NEW DELHI: The government is unlikely to accept SoftBank’s demand to fix tariffs in dollars or to give a central guarantee to buy electricity from its plants, dampening founder Masayoshi Son’s proposal to invest a staggering $1trillion by 2030.
Officials said after the Dabhol fiasco, in which Enron was granted similar assurances, the government is unlikely to expose state utilities to foreign exchange risks, which is also not in line with the tariff policy. Further, they said, assurance to purchase electricity was adequately covered in power purchase agreements (PPAs) that buyers and sellers sign.
Son met PM Narendra Modi a few days ago. He also met power minister RK Singh and senior officials of the power and renewable energy ministries to present his proposal. Officials in the power and renewable energy ministries said they would study the proposal and that no decision had been taken. A senior official, however, said it was unlikely the government would accept the conditions.
“SoftBank made a presentation to the power minister… They proposed (to invest) around $1trillion till 2030,” a government official, aware of the developments, told ET on the condition of anonymity.
The investment proposed by Soft-Bank is more than the funds required to meet the 100 GW solar energy target by 2022. Former power and renewable energy minister Piyush Goyal had said the total investment required would be around Rs 6 lakh crore ($89.88 billion) going by the current cost of Rs 6 crore per mw.
In 2015, SoftBank had committed $20 billion along with Foxconn Technology Group and Bharti Enterprises to set up 20 GW (20,000 MW) solar power capacity in India. The consortium currently has 950 MW capacity — of which 350 MW is commissioned and 600 MW is in the pipeline — won through solar auctions.
The currency risk for dollar-denominated PPAs falls on the government, which may be the stumbling block in the deal, as the government will try to avoid it, officials said. However, the government is considering the proposal and has ‘neither accepted nor rejected’ it, sources said. “As an investor, SoftBank is seeking to reduce its cost, otherwise you have to add around 6% to your finance cost. Because someone has to take the risk, here they want the government to take the risk,” the official added. The spokeswoman for SoftBank declined comment.
Some western countries have in the past offered dollar-denominated tariffs in solar projects to attract investments. Former power minister Goyal had also explored awarding solar power projects through dollar-denominated tariff-based bidding. The idea was shelved when solar tariffs fell sharply and the rupee weakened against the dollar. Under dollar-denominated tariff bidding, state power distribution companies seek supply bids in dollars for 25 years.
This is not the first time a company has offered such an investment to India. In the late ’80s, China Light & Power had offered to supply power at 3 cents (dollar-denominated tariff) for 25 years. In hindsight, India’s decision to reject the proposal turned out to be prudent, considering the currency risk. A dollar equalled Rs 32 then, compared with Rs 67 now.
“SoftBank is looking to secure its investments. Asking for dollar-denominated tariffs is one way since finance is the biggest cost in setting up a solar plant,” a senior power ministry official said.
The national tariff policy, however, does not allow for passing on foreign exchange fluctuation risks to distribution companies.
“Appropriate costs of hedging and swapping to take care of foreign exchange variations should be allowed for debt obtained in foreign currencies.
This provision would be relevant only for the projects where tariff has not been determined on the basis of competitive bids,” the policy states. The guarantee on offtake of power that SoftBank has asked for is not a concern, officials said. “Once you sign a PPA, offtake of power is automatically guaranteed,” an official said. Power minister RK Singh could not be reached immediately for an official statement.