The Power Development Board (PDB) signed an agreement with Adani Power on November 5, 2017. The contract for the purchase of 1,496 megawatts of electricity was signed under strict confidentiality. Although the draft agreement came to the power department, it was not sent to the PDB. As a result, PDB officials knew nothing about the deal beforehand. At the end of 2022, the issue of Adani’s deal came up for discussion.
However, due to the dollar crisis, Bangladesh is not able to pay Adani’s bills regularly. Adani sent a letter last month to pay the bill. As a result, the Adani contract came to be renegotiated. However, despite various conditions against the country’s interest, Bangladesh is unable to leave this agreement. Because there are various conditions in the contract, in which PDB is stuck. If the agreement is cancelled, Bangladesh will be in danger.
According to sources, recently there was a discussion on whether the agreement can be canceled with Adani or not. It was informed in the meeting that no exit clause (cancellation option) was kept for Bangladesh in the agreement. If Adani stops power supply for 90 consecutive days, Bangladesh can apply for cancellation of the contract only. Otherwise, if the contract is canceled without any reason, capacity charges of about $12 billion will have to be paid over 25 years.
Apart from this, 34 percent of the production capacity bill has to be paid for 25 years even without buying electricity.
It was also informed in the meeting that Adani will approach the court if Bangladesh cancels the contract without any reason. There is a hundred percent chance of defeat for Bangladesh. Because the agreement has been made in a way, which is against the interest of the entire country. Besides, if Adani’s electricity is stopped at this moment, there will be shortage in the country, load shedding will increase. Because currently gas-based power plants will not be able to run at full capacity due to gas shortage.
According to sources, Adani currently spends an average of Tk 14 to Tk 16 per unit on power purchase. However, if this electricity is stopped, the furnace oil-powered plants will have to be started. It will cost an average of Tk 18 to Tk 20 for power generation. Besides, it may not be possible to import oil regularly due to dollar crisis. Then the danger will increase. So instead of canceling Adani’s contract, PDB is insisting on reducing the price of coal.
PDB officials recently held a meeting with Adani’s delegation regarding the matter. In the meeting, it was said on behalf of Adani, the price of coal per ton of 6300 kilocalorie heating capacity (last month) is $127.72. According to the terms of the contract, if coal with a heating capacity of 4600 kilocalories is used, the price will be $93.25 per ton. However, according to PDB, the price of coal with a heating capacity of 4600 kilocalories is $72.24 per ton in Indonesia Coal Index. In other words, Adani is asking about 30 percent more per ton of coal.
PDB officials said that only if the price of coal can be adjusted, Adani’s electricity import cost will be reduced by Tk two. It will be possible to buy electricity at a competitive price even if the contract is not cancelled. Besides, if Adani can adjust the tax exemptions it has got in India, the capacity charge will also be reduced. Because Adani’s Godda power plant area was declared a ‘SEZ’ (Special Economic Zone) by the Government of India in 2019. The power plant is getting all kinds of duty-tax exemptions.
As per the Power Purchase Agreement (PPA) executed with Adani, capacity charges are mentioned in Clause 13.2(c) of the agreement. The rate of capacity charge is given in Table-A of Schedule-6 at the end of PPA. Clause 13.1 (d) of the PPA stipulates that the capacity charge will be made on the basis of several assumptions (conditions), one of which is related to taxes and duties. And taxes and duties will depend on India’s tax rate policy. According to Indian media reports, in view of the SEZ announcement, Adani Power gets duty-free facility on import of all types of machinery. Adani has imported machinery from a total of eight countries for the power plant.
These include China, the Netherlands, Belgium, Germany, Sweden, the United States, Italy and Greece. Until February 2022, Adani imported 95.58 percent of the equipment of the power plant from China. On the other hand, Adani has got exemption from duty and all kinds of taxes on coal import for the power plant. Also, the company does not have to pay any kind of Goods and Services Tax (GST), surcharge or any other duty-tax. According to sources, if the power plant runs at full capacity, it will require seven to nine million metric tonnes of coal annually. As a result, Adani is getting $200 million in duty-tax exemption only on coal import.
On the other hand, Indian state governments impose a carbon tax of Tk 400 or $4.88 per tonne of coal for carbon emissions. Adani also got this tax exemption. The company will get a discount of about $39.02 million annually if it catches eight million metric tons of coal per year. And in 25 years they will get a discount of about $1 billion. Indian media also reported that as a result of the SEZ announcement, Adani’s Godda power plant will get 100% duty-free facilities for the first five years. They will get 50 percent duty exemption for the next five years. According to the information, Adani has 12.5 per cent custom duty and excise duty on power plant equipment, 15 per cent service tax on construction works, 2 per cent central sales tax on purchase of goods from outside Jharkhand, 15 per cent composite tax on 40 per cent of contractor’s bills, 5.5 per cent VAT, one per cent welfare tax for construction workers, four per cent contract tax, water consumption charges and income tax to the state government of Jharkhand. But these duties and taxes have been waived by Adani.
However, Adani is not giving any concession to Bangladesh in the sale of electricity.
Incidentally, the PDB will have to pay capacity charges of $39.43 million per month for Adani’s center. You have to pay this amount even if you don’t buy electricity. Accordingly, Adani will have to pay annual capacity charges of $473.16 million for the power plant. And in 25 years, about $11.83 billion will be spent on this charge. Besides, at least 34 percent of the power plant’s capacity must be purchased. Otherwise PDB will have to pay penalty in addition to capacity charges.
In this regard, Clause 3.1 (b) of the agreement states that PDB will have to purchase at least 34 percent of the existing capacity of the plant in each year of the agreement, which will be considered as the ‘minimum offtake commitment’. If Bangladesh fails to buy it then PDB will have to pay compensation to Adani Power. This compensation will include Adani’s coal price, coal transportation cost, coal unloading cost at the port and coal handling cost. Due to these reasons, Bangladesh is forced to uphold the agreement.
