Is the PPA with Adani legally void?

Adani Group’s 1,600MW Godda power plant in Jharkhand has been exempted from all taxes and duties in 2019 by the Indian government considering it a special economic zone (SEZ). However, Adani Power (Jharkhand) Limited has not informed Bangladesh Power Development Board (BPDB) about this and this could become a massive obstacle to the deal that is supposed to come into effect in March.

Talking to The Business Post, BPDB officials have said that this is a violation of the power purchase agreement (PPA) signed between BPDB and Adani in 2017. But they did not agree to go into details.

In a detailed analysis of the PPA published on February 9, Australia-based AdaniWatch said that as per the agreement, capacity payments and energy costs are expected to decrease due to the tax and duty exemption on all machinery and coal import of the power plant.

The contract may be cancelled as Adani did not share the information with Bangladesh, which is supposed to bear all shipping and transmission costs as per the PPA.

The report said Adani also hid the fact that it does not have to pay Goods and Service Tax, which was introduced by the Indian government four and a half months before the PPA was signed on November 5, 2017. The agreement’s Section 13.1(e) requires Adani to inform BPDB about changes in tax and VAT rates within 30 days of any such change occurring.

Since the Godda plant became an SEZ on February 25, 2019, Adani has imported machinery and equipment almost without any taxes and also would not have to pay import duty or any other tax for importing coal, says the report. Adani Power Limited has also not informed BPDB about this.

The controversial capacity charge was determined based on several assumptions at the time of the PPA’s signing, paving legal grounds for power producers to get a return on their investments, after paying off loans and interest, even if no electricity is procured. The capacity charge and energy price together constitute the tariff.

A 2022 study by the Bangladesh Working Group on External Debt estimated the capacity charge to be paid over the lifetime of the Godda plant to be over $11 billion with a monthly payment of over $423 million.

The PPA’s Section 13.1(d) also mentioned that a capacity charge determined on some assumptions would be given depending on India’s tax and VAT rates.

AdaniWatch said that Adani Power will get a 100 per cent income tax exemption for the first five years, 50 per cent for the next five years thereafter, and 50 per cent of the ploughed-back export profit for the five years after that.

The first unit of the two-unit 1,600MW coal-fired power plant has been built in Jharkhand for exporting electricity to Bangladesh for 25 years. It is likely to begin operation in the first week of March.