Bangladesh Grapples With Adani Over One-sided Power Deal

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Bangladesh Grapples With Adani Over One-sided Power Deal

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Bangladesh finds itself in an expensive coal-fired power plant deal with Adani. Not only is the deal not in the best interests of Bangladesh, it needs to be replaced by cleaner and cheaper renewables development.

13 February 2023 – by Tim Daiss   Comments (0)

Bangladesh is seeking to renegotiate with Adani Power, a unit of multibillion-dollar Indian conglomerate Adani Group, founded by billionaire Gautam Adani in 1988, over a one-sided power deal inked in 2017. The coal-fired power project will become operational within the next few months.

One of the main accusations against Adani Power comes from the price of imported coal used for the 1,600 megawatt (MW) plant in the Godda district of Jharkhand, India.

The Adani-Bangladesh Deal

According to the power purchase agreement (PPA) between the Indian company Adani Power and the Bangladeshi government, the coal price is set at USD 400 per tonne. However, the Bangladesh Power Development Board (PDB) and media outlets are claiming foul since the same coal can be bought for USD 250 per tonne.

Adani sought a 60% higher cost of coal because of a unique PPA provision. The provision fixes the coal price by combining Indonesian and Australian coal rates.

However, Indonesian coal is much cheaper than Australian coal because of quality differences and energy content. Notably, more specific PPA details haven’t been made public due to Adani Power’s irregular coal supply pricing.

As such, the Godda power plant will see its fuel cost some three times more than fuel imported from India for other thermal power plants. The costs are about one-and-a-half times the price of the electricity generated within Bangladesh.

Motives of Adani Power Questioned

Why would Adani want to mix two different sources of coal (with two different calorific values, the amount of heat it produces), especially since it adds additional transportation and logistics costs?

Growing evidence points to a self-serving multinational giant’s attempt to manipulate its smaller neighbour and keep one of its beleaguered coal mines, the financially troubled Carmichael coal mine in Australia, operational.

Coal Pricing Manipulation

“The logistics of the [Adani] proposal can only work because the PPA allows Adani Power to pass the full cost of importing the coal onto Bangladesh,” an Institute for Energy Economics and Financial Analysis (IEEFA) report concluded.

Bangladesh Power Cell Director-General Mohammad Hossain recently admitted that combining Australian and Indonesian coal made Adani coal costlier.

“This happened because of the lack of experience [on the part of Bangladesh negotiators],” he said. He added that they have asked Adani to rationalise the PPA.

The IEEFA report says that Adani’s use of Australian coal for Godda is also an attempt to prop up its stranded Carmichael project. Adani will import coal via the port of Dhamra, Odisha (owned by Adani Ports), some 700 kilometres from the power plant by rail.

“This makes little sense strategically,” the report says. “The proposal can only be viable because the PPA gives Adani a full cost pass-through,” it says.

“It follows that the PPA is necessarily unfavourable for Bangladesh. The risk of high prices for imported coal and rail charges will not be borne by Adani.”

The report added that the costs “will be passed through to Bangladesh”.

International Allegations

Adding to Adani’s questionable corporate behaviour with Bangladesh, the Carmichael project is cited by potential US investors as one of the biggest cons in corporate history.

It’s also the target of US investment firm Hindenburg Research. The firm claims that Adani has engaged in a “brazen stock manipulation and accounting fraud scheme”.

Adani Group fired back. In a press release, Adani said that the Hindenburg report was a “malicious combination of selective misinformation and stale, baseless and discredited allegations”.

Renegotiations Sought

On February 2, Bangladesh Minister for Energy and Power Nasrul Hamid sent a letter to Adani Power. He asked to renegotiate the price of coal for the Godda plant. He pushed for the Newcastle Index, the main reference for physical coal contracts in Asia, to be used. As of the end of February, Adani has yet to agree to the requested negotiations.

Moreover, it appears that Bangladesh has little possibility of renegotiating the PPA deal with Adani. And it has even less chance of cancelling the contract. The reason is mostly geopolitical. Bangladeshi officials don’t want to damage further bilateral relations with its much larger and more powerful neighbour.

New Delhi Intervention Needed

However, New Delhi can pressure Adani to be more corporately responsible in its dealings with Bangladesh while avoiding further strain on bilateral relations between the two sides. This makes sense both diplomatically and economically.

Bangladesh is still reeling from economic and political upheaval last year due to numerous factors. These include high inflation from cost-prohibitive energy prices, banking sector corruption and depleted foreign reserves.

For its part, Bangladesh became India’s leading South Asian trading partner. It was also the world’s fourth-largest market for Indian exports in the years 2021–2022. Indian exports to Bangladesh increased by more than 66% during the fiscal year (FY) 2020-21 and FY 2021-22 from USD 9.69 billion to USD 16.15 billion.

Despite COVID-19 related difficulties, bilateral trade between both countries increased at an unprecedented rate. Trade went up by approximately 44% from USD 10.78 billion in 2020-21 to USD 18.13 billion in 2021-22.

Energy Economics

Energy economics and climate change fears also dictate that the Godda coal-fired power plant simply no longer makes sense.

The IEEFA report adds that Godda “would lock Bangladesh into expensive electricity with high emissions at a time when cleaner, cheaper alternative sources of energy are rapidly being deployed across India”.

“Importing coal from Australia and then railing it 700 kilometres past the largest coal reserves in India would simply make any electricity produced at Godda too expensive,” it adds.

Moreover, the cost of building out more renewable projects has largely achieved economies of scale. And it has come to cost parity with that of fossil fuel projects. In many cases, it’s now cheaper to build out renewables.

Bangladesh Energy Security

Developing more renewable energy sources would also enhance Bangladesh’s energy security, moving it away from coal usage. It will also lower its need to import power from India. It would also help the country cease importing cost-prohibitive liquefied natural gas (LNG).

Bangladesh must also remove fossil fuel subsidies that have, so far, disincentivised investment in renewables.

World Economic Forum report finds that renewables were the world’s cheapest energy source in 2020. It also found that the cost of large-scale solar projects had plunged by 85% in a decade.

Meanwhile, of the wind, solar and other renewables that came on stream in 2020, nearly two-thirds, some 62%, were less expensive than the cheapest new fossil fuels.

By 2020, the report finds that concentrating solar power costs had dropped by some 16%. Onshore wind dropped by 13%, offshore wind by 9% and solar photovoltaic (PV) by 7%.

by Tim Daiss

Tim has been working in energy markets in the Asia-Pacific region for more than ten years. He was trained as an LNG and oil markets analyst and writer then switched to working in sustainable energy, including solar and wind power project financing and due diligence. He’s performed regulatory, geopolitical and market due diligence for energy projects in Vietnam, Thailand and Indonesia. He’s also worked as a consultant/advisor for US, UK and Singapore-based energy consultancies including Wood Mackenzie, Enerdata, S&P Global, KBR, Critical Resource, and others. He is the Chief Marketing Officer (CMO) for US-based lithium-sulfur EV battery start-up Bemp Research Corp.

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