Bifurcation of state raises issues for electricity sector

The Andhra Pradesh Reorganisation Act, 2014, received the assent of India’s president on 1 March and on 2 June the successor states of Andhra Pradesh and Telangana came into exist- ence. The act provides a roadmap for the creation of the new states and sets out the manner in which assets and liabili- ties of the old state will be apportioned between the successor states.

Impact on power sector

In addressing issues impacting the power sector, the act sets out various principles, guidelines and directions on matters related to power genera- tion, transmission and distribution. For instance, schedule 12 of the act provides that existing power purchase agreements (PPAs) with distribution companies in the old state of Andhra Pradesh will continue and that the existing Andhra Pradesh Electricity Regulatory Commission (APERC) will function as a joint regula- tory body for a period not exceeding six months, within which time separate state electricity regulatory commissions will be formed in the successor states.

The above provisions and others affecting the electricity sector are poten- tially litigious and are subject to differ- ent interpretations. For instance, while the act provides that units of Andhra Pradesh Power Generation Corporation will be divided based on geographical location of power, in the same breath, the act provides that the existing PPAs will continue (i.e. regardless of any impact of the geographical bifurcation). Further, owing to the reorganization, each suc- cessor state is trying to secure its energy needs, which is evidenced by Andhra Pradesh trying to unilaterally cancel existing PPAs.

Neeraj Menon is a partner at Trilegal and Rashi Ahooja is an associate. Trilegal is a full-service law firm with offices in Delhi, Mumbai, Banga- lore and Hyderabad.