Renewable power project developers are staring at weak cash flows from their projects in Andhra Pradesh.
Not paid by the state for a year already, these companies fear that payment will remain stalled till legal clarity emerges on the state's decision to renegotiate tariff of all renewable projects.
Sector executives said that the unpaid dues total up to Rs 7,000 crore for the past year.
"Through this highly illegal and non-contractual decision to review and bring down tariff, Andhra has landed a lot of players in the soup. Dues of more than Rs 7,000 crore were already there. Owing to the weak cash flow, a lot of smaller companies are staring at a default," said a senior executive of a leading renewable company.
Sources said there are three solar companies that have defaulted on loans for their power projects in the state. The companies could not be reached for confirmation.
Last month, the newly formed Andhra state government led by YSR Congress formed a high-level negotiation committee (HLNC) to "review, negotiate and bring down" tariff of all renewable power projects, including the ones that were awarded through bidding.
Indian Wind Power Association, along with a dozen wind power companies and a couple of solar companies, including ReNew Power, ACME Solar and Waaree Energy, moved writ petitions to the Andhra Pradesh High Court.
The HC stayed the proceedings of the HLNC. The next hearing on the matter is on August 22.
Andhra, in its order to review the "high tariffs", cited the poor financial status of its power distribution companies (discoms) as the reason to review the tariff.
The state discoms have dues of Rs 20,000 crore. Its annual net income stands at a loss of Rs 1,563 crore, as last updated on the UDAY portal.
Despite the losses, power distribution companies in the state would provide a subsidy amounting to Rs 5,000 crore. The beneficiaries would be farmers, scheduled castes and scheduled tribes as well as aquaculture farmers, said the order of the AP Electricity Regulatory Commission.
Chief minister Y S Jaganmohan Reddy had promised free power to farmers after he was sworn in recently.
India Ratings, in a report last month, said renegotiation of contracts not only creates anxious times for the sector but also magnifies the risk a project could undergo during its power purchase agreement (PPA) tenure.
"Notwithstanding the outcome of the committee's decision, reopening of PPAs will dent investor sentiment. Additionally, banks will be forced to recognise these assets as non-performing if payments are stopped, thereby creating further stress for the lending sector," it said.
Soon after taking over as CM of Andhra Pradesh, Reddy cancelled all MoUs signed by previous governments.
He also cancelled announced and under-construction infrastructure projects and formed a committee to review and bring down the tariff on renewable energy projects.