Adani group lifts threat to cut power to Bangladesh under new repayment terms. But readies a backup.

Mumbai: Following intense negotiations over five days, the Adani group lifted a crucial power supply deadline imposed on the Bangladesh government after the crisis-hit nation conceded fresh repayment terms for dues worth about ₹7,500 crore.

The Indian conglomerate, however, is embarking on a Plan B for its only exports-focused electricity plant if Bangladesh’s assurances don’t pan out, said two persons with direct knowledge of the matter.

Adani group had set a 7 November deadline for the neighbouring country’s government to either clear the dues or face a power cut that could affect at least 10% of Bangladesh’s electricity consumers.

Adani Power Ltd began supplying electricity to Bangladesh from its 1,600 MW Godda Thermal Power Station in Jharkhand last year, marking the group’s entry into transnational power projects. The deal also marked India’s first transnational power supply project and remains an essential element in India-Bangladesh ties.

While Bangladesh’s monthly electricity bill for Adani Power’s supply alone adds up to $90-95 million ( ₹750-800 crore), the country, hit both by an economic and political crisis, was paying only $20-40 million every month, said one of the two persons mentioned above.

As the dues kept mounting over the past year and after a letter of credit expired in July, Adani group in October decided to shut one of the two units at its Jharkhand plant, halving its power supply to Bangladesh to 750-800 MW.

However, things changed over the weekend.

On Sunday, the Bangladesh government made an offer to reinstate the letter of credit but with a post-dated validity, similar to a post-dated bank cheque.

Adani rejected the offer, citing a breach of the group’s power purchase agreement (PPA) with Bangladesh. However, following intense discussions since Saturday on the terms of repayment, over and above a partial payment of the dues, the Bangladesh government agreed to offer a fresh letter of credit worth $170-180 million with immediate validity.

“This fresh letter of credit will come on Thursday itself, the government has ensured. This letter of credit will have current validity and will be in line with the PPA agreement," said the first person.

“The letter of credit is essentially meant to provide a degree of comfort or assurance to Adani group and its lenders that the government is serious about repaying its dues. The group may not invoke the letter of credit, but it may have to take serious steps if the country fails to fulfil its latest commitments discussed in these few days," said this person, adding that the dues will increase to around $940 million (about ₹7,920 crore) by next month.

“The total value offered by them (Bangladesh government) is worth around 20% of the dues, while committing that it would clear all the dues in the next 2-3 months. The terms are somewhat favourable now," this person said, without specifying the fresh terms.

Adani group and Bangladesh Power Development Board did not reply to emails sent on Tuesday.

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The backup plan

Based on this assurance, the Adani group has not only agreed to continue supplying electricity to Bangladesh but also plans to resume supply from the second unit at its Jharkhand plant, according to the two persons.

“The Bangladesh government is expecting a bulk of payment from the International Monetary Fund or the Asian Development Bank in the next few months. On the basis of this, the Bangladesh Power Development Board has given an assurance to Adani group that it will repay the outstanding dues within the next two-three months," said the second of the two persons.

Even so, the Adani group is creating a backup, so its Godda Thermal Power Station in Jharkhand will not go idle if the assurances don’t pan out. The plant supplies electricity only to Bangladesh, firing coal imported from Australia and Indonesia.

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“The group has to take care of production costs and cannot afford to keep the plant idle. The group has to answer to the project’s lenders if Bangladesh does not pay," explained the second person.

As the first step of the backup proposal, the Adani group plans to install a 100 km transmission line from the Godda Thermal Power Station to India’s national grid to be able to sell electricity to local power distribution companies in the spot market.

“Adani group can use this transmission line, once set up, to sell either the excess or surplus power to Indian players or use it for selling the entire 1,600 MW power in case similar repayment issues (with Bangladesh) recur or if the supply to Bangladesh gets interrupted for any reason," said the first person.

“The group cannot be sitting idle when dues are close to $1 billion. Their (Bangladesh’s) crisis reason is acceptable but the group’s creditworthiness and rating will get affected if large repayments remain due," this person added.

In August, India’s power ministry amended its rules to allow export-focused power plants to sell electricity within the country in case of payment defaults under power purchase agreements.

Mint reported that Adani Power would be a key beneficiary of the amendment as it was the only exclusive electricity provider to the crisis-hit Bangladesh. The amendment came about a week after then-Bangladesh prime minister Sheikh Hasina fled the country to New Delhi following weeks of protests.

Adani Power’s Godda plant is the largest power supplier to Bangladesh, followed by Payra Power Plant (1,244 MW), which is owned by Bangladesh-China Power Co. (BCPC), Rampal Power Plant (1,234 MW) owned by Bangladesh India Friendship Power Co. Ltd (BIFPCL), and SS Power I (1,224 MW) plant.

In October, Reuters reported that Bangladesh was likely to set aside pricing concerns and retain a power purchase pact with Adani Power in the face of supply worries. The new Bangladesh government had set up a panel to assess contracts entered into by the ousted Sheikh Hasina administration, including the deal to buy electricity for 25 years from the Adani group’s Jharkhand plant.