In November 2024, Bangladesh’s highest court ordered the government to form a committee of experts to review the country’s power contact with Adani. This follows years of controversy over the deal, struck not long after a meeting between Indian PM Narendra Modi and the now-deposed Bangladeshi PM, Sheikh Hasina. In February 2023, AdaniWatch revealed that the contract failed to take account of generous financial concessions made by the Modi government to the relevant power plant, Adani’s Godda coal-power project. Critics in Bangladesh subsequently described the deal as a lopsided one that favoured the Adani Group over power consumers in Bangladesh.
On 19 November 2024, the top court in Bangladesh ordered the formation of a high-level committee of inquiry to reassess all electricity agreements that the country’s government signed with the Adani Group when (now deposed) Sheikh Hasina was the country’s Prime Minister.
The Bangladesh High Court’s directive came after a writ petition was filed by lawyer M. Abdul Qaiyum in the ‘public interest’. He had earlier sent a legal notice to the chairman of Bangladesh’s publicly-owned power authority and to the secretary to the Ministry of Power and Energy seeking review of the terms of the power contract between Adani and Bangladesh.
The contracts to be reviewed include a 25-year power-purchase agreement (PPA) that was entered into by the Bangladesh government in 2017 during the rule of Hasina (who is reportedly being sheltered by the Indian government somewhere in New Delhi.)
These developments come three months after an interim government – with Nobel laureate economist Muhammad Yunus as its chief adviser – assumed power in Dhaka in August 2024. Since then, relations between India and Bangladesh have been rather strained, for reasons that include the alleged mistreatment of Hindus in Muslim-majority Bangladesh, and the persistent controversy over the Adani electricity deal.
Dhaka court asks why agreement with Adani should not be scrapped
The high court division of the Supreme Court of Bangladesh directed the Cabinet Secretary of Bangladesh to set up within a month the committee that should comprise international experts on energy and the law. The committee is to submit its findings within two months. Justices Farah Mahbub and Debasish Roy Chowdhury issued the order, asking Bangladesh government authorities to explain why instructions should not be issued to cancel what is allegedly a ‘lopsided agreement’ that the country entered into with Adani.
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The controversial agreement, under which Adani supplies electricity from its 1600 MW coal-power plant in Godda in the eastern Indian state of Jharkhand, has raised many concerns, important among which is the high cost of electricity per unit. Adani’s electricity costs Bangladesh approximately Taka (Tk) 12 (US$ 0.1008) per unit (or kilowatt hour), which is 27% higher than the price paid to other private producers in India and 63% more than what is charged by government-owned power plants in India. The agreement was signed when there were no operational power plants in Bangladesh that run on imported coal.
What is worse for present-day Bangladesh is that the BPDB has to pay Adani in American dollars at a time when the country’s foreign currency reserves have come down significantly.
The court in Dhaka also ordered government authorities to provide, within a month, documents pertaining to negotiations preceding the signing of the agreement between the Bangladesh Power Development Board (BPDB) and Adani. Several experts in Bangladesh have commented on the allegedly unfavorable terms of the agreement, especially given the rising debts owed by BPDB to Adani, currently amounting to around US $850 million. The issue of payment of dues led to a reduction in power supply in November 2024 when Adani reportedly threatened to stop supplying electricity to Bangladesh unless its dues were settled. The Adani Group later clarified that it had not demanded full payment within a stipulated deadline.
In February 2023, AdaniWatch published an exclusive analysis of the official contract (power purchase agreement) between Adani and the BPDB. The report raised the question as to whether the agreement should be considered legally void due to Adani including costs that appeared to be non-existent while calculating electricity tariffs.
‘The agreement as it currently stands will cost Bangladesh significantly more than it should. The cost of power from Godda will be three times more than that imported from other Indian power plants,’ stated the authors of the AdaniWatch article, Ravi Nair and a special correspondent.
Background to the case
In early June 2015, Indian PM Narendra Modi visited Bangladesh for the first time since becoming Prime Minister in May 2014. During his two-day visit, he highlighted the potential for enhanced collaboration in the power sector between the two countries.
Shortly afterwards, two Indian companies, Adani Power Limited (APL) and Reliance Power Limited, signed separate memoranda of understanding (MoUs) with the BPDB, Bangladesh’s public-sector power utility. The two companies proposed a combined investment of $5.5 billion.
Reliance Power planned to build a 3000 MW gas-based power plant for around US $3 billion, while Adani Power proposed a US $2.5 billion investment in a 1600 MW coal-fired plant.
Reports then appeared that Adani had dropped its plan to export power from India to Bangladesh. By mid-June, Adani Power denied any involvement in the MoUs, stating they had no information on what would happen following the signing of the agreements.
Adani subsequently had a change of heart. On 11 August 2015, an MoU was signed between BPDB and Adani Power Limited (APL). On December 18 of that year, APL incorporated a subsidiary, Adani Power (Jharkhand) Limited (APJL), to establish a coal-power plant in Godda. APJL was established in December 2015 and, in February 2016, the company submitted a proposal to the BPDB. By May, Adani had requested land for the project from the state government of Jharkhand and in March 2017, the government agreed to acquire nearly 1000 hectares of land for the Godda coal-power project.
The land acquisition process was far from smooth. Force was used by authorities against protesters objecting to the displacement of indigenous tribal communities and local villagers from their ancestral lands, along with allegations of violations of various rules. The heavy-handed responses to protests against the project have been documented in numerous reports, including several published by AdaniWatch.
A most unusual aspect of the Godda project is its logistics, making it unique in the world. While the highest reserves of coal in India are located in the economically-backward state of Jharkhand, Adani actually imports coal from Australia for the Godda plant. Coal from Adani’s Carmichael mine in Queensland is taken to the Abbot Point port from where it travels in ships nearly 9000 kilometres to the Dhamra port (also operated by Adani) on India’s east coast. The coal is moved along leased railway lines 600 km to Godda. After electricity is generated by burning this well-travelled coal, the power is transmitted over more than 100 km to Bheramara in Bangladesh, from where it is redistributed.
How India’s government bent the rules for Adani’s Godda coal-power project
In December 2016, India’s Ministry of Power issued new guidelines for cross-border electricity trade, stating that private coal-based thermal power plants could export electricity only if they had surplus capacity. At the time Adani Power Limited (APL) signed its MoU with Bangladesh, it did not have surplus electricity capacity. All of APL’s existing plants were already under contract to supply electricity to various state-owned distribution companies in India, and India was not an electricity-surplus country.
In November 2017, APL signed an agreement with the BPDB to supply 1496 MW from its 1600 MW coal-fired plant in Godda. The Jharkhand government – which, at that time, was being run by the BJP – also altered its policy allowing Adani to export 100% of the plant’s electricity to Bangladesh, instead of providing at least 25% of its output for domestic users (as was the norm earlier).
The Godda project faced other challenges. It applied for a change in the source of water for the plant, from the Chiru River to the Ganga (also written as Ganges) River, without conducting a new environmental study. This was approved by the Union Ministry of Environment, Forests and Climate Change. A petition challenging the change in water source was filed before the National Green Tribunal (NGT), dismissed the petition in 2022 without going into the facts of the case. The dismissal was on the technical point that there had been a delay in filing the petition. The tribunal also questioned the alleged lack of locus standi of the petitioner. Obtaining water from the Ganga meant construction of a 100-km pipeline as well as effects on an important stretch of the river for endangered wildlife.
Changing rules repeatedly
In 2019, ahead of the general elections in India, the Modi government altered its rules relating to Special Economic Zones (SEZ), thereby allowing the Godda project to become India’s first power plant to become an SEZ in its own right, granting it substantial tax exemptions. This decision allowed Adani to avoid paying import duties on machinery and coal for the project. A significant portion of the equipment was imported from China, and the plant also benefited from exemptions on Goods and Services Tax (GST).
The SEZ status provided further financial advantages, including a substantial reduction in carbon tax, potentially saving Adani nearly $1 billion over 25 years. Further, being in an SEZ, Adani Power (Jharkhand) Ltd received ‘100% Income Tax exemption for the first 5 years, 50% for next 5 years, and 50% of the ploughed back export profit for next 5 years.’ Despite these perks, Adani denied receiving any personal help from PM Modi, claiming that the new policies applied equally to all. (This was a rather disingenuous argument given that no one else was establishing a huge power station as a stand-alone SEZ.)
The power contract raised many questions
The power contract (known as a power purchase agreement or PPA) between Adani and Bangladesh outlines the calculation of the power tariff, which is made up of two components: the Reference Capacity Price and the Reference Energy Price. The capacity price is paid by the procurer to the power producer to recover its investment in the plant, machinery, and maintenance, even if power is not being bought. The energy price reflects the cost of electricity, including fuel and other raw materials.
In calculating the reference tariff, the PPA considers various taxes, levies and environmental norms, such as excise duty, customs duty, service taxes, central sales tax and value added tax (VAT). The assumptions made are questionable. The Goods and Services Tax (GST) regime, which replaced most of these indirect taxes, was introduced in India from July 2017, four months before the PPA was signed. This raises the question of why obsolete tax provisions were included in the agreement between Adani and the BPDB.
The project was designated as an SEZ in February 2019. The PPA required that any changes in applicable laws be communicated to the BPDB within 30 days, and adjustments made to the reference tariff. It is unclear whether the Bangladesh government was informed of these changes, which could potentially make the contract legally void if not disclosed. The court-appointed committee may be able to shed some light on these issues.
Is Bangladesh paying excessively high prices for electricity imported from Adani’s Godda plant?
An article published on 31 October 31 2022 by the Share Biz website alleged that BPDB would pay 16% higher capacity charges and 45% higher fuel charges for electricity from Godda when compared with similar projects in Bangladesh. This would result in the cost of a unit of electricity from the Adani plant going up to US $0.17 per unit, much higher than the US $0.062 per unit Bangladesh paid at that time for electricity imported from India.
A study by the Bangladesh Working Group on External Debt (BWGED), a non-government organisation, estimated that BPDB would need to pay between US $918 million and US $1.17 billion annually to buy electricity from the Godda plant. Capacity charges alone could amount to US $11.01 billion over the project’s 25-year lifespan.
What are ‘capacity charges’? Simply put, in the context of the contract between APL and Bangladesh, the capacity charge is the price charged by the power producer to recover its investment in the plant, machinery and maintenance. Even if the purchaser is not buying power from the generating company, it is bound to pay capacity charges to the company until the end of the contract.
The Sharebiz article quoted earlier claimed that BPDB would be paying the price it does for electricity purchased from Adani on the underlying assumption that APJL would be paying $434 for each tonne of coal, whereas the comparable price of coal in the case of another thermal power plant located at Payra was much lower, at $237 per tonne. This claim will presumably be examined by the court-appointed committee.
In 2022, because of the impacts of higher coal prices (a global phenomenon), the BPDB proposed a 66% hike in the wholesale prices of electricity it sells in Bangladesh. The proposal was initially rejected by the Bangladesh Energy Regulatory Commission (BERC) due to the financial strain it would cause Bangladeshi consumers. From 1 December 2022, the BERC notified power buyers of a 19.92% hike in the wholesale price at which BPDB sells power to distribution companies and other bulk consumers. At the retail level, the Bangladesh government agreed to absorb the higher price by providing subsidies.
Disputed interest clauses
Clause 13.2 (ii) of the PPA between the BPDB and Adani required the former to make payments on time, even if there was a dispute over the invoices that are to be raised every month. The payments are meant to mandatorily cover debt-service obligations, energy costs, costs of operation, and other liabilities. In addition, in the event of a delay in payment, the BPDB would have to pay interest charges. In 2022, BPDB struggled to make timely payments to various generation companies, with delays of up to five months. Further, the PPA stipulates payments in US dollars, and with the exchange rate rising from Tk 81.19 to a dollar to Tk 104.2 per dollar, the outflow of dollars from the coffers of the BPDB increased significantly.
No discount
In January 2023, a BPDB official revealed that Adani had successfully negotiated a purchase price for power that was almost twice as high as the price paid to Bangladeshi power producers, and three times the price for imports of electricity imports from other power projects in India, including the ones owned and run by the public sector NTPC (earlier, National Thermal Power Corporation). The official claimed that the deal with Adani would cause an annual loss of $81.34 million to the BPDB.
The official noted that a required discount on coal prices was omitted from the PPA due to an oversight. As per current electricity rates, the BPDB would pay Adani $23.87 billion over the 25-year term of the agreement, a price much higher than the board paid to other power producers. Media reports suggest the PPA was rushed through, potentially explaining the missing discount clause. This led to BPDB paying nearly three times more for Adani’s electricity in comparison to the prices paid to other Indian power producers and about one and half times the price of electricity generated within Bangladesh. These contentions were stated in the February 2023 AdaniWatch report.
On 1 December 2024, Bangladesh’s power and energy adviser Muhammad Fouzul Kabir Khan told Reuters that his country is seeking a substantial reduction in the prices paid for power purchased from the Adani Group, unless the PPA is cancelled by the court. He stated that Bangladesh does not benefit from tax exemptions given to the Godda project, and that his country has sufficient domestic power generation capacity (though the capacities installed in certain plants remain under-utilised due to gas shortages).
‘When Adani cut the supply to half, nothing happened,’ Khan said, adding: ‘We will not allow any power producer to blackmail us.’
Power demand comes down during the winter months in Bangladesh because of its tropical climate. It is not clear if, and how, the disagreements between BPDB and Adani over payment of dues running to hundreds of millions of dollars will be resolved. Meanwhile, Bangladesh has halved its power imports from Adani, government officials in Dhaka disclosed to Reuters.
While a big question mark hangs over the Adani-BPDB agreement, Adani’s Godda coal-power plant may come through the turmoil financially unscathed. This is because the government of India amended guidelines relating to export of electricity within a fortnight of Hasina fleeing Bangladesh.
The amendment to the rules made by the Modi government on 12 August 2024 enables the Godda coal-power plant to sell its entire output of electricity within India, effectively jettisoning its earlier status as an export-only facility. This was described by critics of Modi as a brazen attempt to ‘bail out’ his alleged crony, Gautam Adani, who was potentially facing large financial losses from the Godda project because of the regime change in Dhaka.
Not satisfied, Adani reportedly wants a waiver of payment of customs duty on imported coal so that it can sell power at competitive rates to buyers within India. Bloomberg says the domestic market for electricity in India is 'price sensitive' - in other words, such buyers would not be willing to pay the prices paid by Bangladesh. It remains to be seen if the government accedes to Adani’s wishes, which would discriminate against other domestic sellers of power based on imported coal.
The writers are independent journalists based in India’s national capital region
