than a year and a half to finally get state governments to purchase power under this tender. During this time, Adani Green faced questions over the future of the project repeatedly by investors. At least one of them pointed towards the “relatively high prices” fixed under the auction, which the company did not deny.

An Adani Group executive, Vneet Jaain, among those accused by US market regulator and department of justice of bribery and fraud, was more than confident that they would land a purchaser. The reason? “Salient features” of the tender which were not present in “any other” tender, company records show him telling the investor.

According to the charges framed by the US prosecutors, the difficulty in landing a buyer is what prompted executives of both firms, which includes Adani Group chairman Gautam Adani, to allegedly pay over Rs 2,000 crore in bribes to secure power purchase deals.

Bid For 4, Get 8

Three bids came in for the SECI auction: from Adani Group, the Azure group and the Navayuga Group. Navayuga offered to sell solar power at Rs 2.93 per unit of electricity (kWh). Adani bid for selling power at Rs 2.92 per unit, 15 minutes after Azure bid at the same price.

Though Navayuga Engineering of Navayuga Group lost the auction by one paisa per unit of electricity, it was quietly striking another deal in the meantime. The company was in talks with the Adani Group to sell its stake in Krishnapatnam Port, which is India’s second largest private port. 

In August 2019 news on the talks for the port came out (This was also the year Navayuga had donated  Rs 45 crore to BJP through electoral bonds).

By November 2019, while the talks for the port were still going on, it bid as a competitor to the Adani Group before the SECI. Adani Group and Azure won the solar bid and a month later reports said that the Adani group had sealed the port deal with the Navayuga group. By January 2020, the deal was formally announced. Adani Group had got 75% equity in the port from Navayuga group for Rs 3,375 crore.

Government regulations require authorities to scrutinise bids for any possible collusion by bidders. Such scrutiny becomes even more important if bidders are evidently related to each other. The Navayuga and Adani groups managed to escape such scrutiny. 

Legally, the two became related parties once the port deal had been officially sealed in January 2020 and announced to SEBI. This was weeks after the Adani Group had won the solar power auctions where Navayuga had acted as a competitor. The fact that it was publicly known that the two were in talks for months for the port deal even as they were bidding against each other as competitors for the solar auction did not trigger any review of the two bidders by SECI. 

Azure and Navayuga’s decisions during the bid process aided Adani’s fortunes.

SECI had offered contracts to all three for additional solar power capacity without bidding. Azure and Navayuga did not avail of the offer. Adani bagged this additional capacity without bidding for it, going by the convoluted rules SECI and the Union government had scripted. 

By the end, Adani Group got commitment from the government to buy 8 GW instead of the 4 GW it had originally bid for. Azure got a 4 GW deal from the Union government firm after bidding for only 2 GW originally.

The special terms could be baked into the tenders because the rules and regulations for bidding provide wide discretionary space to SECI, the power ministry and the renewable energy to craft the bidding process quite as they wish and to keep tweaking it to their desire.

Vikram Solar’s criticism of this manufacturing-linked solar power sale tender could be interpreted as the sour grapes of a rival competitor. But there were industry watchdogs who were also concerned about it.

“This is an ineffective measure as the underlying causes of the competitive disadvantage of domestic PV (solar panel) manufacturers remain unaddressed. Moreover, the tariff discovered at the tender could burden cash-strapped discoms,” wrote an associate at the Council on Energy Environment and Water, one of India’s most prominent energy and climate think tanks, in July 2020.

The researcher at the think tank explained how the winning bidders had got a great deal at the cost of the consumer, and estimated Adani and Azure were going to make an unfair Rs 22,000 crore revenue going by the usually prevalent solar power rates. 

Going by the researcher’s calculation, The Collective estimated that the two groups stood to make a revenue of over Rs 1.5 lakh crore over 25 years with the winning bid price of Rs 2.92 per unit.

“Given the financial implications, it has become challenging for SECI to find discoms to sign the power sale agreement for the electricity generated,” the researcher wrote presciently.

Another solar market observer, Bridge to India also warned against the government’s decision to bundle a deal which ended up favouring the Adani Group. It said the auctions “makes no sense.”

SECI could not find a buyer among the state governments for the massive amounts of electricity it had agreed to purchase from Adani and Azure at the high price. 

As it scrambled for buyers, according to charges framed by the US Department of Justice, the two private firms allegedly paid bribes worth over Rs 2,000 crore to state government officials to lure them into signing power purchase agreements with SECI. The states, by signing on to the agreements, would buy electricity for the next two and a half decades.

But here’s where the plot thickens.

More than a year and a half after SECI issued Letters of Award to Adani and Azure at Rs 2.92/kWh, the firms decided to reduce the tariffs on their own, to Rs 2.54 and 2.42/kWh. This was a clear indication that the tariff at which they had won was unsustainable. 

The Collective independently calculated the revenue Adani Group was poised to make with this lower tariff. Our calculation, which also assumed the lowest capacity utilisation permissible under the tender, showed that the group would make a minimum of Rs 53,000 crore in revenue over two and a half decades.

The new prices for purchasing power now had to be ratified by the Union government’s power regulator. What should have been a routine hearing, took an unprecedented turn. Two individuals, both associated with then Opposition in Andhra Pradesh, turned up at the hearing to criticise the auctions.

The Hearing

One of the objectors, Payyavula Keshav, was an opposition MLA at the time and is now Andhra Pradesh's finance minister. The other, K Rama Krishna, Secretary of the Communist Party of India, also raised objections. Both claimed the tender process violated government guidelines.

However, the power regulator focused on Keshav’s arguments. He alleged that combining solar power generation with solar equipment manufacturing in the tender was illegal.

He noted that the then ministry of power’s guidelines were only to purchase solar power and not to bundle solar components manufacturing with it. Bundling the two had led to the ceiling tariff being raised from Rs 2.75 per kWh to Rs 2.93 kWh and restricted competition by limiting participants, leading to higher tariffs for consumers. He said standalone solar projects were able to sell power at Rs 2 per kWh in comparison.

Keshav pointed to other favourable terms of the auctions, including protracted time to set up the solar component plants, the decision to award higher power purchase deals than originally auctioned. He noted that many of these changes made to sweeten the deal for the bidders had been done through opaque orders of the renewable energy ministry.

SECI defended its decisions saying they followed the Union government’s guidelines. The guidelines itself gave discretionary powers to the renewable energy ministry to alter or interpret them, which it did through frequent orders that were not made public.

SECI also pointed to the fact that the two winners had voluntarily reduced the asking price after the auctions.

In addition, it argued that the power ministry did neither expressly allow nor bar bundling of component manufacturing with sale of power as a precondition to the auctions, so it was within its rights to do so.

The power regulator washed its hands off this controversy of combining power generation with solar component production. The Central Electricity Regulatory Commission said, “The Government of India, in its own wisdom, decided to promote solar manufacturing by offering PPAs for Solar Power Plants. There is no role of the Commission envisaged in the Act to intervene in such policy decisions of the Central Government.”

In other words no regulator in India could check if such bundling led to higher electricity tariffs for consumers once the Union government had decided to let it be so.

It also bought SECI’s argument that just like how power generators got the chance to run coal mines, solar power generators could be encouraged to produce solar sector components. SECI had said this was to encourage Modi government’s Atmanirbhar Bharat Abhiyan (self-reliant India campaign). It was forgotten that the power generator didn’t have to use Indian solar power components under the terms set in the tender.

The new revelations emerging from the US authorities now show the lowering of the bids voluntarily by Adani group and Azure were not in isolation. The US authorities allege the two groups schemed to bribe state politicians and officials while lowering their tariffs in order to stitch the final contracts under this controversial tender.