Opinion | A state must honour its past commitments

A decision by the Andhra Pradesh government to review power purchase agreements for renewable energy projects has revived the debate on the sanctity of contracts in India. Chief minister Jagan Mohan Reddy’s point is that the deals struck by the government of his predecessor N. Chandrababu Naidu have burdened the state’s power distribution companies with high payment obligations, while the unit costs of producing electricity from solar and wind farms have declined sharply. The state’s repudiation of a set of contracts inked earlier has caused consternation not just in New Delhi— which places renewable energy at the heart of its commitment to climate change—but also in several global financial capitals from where the money for these projects came in. The Andhra government now finds domestic banks questioning the strength of its guarantees. Power purchase agreements aside, Reddy also wants to renegotiate projects developed in partnership with foreign investors for a new state capital. His insistence flies in the face of the Centre’s counsel and judicial pronouncements.