Feb. 2 (Bloomberg) -- India may investigate if Lanco Infratech Ltd., the nation’s second-largest non-state power utility, and Moser Baer India Ltd. broke rules to win more capacity than allowed in the country’s first solar auction.
“If there are any facts that indicate violations, we would do an inquiry,” Tarun Kapoor, joint secretary at the Ministry of New and Renewable Energy, said by telephone today. If there are violations, the government will bar them from the program, which means they’ll lose an assured government buyer, preferential rates at which to sell power and other guarantees, he said.
Lanco broke the rules in the country’s first solar auction by creating front companies to win more than the 105 megawatt capacity allowed, the Centre for Science and Environment said yesterday in New Delhi. If there’s an investigation, it may be widened to include Moser Baer India, Kapoor said.
Lanco and companies it set up won contracts to develop 235 megawatts of solar capacity, about 40 percent of the total awarded in December 2010, CSE said. Lanco denied breaking the rules, saying it reported its holdings in the other companies to the government agency charged with running the auction, NTPC Vidyut Vyapar Nigam Ltd., known as NVVN.
“There was no illegality involved,” Lanco said in a statement yesterday.
The company’s shares surged as much as 3.5 percent to 16.50 rupees in Mumbai and traded at 15.70 rupees as of 11:23 a.m. local time, extending yesterday’s 5.3 percent gain. Lanco fell 85 percent last year and bounced back in January, gaining 59 percent.
When NVVN investigated the matter, it was told that Lanco held no more than 49 percent in the seven companies that won the projects, Kapoor said.
NVVN sent letters to the seven companies in August and September, warning it would terminate contracts to buy their power unless Lanco reduced its stake in them, Anil Agrawal, chief executive officer of the state-run agency, said by phone from New Delhi.
The seven companies are named in Lanco’s September annual report as units or companies in which it holds preference shares. Lanco reduced its holdings in December after which the government considered the matter resolved, Agrawal said.
“The law provides that the developer may remedy the problem without being terminated and that’s exactly what happened,” Agrawal said.
CSE said Lanco created the companies to unfairly broaden its share of the awarded plants.
“Seven companies had direct links with Lanco, some having Lanco employees and their family members as directors while others had strong commercial ties to the company,” CSE said in a statement. “Lanco and the front companies bid for the projects in a unified fashion and the detailed project reports were almost identical -- word for word, page by page.”
Lanco didn’t respond directly to those allegations, saying it held stakes within a “permissible level” in the companies and provided them with “support” during bidding so that they could compete with larger rivals, according to its statement.
NVVN also sent a letter warning of termination to a unit of Moser Baer India, which resulted in the company reducing its stake in a 5 megawatt solar power plant, Agrawal said. Moser Baer spokesman Abhinav Kanchan didn’t immediately reply to an e-mail he sought when reached on his mobile phone for comment.
India awarded about 620 megawatts of solar capacity in December 2010 in its National Solar Mission, which targets adding 20,000 megawatts of solar capacity by 2022. The government awarded another 350 megawatts to bidders in December 2011.