Adani team due this week to discuss revision of PPA

A high-level technical team of Adani Power Ltd is expected to arrive in Dhaka this week to discuss the revision of power purchase agreement (PPA) issue with Bangladesh Power Development Board (BPDB), which had signed a deal for importing 1,600 MW of electricity from Godda in Jharkhand of India.

The BPDB has sought a revision to the PPA, as the coal price Adani Ltd have quoted, is excessive.

Adani has quoted US$400/MT which should be less than $250/MT, according to the Power Division sources.

"A technical team of Adani Power will visit Dhaka this week, there is only one agenda, which is price revision," Power Division Secretary Habibur Rahman told the Daily Observer on Sunday, however, he did not elaborate.

The much-talked about Adani Power project has came to the  surface when it sent a request for BPDB to issue the demand note, where the coal price is quoted at $400 per metric ton (MT), however, the fuel (coal) is a "pass through" item here as per contract.

The cost incurred to import the coal, including transport from port to plant, will ultimately be borne by Bangladesh, with the price factored into the PPA's tariff structure.

 "They quoted $400 per MT which is far above what BPDB officials believe it should be given the present state of the international market. As we the other plants (Rampal and Payra) are quoting less than $250/MT, we observed it is excessive," a senior official of BPDB said.

To settle the issue, Adani Power send a 5-member delegation comprising with a chief executive and a chief procurement officer last week to discuss all these issues, they sat with the BPDB's Member (company affairs) and the Member (finance) but the issue was not resolved, according to the BPDB official.

Later the Prime Minister Office intervened,  The Prime Minister's Energy Adviser Tawfiq-e-Elahi Chowdhury and other top policymakers sat with the BPDB's concern officials on March 2.

"Both sides expressed interest to continue discussion," said the sources, adding that Adani's representative informed them that they would communicate BPDB's stance on the coal pricing mechanism of the PPA to their top management. However, BPDB's official claimed, Adani officials are convinced with the BPDB's points on the issue that's why they (Adani) are sending the team.

We want the revision of PPA before start of importing electricity from March, 2023, officials said.
When asked about the other issues including the "provision for discounts on the purchase of coal" in the PPA, the official did not say anything.

BPDB officials claimed that due to the absence of a provision for discounts on the purchase of coal in the PPA signed with Adani Power. It has allowed the Indian firm to quote such a steep bill for the coal.

The price of coal is calculated on the basis of the Newcastle Price Index, with purchases high quantities or with higher calorific values enabling the buyer to avail discounts of up to 55 per cent on the bulk value.  

For example, the provision is present in the PPA for the 1,320 MW Payra Power Plant, where BPDB is benefiting from discounts on coal purchases. The amount of coal required to operate these plants typically runs into the millions of tonnes.  

The annual requirement of coal for the Godda plant is estimated to be 7-9 million tonnes. But given the omission of a discount provision, Bangladesh will ultimately end up paying Adani Power Tk 20 to Tk 22 per unit of electricity, once all the hidden costs are piled on top of the tariff.
 
"Compare that to the price it pays for the electricity bought from coal-fired plants in Bangladesh, which is below Tk 12 per unit," the senior BPDB official said.
 
The PPA with Adani Power was signed in November 2017, in Dhaka. Then-Power Division joint secretary Faizul Amin, BPDB secretary at the time Mina Masuduzzaman and Adani's Business Development president Kandarp Patel signed two documents - the PPA and an Implementing Agreement - on behalf of their respective sides.  

He and others insist that if Adani doesn't agree to adjust the pricing mechanism for coal in the PPA, it would simply be unviable for Bangladesh to import power from the Godda power plant.
 
As per Power Division documents Bangladesh would be paying Adani Power an estimated $23.87 billion, equivalent to almost Tk 240,000 crore (considering US dollar exchange rate at Tk 100), over the 25-year life cycle of the plant.  

For the next 25 years, Bangladesh will partially bear what was initially thought to be Adani Power's tax burden even though the Indian conglomerate got a tax exemption based on the export deal it struck with Bangladesh.

And once the plant comes into commercial operation next month, Bangladesh will start paying Adani reference tariffs based on taxes it does not even pay. In other words, the agreement has a unique design, Adani saves costs but charges Bangladesh the same amount, in turn raking more profits.

It is estimated that Adani Power will save over $1 billion on the Clean Energy Cess (a form of carbon tax) alone over the 25 years of the contract by virtue of becoming a Special Economic Zone (SEZ), according to an investigation by the Washington Post.