More trouble for Adani Group as Bangladesh seeks revision of power deal — ‘excessive pricing’

New Delhi: Even as the Adani Group wrestles with the consequences of the Hindenburg Research report accusing it of stock manipulation and fraud, the conglomerate is facing yet another challenge, this time from Bangladesh.

According to the Bangladeshi news portal UNB, the Bangladesh Power Development Board (BPDB) — the government agency in charge of power distribution in the neighbouring country — is seeking a revision of a 2017 power purchase agreement with Adani Power Power Ltd for importing electricity from its thermal power plant in Jharkhand’s Godda district.

The agreement, signed between Adani Group and BPDB on 5 November 2017, pertains to generating electricity at the Godda plant and exporting it to Bangladesh. The plant was to begin exporting 750 MW of electricity in March.

“We have sent a letter to the Adani Group following a request we received in relation to opening Letters of Credit (in India) to import the coal that will be used as fuel for the 1,600 MW plant in Jharkhand,” an BPDB official told Bangladeshi news portal UNB.

Simply put, an LC, or a letter of credit, is a bank guarantee given to the seller on behalf of a buyer.

It was Bangladesh’s State Minister for Power, Energy, and Mineral Resources Nasrul Hamid who first said that his country wanted a revision in the prices, when he visited the Godda site in the first week of January.

The primary issue was the “excessive pricing” of the coal, which, according to the agreement, has to be imported from the Adani Group’s Carmichael mine in Australia’s Queensland. According to BPDB officials, the price of coal quoted by the company is making electricity generation an expensive affair.

While it’s still unclear when the BDPB sent its letter to Adani Power, it came after the private thermal power producer wrote asking for a “demand note” that it was required to submit to Indian authorities. This demand letter would reportedly allow Adani Power to get a Letter for Credit for importing coal.

ThePrint reached the Adani Group and the BPDB via phone and email. This copy will be updated if and when a response is received.

When asked about the issue Thursday, Ministry of External Affairs spokesperson Arindam Bagchi said he wasn’t aware of the details.

“I understand you are referring to a deal between a sovereign government and an Indian company. I am not aware of this. I don’t even think we are involved in this,” Bagchi said at a press briefing.

Meanwhile, in a related development, a civil rights group has filed a public interest litigation against the project at the Calcutta High Court. In its petition, the Association for Protection of Democratic Rights (APDR) says the project and its transmission lines will have an adverse impact on the livelihoods of several people living at Farakka in Murshidabad, West Bengal.

Negotiating price point

The bone of contention in the agreement appears to be the price point of coal — $400 per metric tonnes (MT), which Bangladeshi officials think is inflated.

“In our view, the coal price they have quoted ($400/MT) is excessive — it should be less than $250/MT, which is what we are paying for the imported coal at our other thermal power plants,” an official was quoted as saying by Bangladesh’s UNB.

However, according to the Newcastle Price Index — the main price reference for physical coal contracts in Asia — buyers could avail discounts of up to 55 per cent on bulk value.

It’s also significant to note that criticism of the deal goes back some years. In a webinar in August 2020, analysts from two Bangladeshi community groups — the Bangladesh Working Group on External Debt (BWGED) and the Coastal Livelihood and Environmental Action Network (CLEAN) — claimed that the project could add to Bangladesh’s external debt.

BWGED’s Sajjad Hossain Tuhin said if the power deal were to proceed, Bangladesh will fall into a ‘heavy burden’ from external loans.

According to critics, the deal will be unviable for Bangladesh unless the price is adjusted. According to officials, without discounts, Dhaka could end up paying 20-22 Bangaldeshi Taka per unit for electricity from Adani Power, nearly twice the rate it pays for electricity from local coal plants.

Some critics, such as Tuhin in 2020, also claim that Bangladesh may not require the power plant at all “as it is already experiencing overcapacity”, especially given that 44 per cent of Bangladesh’s total electricity generation capacity is currently unused.

The deal has also been criticised on the ground that it was hastily done on the insistence of the Adani Group and in the absence of senior Bangladeshi officials.

An energy expert, however, argued that “overcapacity” in the context of Bangladesh’s electricity generation was an exaggeration and that the deal could actually help meet the country’s electricity needs.

“Bangladesh shows a capacity of 25,500 MW but excluding the captive and dysfunctional plants along with fuel shortage, the true grid capacity is 16,000 MW,” M. Tamim, a professor at Bangladesh University of Engineering and Technology, told ThePrint. “This can barely meet the peak demand now. The overcapacity is hype and the high capacity claim is more political than reality.”

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