Adani cashing in on a 'one-sided' deal

The situation with the Indian power company Adani Group remains complicated. Since last July, Adani has been charging electricity bills based on the increased price of coal used in its power plants.

Additionally, the company is pressuring Bangladesh to pay outstanding bills, having already reduced electricity production to less than half. Observers have noted that Adani is taking advantage of a "one-sided" deal.

Adani's power plant is located in Godda, Jharkhand, India. Last year, before power generation began, there was significant controversy surrounding the price of coal.

The Power Development Board (PDB) refused to pay the high coal prices, prompting Adani to agree to reduce them. The company also promised to supply coal at a lower price than the Payra and Rampal power plants. However, a year later, Adani is now demanding a 22 per cent increase in price.

On 28 October, Adani sent a letter to the PDB amid ongoing disputes over the price hike and demands for payment of dues. The letter stated that the PDB must take measures to pay the arrears by 30 October as promised; otherwise, Adani would be forced to stop power supply from 31 October, citing a working capital crisis.

According to PDB sources, the letter of credit (LoC) for power imports from Adani was supposed to be opened by 30 October, facilitated by Krishi Bank, but this did not occur. The PDB has requested additional time. As a result, Adani shut down one of its units on Thursday.

Currently, a little over 500 MW is being generated from the operational unit, which has a capacity of 750 MW. Meanwhile, the Matarbari power plant is closed due to a lack of coal, and production has decreased at the Rampal and Banshkhali power plants due to outstanding issues. There was a load shedding of over 1,500 megawatts per hour on Thursday.

According to sources from the Power Development Board (PDB), the 1,320 MW power plant at Payra in Patuakhali is charging USD 75 per tonne of coal. In contrast, the coal prices at Chattogram’s Banshkhali SS Power Plant and Bagerhat’s Rampal Power Plant are both under USD 80 per tonne. Adani, however, is requesting USD 96 per tonne of coal, which is USD 21 to USD 16 more per tonne than the prices at Payra and Rampal.

Adani’s coal-based power plant has a capacity of 1,600 MW, and Bangladesh has committed to purchasing the generated electricity for 25 years. Commercial power generation from the first unit began in April last year, with the second unit starting in June of the same year.

In February, an Adani delegation held a meeting with the PDB to discuss coal prices, which resulted in billing based on the actual price of coal for one year. Since last July, Adani has been billing in accordance with the agreement.

In a written response to the public relations agency of Adani Group in Dhaka, the company stated that it has been submitting bills based on the coal price index since July, asserting that there has been no change in the pricing structure. Thus, they believe complaints about high coal prices are unfounded.

Sources within the power department and the Adani power plant indicate that Adani’s weekly bills range from USD 22 million to USD 25 million, while the PDB is only able to pay about USD 18 million. Previous repayments were even lower, and as of October, the PDB owes approximately USD 850 million.

Two PDB officials informed Prothom Alo that the board has deposited Tk 10 billion in a bank to settle outstanding bills for Indian power plants, including Adani. However, banks are struggling to process regular payments due to a dollar shortage. Despite Adani’s submission of increased coal price bills, these have yet to be considered. There are suggestions to amend the contract if necessary.

Muhammad Fouzul Kabir Khan, an adviser to the Ministry of Power, Energy, and Mineral Resources, told Prothom Alo that Adani’s billing does not alter the situation. He emphasised that there is no question of paying extra, and the PDB will review the issue of increased coal prices professionally and impartially, in line with international norms. A contract review committee has already begun its work on this matter.

Adani appears to be gaining extra advantages from its contract due to the methods used to determine coal prices. The pricing relies on the Australia (Newcastle Index) and Indonesia Index, which are key indicators since both countries are major coal exporters. These prices are regularly published online.

However, insiders indicate that the announced prices often include special discounts based on the purchase agreements. For instance, the Payra power plant benefits from specific pricing arrangements.

According to two officials from the Power Division and the PDB, costs are calculated based on coal purchase bills from all other power plants. The PDB’s power purchase agreement with Adani specifies that the average price will be derived from the index of Indonesia and Australia, resulting in higher bills for Adani. This means that even if Adani purchases coal at a discounted price, the PDB does not benefit from those savings.

Concerns have been raised regarding the rushed signing of the electricity purchase agreement with Adani in 2017, under the guidance of the Power Division. At that time, no imported coal-based power plants were operational in the country, which limited the PDB’s ability to adequately scrutinize coal pricing.

PDB relied on Adani Group’s experience in operating coal mines and constructing large coal-fired power plants in India, allowing Adani to leverage the PDB’s inexperience and its own governmental connections.

Once the Payra and Rampal power plants began operations, the issue of coal pricing became more prominent for the PDB. It notes that the prices for coal of varying quality (calorific value) are published in two international indexes. Adani calculates the average price of high-quality coal from these indices; however, based on the quality of coal used, prices could potentially drop by USD 20 to USD 25 per ton.

In response, Adani representatives claim they are charging according to calorific value and that there is no basis for calculating costs based on higher-quality coal.

However, a PDB officer contested this claim by drawing an analogy: if the market price for one kilogram of hilsa fish is Tk 2,000, and a 700-gram fish costs Tk 900 to Tk 1,000, pricing the 700-gram fish based on the kilogramme price would result in Tk 1,400. This, the officer argued, is similar to how Adani is pricing coal.

Officials from the Power Division and the PDB indicate that Adani’s dues have been accumulating for long. However, the recent political changes following Sheikh Hasina’s government have increased pressure to collect these dues.

Adani has even sent a letter to the chief adviser of the interim government requesting payment, to which the adviser responded with a promise to repay the dues.

Moreover, within a week of Sheikh Hasina’s resignation last August, Adani established an alternative market for selling electricity by amending the contract in India.

According to the agreement, all power plants have a capacity charge, or central rent, that must be paid regardless of whether they produce electricity. This charge is high during the initial years and gradually decreases.

In Adani’s case, the charge remains constant for the first seven years of the contract before tapering off. Cancelling the contract at this stage would result in financial losses for the PDB.

A review of the power purchase agreement signed between the PDB and Adani, alongside insights from an expert at Bangladesh University of Engineering and Technology (BUET), reveals that Adani has secured maximum benefits in the contract by leveraging its experience.

Notably, the contract stipulates a steep interest rate of 15 per cent per annum for late bill payments, which is not the case with the Payra power plant.

Additionally, PDB bears all costs associated with Adani’s power plant, and interest rates on investments will be determined by India rather than Bangladesh.

Furthermore, water consumption charges must be paid, a stipulation not found in the Payra agreement. Adani has also entered into contracts with two other companies within its own group for coal import, port management, and transportation, raising concerns about a lack of transparency in the process. Experts in the power sector have suggested that this agreement should be reviewed in the national interest.

The last Awami League government enacted the Rapid Increase in Supply of Electricity and Fuel (Special Provisions) Act, 2010 (Amended 2021), which allows for contracts to be awarded without a competitive tendering process.

Decisions made under this Act are not subject to legal challenge, leading to its designation as the Immunity Act. In response, the interim government is establishing a national committee to review agreements made under this legislation.

On 28 September, the National Review Committee convened and decided to collect data from 11 power plants, including those operated by Adani in India.

The Power Division has instructed relevant authorities to supply all necessary data and documents to the committee.

Shamsul Alam, energy advisor for the Consumers Association of Bangladesh (CAB), told Prothom Alo that the contract with Adani includes numerous additional costs that have been gradually introduced, allowing Adani to siphon substantial amounts of dollars out of the country.

He described the agreement as one-sided and argued that Adani is exploiting the situation. Alam urged the government to withdraw from this agreement immediately, warning that CAB would take legal action if the government fails to cancel it.

* This report, originally published in Prothom Alo print edition, has been rewritten in English by Farjana Liakat