False promises, ‘innocent mistake’ leave Bangladesh in a jam

An “innocent mistake” caused by the Bangladesh Power Development Board’s (BPDB) lack of experience, and false promises from Adani Group have led to a predicament that is now allowing the Indian corporate giant to demand $400 for each tonne of coal to run its Godda power plant in Jharkhand.

Starting from the first week of March, Bangladesh is set to import electricity from the plant, which has been bizarrely built 700 kilometres inside the Indian coast when power plants operating on imported coal are usually built right on the coastline to avoid extra transport and other costs, experts have said.

Several BPDB officials, requesting anonymity, told The Business Post that Adani Group had first proposed in 2016 to build the 1,600MW power plant in Jharkhand to export electricity to Bangladesh.

The Indian company had said that the plant would use coal from local mines owned by Adani and per unit electricity cost will be Tk 6.89.

But in 2017, when BPDB signed a power purchase agreement (PPA) with Adani, the company went back on its words and somehow made Bangladesh agree to its decision to import from a stranded coal mine of the company in Australia. It will also import coal from its mines in Indonesia or South Africa, said the officials.

According to media reports and officials concerned, about 7 million tonnes of coal will be transported annually from other countries to the Godda power plant.

They said the coal will come on the company’s ships to Adani-owned Dhamra Port in Odisha, and then arrive at the plant on a 700-km stretch of rail tracks built by Adani. The electricity will be sent to the border over a high-voltage line also built by Adani. But under the contract, Bangladesh will bear all shipping and transmission costs.

Under the circumstances, a recent BPDB assessment has found that the Godda plant’s average per-unit electricity production cost would be over Tk 24 — which is over 30 per cent higher compared to the electricity generated at the Payra plant that came into operation on March 21 last year.

Moreover, the Godda plant’s capacity payment will be $0.425 or Tk 4.54 per unit. Although it’s said to be 1,600MW, the plant’s installed capacity is currently 1,496MW. The plant alone will receive capacity payments of over Rs 6,000 crore annually.

Power Davison officials now say that the government may not have agreed to the project if Adani Group had initially said that it would not use Indian coal.

Energy and mining expert Mushfiqur Rahman said that the Godda plant’s location is a major problem. “Power generation cost will be several times higher if shipment, port and rail transport costs are added to coal price.”

BPDB officials also agreed with experts about the plant’s location being a strategic mistake and blamed Adani Group, which is currently embroiled in a stock manipulation and financial fraud controversy.

Problem with the price

Adani Group is now asking for $400 to import a tonne of coal with a calorific value of 4,600 Btu/lb. Bangladesh currently pays an average of $250 for a tonne of the same quality imported coal for the country’s four other coal-fired power plants, says BPDB.

The company has sought a 60 per cent higher rate because of a unique provision in the PPA for fixing the price by combining Australian and Indonesian coal prices.

BPDB officials have no clear explanation of how that happened and also do not want to talk about the PPA, which has been shrouded in secrecy since it was signed in 2017.

Former BPDB chairman Alamgir Kabir said there is no basic difference between the contract with Adani and the PPAs of the country’s existing independent power producers. The Adani agreement says the coal price will be the average of the prices of Australia’s Newcastle coal price index and the Indonesian coal price index.

Based on the PPA’s conditions, the price should be around $200 and not what Adani is demanding, he added.

On January 25, BPDB sent a letter to Adani Power (Jharkhand) Limited and asked them to fix their coal price using the Indonesia coal price index, which Bangladesh’s Payra and Rampal power plants follow to buy coal from Indonesia.

However, State Minister for Power, Energy and Mineral Resources Nasrul Hamid last week claimed that there is no problem with the contract with Adani and Bangladesh will import electricity from the coal-fired Jharkhand plant at a competitive market price.

Indonesia and Australia are the world’s top coal-producing countries. Until 2018, China was the major coal importer from Indonesia and Australia.

Experts say the ongoing conflict between China and the US and its allies kept coal prices higher than the Indonesian on Newcastle indexes ahead of trade, which aims to stop exporting coal to China. After Russia invaded Ukraine, the prices only increased.

At present, one tonne of coal with a calorific value of 6,220 Btu/lb in the Newcastle index is $400 and $280 in the Indonesian index. Due to their quality difference and energy content, Australian coal is much costlier compared with Indonesian coal.

Alamgir said it was politically priced as a strategy to deter China. That is why the Newcastle index has discount offers for other countries. “Adani Group is importing coal from Australia so that they can use this index price.”

‘Innocent mistake’

Adani Group is likely to send a team to Bangladesh soon for further negotiation after BPDB asked the company to reduce the rate. But if that discussion falls through, all these will become a massive economic burden on Bangladesh only because of the controversial PPA, which BPDB officials now say was not balanced due to their lack of experience on the matter. Hence, they have made an “innocent mistake.”

The Godda power plant is a private entity under the supervision of BPDB’s company affairs department.

Asked why Adani’s false pledge regarding coal sources was not taken into account before the PPA signing, the department’s member Samsul Haque said, “I was involved in the process when the PPA was signed. I can’t say anything because I don’t know the details about this.”

A senior BPDB official said the PPA was signed following the will of the government higher-ups. BPDB did not have any influence.

Other officials said that the lack of experience in signing a PPA that involves coal import and electricity import also played a major role in the rise of the current situation.

Mushfiqur said BPDB could not demonstrate its expertise when it signed the contract. “This agreement should be rectified. If the issues are not resolved now, there will be big problems in the country’s future.”

Meanwhile, Adani Group has recently written to BPDB seeking permission to open LCs for importing coal of 4,600 calorific value at $400 per tonne for the Godda Power Plant.

According to Bangladesh China Power Company Limited, the coal used in the Payra power plant is of a calorific value of 5,050 Btu/lb and it costs $254 per tonne.

Two BPDB engineers said the board will save at least $160 per tonne of coal if it buys in line with the Indonesian price index.

Mushfiqur said, “Adani is talking about using 7-9 million tonnes of coal to run the 1,600MW power plant and it indicates that their coal is substandard.”