Himachal upfront payment policy breaks down – making an exception for Adani Power opens room for others

Shimla: Making an exception for Adani Power and deciding to return over Rs 280 crore of upfront money paid for securing a hydropower project in 2006, the Himachal Pradesh cabinet has not only overturned a ten year old settled policy but the decision threatens to open a Pandora box.

Taking the case of Adani Power, others who have failed to execute power projects are expected to line up, demanding a return of upfront money paid that the state has forfeited over breach of allotment terms.

Treating water as a state resource, Himachal came up with a policy 2006 of inviting private sector bids for setting up hydro-electric plants with the bidder offering the highest one time upfront payment per megawatt of generation potential for a given site being offered the project site.

The policy was extended from large to small and micro projects and within 5 years most of the good potential sites were sold out to small and big players, some who had no expertise and were venturing into the power sector for the first time.

Bids at Rs 36 lakhs per MW for the large 960 MW twin Jangi-Thopan-Powari project was one of the first ones to be handed down in 2006 to Brakel Corporation, a joint venture with a Dutch company of dubious financial standing that had never executed a small or big power project.

CM Virbhadra Singh presiding over the cabinet meeting that decided to refund the Rs 280 crore to Adani Power
CM Virbhadra Singh presiding over the cabinet meeting that decided to refund the Rs 280 crore to Adani Power

After winning the bid, Brakel by selling equity roped in Adani Power to pay the upfront money, which included interests for delayed payments. The amount in 2008 exceeded Rs 280 crore.

Having lost out in the bid at Rs 30 Lakhs per MW in 2006, Reliance Power challenged the allotment process in court.

Trapped between two large and powerful Gujarati business houses, the Himachal Government dilly-dallied but in the end with the court’s permission cancelled the project allotment and decided to impose a penalty on Brakel Corporation.

The Rs 280 crore paid as upfront money was taken to be the penal amount for misrepresentation and projected revenues lost because of delays caused by not executing the project.

The project after two failed upfront payment bidding rounds in 2015 has been offered to Reliance Energy but what surprised many was the sudden decision of the cabinet to repay the upfront money paid by Adani Power for the project allotted to Brakel Corporation.

With the cabinet having inadvertently conceded that imposition of the penalty on Adani Power was unwarranted, illegal or arbitrary, the government would now not just have to repay the principal amount but would most likely also be challenged for payment of interest on it.

What’s more, all other cases where the government has imposed a penalty by forfeiting the upfront money for projects not executed could also be dragged into court by making the Adani Power case as the analogy for seeking a refund.

Silence of the opposition party over the cabinet’s decision poses the question that Sherlock Holmes put to Dr Watson when investigating a murder case where the person who was killed was the owner of a very faithful dog. “The question Dr Watson is – Why did the dog not bark?”

Join the Conversation

1 Comment

  1. says: Vishwa Nath Sood

    Mr Makhaik, dogs don’t bark when thrown a bone or chunk of meat.What do you think that 280 crore will be pocketed by Adani?….On a second thought, will he get it from a government which finds it a problem to meet the monthly salary bill of its employees?

Leave a comment
Leave a comment

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.