Bangladesh’s interim government, led by Nobel Laureate Muhammad Yunus, is moving to reopen a multi-billion-dollar power purchase agreement with Adani Power, citing unresolved issues around tax exemptions, payment delays, and high energy tariffs.
The deal, which was signed in 2017, provides electricity from Adani Power's Godda coal-fired plant in Jharkhand, India, to Bangladesh. However, the Bangladeshi government now claims that Adani Power has failed to pass on tax benefits related to the special economic zone (SEZ) status granted to the plant, potentially costing Bangladesh millions in savings.
Allegations of Withheld Tax Benefits
Under the 2017 agreement, Adani Power's Godda plant was granted SEZ status by the Indian government, which includes several financial incentives such as income tax exemptions. However, the Bangladesh Power Development Board (BPDB) alleges that Adani Power did not disclose changes to the plant's tax status, nor did it pass on the associated savings to Bangladesh. According to the BPDB’s estimates, these savings could amount to approximately $28.6 million.
The failure to pass on these benefits is a key point of contention in the ongoing dispute, as Bangladesh asserts that these tax advantages should have been part of the deal's terms.
Payment Disputes and Supply Cutbacks
The dispute over tax benefits is compounded by a payment impasse between Bangladesh and Adani Power. Since the start of the power supply in July 2023, Bangladesh has faced delays in clearing its dues. As of October 2023, Adani Power reduced its electricity supply to Bangladesh from 1,400 MW to around 700-800 MW, citing overdue payments.
Adani Power claims it is owed $900 million, while the BPDB contends the arrears are closer to $650 million. The disagreement also extends to the power tariffs, with Bangladesh asserting that the prices are much higher than those of similar deals with other power suppliers.
In response to a request for a discount on rates, Adani Power stated that it would not entertain any further price reductions until the outstanding payments were settled.
Bangladesh's Push to Renegotiate the Deal
In light of these ongoing issues, the Bangladesh government is seeking to renegotiate the 25-year power agreement with Adani Power. The deal, which was awarded by the previous government under Prime Minister Sheikh Hasina without a tender process, has come under scrutiny due to its high costs compared to other power agreements.
Bangladesh’s interim government is reportedly planning to leverage the fallout from the U.S. legal proceedings against Adani Group, following allegations of bribery related to a $265 million scheme, to push for more favourable terms in the power deal.
The potential renegotiation could have significant ramifications for both Adani Power and Bangladesh’s future energy strategies.
Adani Power's Defense
Adani Power has strongly rejected the accusations, asserting that it has adhered to all contractual obligations and was not notified of any review of the deal by the Bangladesh government.
The company maintains that the reduction in supply was a response to the payment delays and that it had no prior knowledge of any intentions by Bangladesh to revisit the agreement.
In response to Bangladesh’s requests for additional discounts, Adani Power stated that no further concessions would be made until the payment issue is resolved, signalling a tough stance on the matter.
Bangladesh’s Growing Energy Capacity
Despite the disputes with Adani Power, Bangladesh’s energy minister, Muhammad Fouzul Kabir Khan, stated that the country now has sufficient domestic power generation capacity.
Although some power plants remain idle, Bangladesh believes it can meet its energy requirements without relying on external suppliers, including Adani Power. This shift in domestic energy capacity has further complicated the need for continued imports from India.
Court-Ordered Investigation and Potential Impact
The Bangladesh High Court has intervened, ordering a formal investigation into the power agreement. A high-level committee is expected to examine the terms of the deal and the alleged discrepancies in the tax benefits.
The findings of this investigation could play a pivotal role in shaping the future of the deal and may lead to revisions in the power purchase agreement.
Implications for the Energy Sector and Future Deals
The outcome of this dispute has far-reaching implications for Bangladesh’s energy sector, particularly as the country seeks to diversify its energy sources and reduce dependency on imported power.
The renegotiation of the Adani Power deal could set a precedent for future agreements with international energy companies and influence Bangladesh’s approach to future power procurements.
For Adani Power, the dispute raises questions about its operations in international markets and its ability to manage complex cross-border agreements. The company’s reputation could be impacted if the ongoing legal and financial issues are not resolved swiftly and satisfactorily.
Critical Crossroads for Bangladesh’s Energy Strategy
As Bangladesh moves to renegotiate its power agreement with Adani Power, the resolution of this dispute will be critical to the country’s energy future. Both parties are expected to engage in further negotiations, with Bangladesh hoping to secure a more equitable deal that aligns with its financial and energy needs. Meanwhile, Adani Power will likely seek to protect its interests and uphold the terms of the original agreement.
The outcome could shape the future of energy trade between India and Bangladesh, with broader implications for cross-border energy agreements in the region.
(With Agency Inputs)
