Andhra Pradesh: Investors Spooked by Jagan's 'Arbitrary' Decisions

The government has insisted on reversing decisions taken by the previous regime, such as the tariffs of renewable energy and tenders in the Polavaram irrigation project.

New Delhi: After the YSR Congress government in Andhra Pradesh undertook a series of measures to review decisions taken by the previous N. Chandrababu Naidu regime, reports are emerging that investors are alarmed about the business environment in the state.

According to Firstpost, the Japanese ambassador to India Kenji Hiramatsu wrote to chief minister Y.S. Jaganmohan Reddy about concerns regarding the state’s renewable energy sector. The new government has decided to review the tariffs of sealed-and-signed renewable energy contracts. Japanese companies have substantial investments in at least two major renewable energy developers with stakes in the state.

“Many foreign investors, including Japanese companies, are now watching closely the situation unfolding in your state regarding the renewable energy sector,” the Japanese ambassador wrote in his missive.

The Centre had also advised the state government to continue with the power purchase agreements (PPA). In early July, Union power minister R.K. Singh wrote to Jagan, asking him to honour the contracts. “If an impression goes out that the rule of law does not prevail or the contracts are not honoured, the investments will dry up and growth will come to a halt,” Singh said. Industry body Crisil also warned that the government’s move puts Rs 21,000 crore debt at risk of default.

Also Read: HC Stays AP Govt Order on Review of Power Purchase Agreements

Despite these concerns, the YSR Congress seems to be intent on reviewing the agreements, saying that the high cost of wind and solar power subsidies would see the state government incur a loss of Rs 3,000 crore every year for the next 25 years.

Speaking on Independence Day, Jagan said that he would not yield under pressure. “Should we be the custodians of people’s money? Or should we be the protectors of the wrongdoers?” he said, in a meeting with ministers and officials.

Investors, the Centre and industry bodies have warned against scrapping renewable energy agreements. Credit: Flickr/Miguel MS

Polavaram tenders scrapped

Another issue that has spooked investors is Jagan’s decision to cancel tenders on some work that is underway at the Polavaram irrigation project. On July 29, the AP government issued a pre-closure termination notice for contracts worth over Rs 3,000 crore with Navayuga Engineering Construction, for the ongoing Polavaram irrigation project, citing “massive corruption” during the Chandrababu Naidu regime.

A call for fresh tenders was issued on August 17.

In this case too, the Centre had objected, asking the state government to reconsider its decision. Both Union water resources minister Gajendra Singh Shekawat and the Polavaram Project Authority cautioned the government against cancelling the existing contractor and floating fresh tenders.

The Polavaram Project Authority’s chief executive officer R.K. Jain wrote to the government, saying, “There is neither enough ground nor any necessity for pre-closure of tenders and re-tendering of project works. Such a step will result in unforseen consequences and will plunge the project into uncertainty.”

Corruption or vendetta?

While the YSR Congress has defended these moves as a necessary step against the alleged corruption under the previous Telugu Desam Party (TDP) government, critics have labelled them as “vendetta”. The Jagan government’s efforts to seemingly force Naidu out of his residence have also come under fire.

Other reports suggest that as a result of the seemingly arbitrary decisions, Indonesia-based Asia Pulp & Paper, which entered into one of the biggest Foreign Direct Investment (FDI) agreements in the country, backed out. Before withdrawing, the company had announced plans for investing Rs 24,000 crore in a greenfield pulp and paper plant in the state. However, the state’s industries and IT minister Mekapati Gautam Reddy denied these reports.

Also Read: ‘Political Vendetta’: AP Govt’s Moves Against Chandrababu Naidu Create a Storm

Reports about World Bank dropping $300 million funding to the state’s capital Amaravati also triggered trading of accusations by YSR Congress and TDP leaders. While the government accused TDP of irregularities, the former claimed that the Jagan had “sabotaged” the project. New reports suggest that the government may consider shifting the capital altogether.

N. Chandrababu Naidu and Y.S. Jaganmohan Reddy have traded allegations over the past few months. Photos: PTI Illustration: The Wire

As business slows, weight of promises looms

Journalist Ramesh Kandula wrote in Firstpost that Naidu’s business-oriented approach to governance had seen Andhra Pradesh receive the fourth-highest FDI in the first nine months of FY 2018. “Jagan, however, is yet to show any fervour for attracting investments like his predecessor. For example, the Economic Development Board, established by the Naidu government as a nodal point of contact for investments in the state, has been put in limbo since the new government came into power,” he wrote.

According to IANS, the state is already facing high debt. During the budget presented in July, finance minister B. Rajendranath said the fiscal position inherited by his government “compelled it to make some very hard choices between wealth creation and welfare programmes”.

Also Read: Amaravati Capital City Project: From Utopia to an Uncertain Future

The state’s debt was Rs 1,30 lakh crore in 2014-15 and reached Rs 2.58 lakh crore in 2018-19, he said, blaming the Naidu government for the inflated numbers.

“There is a resource gap of around Rs 45,000 crore to fulfil the commitments under Budget 2019-20 Vote on Account presented in February. This resource gap is further amplified by the budget necessary for our new programmes,” he said.

However, Jagan’s government and the budget are welfare-oriented, with sops worth around Rs 50,000 crore being announced in the past few months. Questions are being raised on how the government plans to fulfil these promises, as a cash-strapped state also proceeds to upset the business environment.