NEW DELHI: When Welspun Energy sold its renewable energy portfolio to Tata PowerBSE -0.93 % in June 2016, one solar project was left out of the deal. This 100 MW project is now the centre of a spat between Welspun Energy and the Solar Energy Corporation of India (SECI), with Welspun getting a stay order from the Delhi High Court in late April to prevent SECI from cancelling the deal and encashing its bank guarantee of Rs 30 crore.
Welspun won 100 MW in an auction of 500 MW in Maharashtra that SECI conducted in January 2016, bidding a tariff of Rs 4.43 per kwH. It signed the power purchase agreement (PPA) for the project with SECI in July 2016. However, in June, it had reached an agreement to sell its subsidiary Welspun Renewable Energy’s entire assets of 1,140 MW to Tata Power for $1.4 billion (Rs 9,249 crore). The deal was completed in September. The Maharashtra project could not have been part of the deal as an auction stipulation by SECI says developers’ winning projects cannot sell more than 49 per cent stake until at least a year after project commissioning.
Since then, however, Welspun Energy has not taken any steps to execute the project. According to the provisions of the PPA, Welspun, as the stay order puts it, “was required to achieve certain milestones including production of documentary evidence of clear title and possession of acquired land at the rate of minimum 1.5 hectare per MW”. It also had to show that it had infused “cumulative capital in the form of equity for an amount of at least Rs 0.84 crore per MW” into the project.
If it did not, SECI had the right to “encash the performance bank guarantee” and “terminate the agreement”. Admitting the delay, Welspun Energy sought and secured an extension up to November 29, 2016, to comply with SECI’s conditions and even paid a penalty of Rs 1.9 crore. But it did nothing thereafter. On March 1 this year, SECI wrote to Welspun Energy demanding the required documents within seven days.
Unable to provide them, in mid April, Welspun Energy paid a further penalty of Rs 6.5 crore and sought still more time, while simultaneously petitioning the Delhi High Court to restrain SECI from cancelling the project. The court noted that since SECI had not responded to Welspun Energy’s last communication, making it clear it intended to encash the guarantee, itwas “restrained from invoking the bank guarantee till the next date of hearing”, which has since been set for early August. Both Welspun Energy and SECI refused to comment on the matter. “Welspun may not have been able to get the land,” said an industry source. “Why infuse equity into the project when you are not certain that the land is there?”
But why Welspun Energy chose to bid at all in the Maharashtra auction when it was looking to exit the renewable energy business, and did not even have the land necessary for the project, remains a puzzle. Market speculation is that Welspun Energy wants to transfer the project to Avaada Power Pvt Ltd, owned by Vineet Mittal, who was managing director of Welspun Renewable Energy before its sale to Tata Power, but is finding the 49 per cent restriction a stumbling block. According to a January 2017 report by rating agency CARE, Avaada Power holds 27.70 per cent stake in Welspun Energy. It is also expected to take over the EPC business of Welspun Renewable Energy.
“Considering that solar tariffs are now down to Rs 2.44 per kwH, given the fall in solar equipment prices, while Welspun won its project at Rs 4.43 per kwH, it is only natural that it wants to hold on to the deal,” said another industry source.