Adani can realies 15 times its cost without yielding powerEmran Hossain | Published: 00:07, Apr 02,2023
Founder and chairman of Adani Group Gautam Adani. --AFP photo
The power deal between Bangladesh and the Adani Group entitles the Indian corporate giant to earn 15 times its investment without even producing any electricity in its coal-based Godda power plant.
The 1,600MW power plant built in India’s Jharkhand for exclusively supplying electricity to Bangladesh is stipulated to operate at an 84 per cent capacity for 25 years.
Bangladesh announced the beginning of the test transmission from the Godda plant on March 9. The commercial operation at the plant will have to begin in 120 days of the beginning of the test transmission.
An estimate by the Bangladesh Working Group on External Debt shows that the Adani Group would earn more than $58 billion if it operates at the full capacity throughout its lifetime.
Regardless of electricity produced or not, the estimate shows, Adani would earn about $29 billion anyway, about 15 times the investment Adani made in the power plant — about $2 billion.
‘The deal is a double-edged source. It will leave Bangladesh wounded anyway,’ said Hasan Mehedi, member secretary, BWGED.
‘It is already too late to back out of the deal,’ he further said.
The estimate made by the BWGED is a conservative account of the financial burden two provisions in the power purchase agreement with the Adani is creating for Bangladesh.
One of the conditions requires Bangladesh to pay about $11 billion in capacity charge to the Adani Group whether or not power is produced at the Godda power plant.
The capacity charge includes a guarantee for Adani of a return with profit on its investment. The capacity charge provision is common in power purchase deals involving Bangladesh.
The capacity charge, known as fixed cost too, also covers loans and their interests.
Bangladesh signed the power deal with Adani in November, 2017.
Besides the capacity charge, the power deal includes a rare kind of provision in its article number 3.1, making the purchase of 34 per cent of the plant’s electricity by the Bangladesh Power Development Board every year under an arrangement called ‘minimum off-take commitment’.
The article details the aftermaths of failing to fulfil the minimum off-take commitment, saying that the PDB will have to pay for the energy price along with penalty, damages or compensation suffered by the Adani Group from the coal supplier and the transporter and the port operators.
The BWGED estimates that the BPDB will have to pay $18 billion under the minimum off-take guarantee alone.
The estimate does not include any fines or penalties.
Power secretary Habibur Rahman refused to comment on the deal with Adani.
ABM Ziaul Huq, chief engineer, Independent Power Plant cell, BPDB, said that they planned to begin importing electricity from the 800MW first unit of the Godda power plant during the peak of this summer.
‘The electricity demand will be very high during summer and we will have to import electricity from the Godda plant,’ he said.
According to Zia, they do not have any plan of having the power purchase deal reviewed, despite a popular demand for scrapping the deal.
The demand for cancelling the power deal with Adani, dubbed by
energy experts and economists at home and abroad as highly discriminatory to Bangladesh, gathered momentum since January, especially as the country has a 50 per cent power overcapacity.
The Adani Group demanded to be paid twice the market price for coal in January causing outrage among government power officials and energy experts amid a severe economic crisis hurting the country.
Centre for Policy Dialogue research director Khondaker Golam Moazzem has recently attributed the making of the existing economic crisis to, among other reasons, unsolicited discriminatory power deals like the one involving the Godda power plant.
The power deal with Adani could be terminated under certain circumstances but through a complex set of steps covering months, according to the terms and conditions of the deal.
The power deal can be terminated after months of negotiation after issuing of notices of default and termination in phases to Adani and its lender.
Any breach of the deal could be the base of its termination by any of the two signing parties.
But Bangladesh has actually never considered scrapping the deal that the Washington Post reported to have come into being as a result of a direct negotiation between Narendra Modi and Sheikh Hasina.
‘Scrapping the deal would be diplomatically costly,’ said Mohammad Hossain, director general, Power Cell, a wing of the Power Division.
The government is, he said, in a bargain with the Adani Group to get rid of unjustified expenses. Adani reportedly verbally agreed to reduce coal bills. Any paperwork over the matter is unlikely.
The power deal allows Adani, currently embroiled in a global fraud controversy, to manipulate coal prices, revealed BPDB officials in January.
Adani sought a price 60 per cent higher than what was charged by similar coal-based power plants, because of a controversial provision in the deal allowing higher prices for lower-quality coal.
The deal allows Adani to sell cheap coal bought from the Indonesia market to the PDB at the high price of Australian coal.
Media reports, citing documents, also revealed that Adani concealed from Bangladesh the fact that the Indian government exempted it from almost all import taxes for the Godda power plant so that Adani could realise a higher capacity charge in breach of the power purchase deal.
The Washington Post in a report calculated that Adani would save $35 million a year based on the tax exemption on coal import alone.
Energy experts said that Adani concealing the tax exemption information constituted a breach of the deal which could be regarded as a basis for seeking the termination of the deal.
The absence of a usual provision for discount on energy prices in the power deal with Adani makes a scope for the Indian company to make an extra income of between $1.5 million and $66 million every month, according to an estimate by the BPDB.
The power deal between Bangladesh and the Adani Group entitles the Indian corporate giant to earn 15 times its investment without even producing any electricity...