Recently, the Adani Group pulled off a major coup at the expense of the Indian state of Madhya Pradesh by transferring a power contract from their languishing Pench coal-power project to an up-and-running, expanding plant at Mahan. The switch is advantageous to Adani because the high tariff for Pench was transferred to Mahan, despite the latter’s lower production costs. The Pench tariff was calculated assuming that coal would be imported, whereas Mahan is on the doorstep of vast coal deposits recently acquired by the Adani Group. Colossal expansions of the Mahan plant have recently been approved, while construction at Pench has been stalled for decades.
Vital statistics:
Coal-power plant: Adani’s Mahan plant (1200 MW with proposed 3200 MW expansions) - sometimes referred to as 'Bandhaura' or 'Singrauli' plant
Coal-power project: proposed Pench coal-power plant (1320 MW)
Name of the coal blocks: Mara II Mahan (955.96 million tons), Gondbahera Ujheni East (250 million tons)
Location: Singrauli district, Madhya Pradesh
Owner: Adani Group subsidiaries Mahan Energen Limited, and Pench Thermal Energy MP Limited
The failure of the Adani Group to overcome community opposition to its troubled Pench project has featured regularly in stories published by AdaniWatch. There is now a new twist to the tale. Adani has successfully orchestrated the transfer of the project's Power Supply Agreement (PSA) to a different power plant located in a different part of the state. This has been done in a questionable manner. The Adani company concerned has also managed to secure a high tariff with the approval of the electricity regulatory authority in the state. Interestingly, a corporate conglomerate headed by another oligarch, Mukesh Ambani, who regularly swaps places with Gautam Adani as India’s richest man, has bought a stake in one of units of the project.
Background on the languishing Pench project
The failed attempts to establish a coal-power plant in the valley of the Pench River have been accompanied by fierce resistance from farming groups and other residents. In 2011, violent attacks were carried out against community leaders spearheading the protests, resulting in broken limbs and other serious injuries. A then employee of the Adani company behind the Pench project was subsequently prosecuted for his alleged role in the attacks. Protests continued and their scale and strength of feeling brought the issue to national attention. These events have been reported by AdaniWatch.
The Pench saga began in 1987 with the commencement of land acquisition by the Madhya Pradesh Electricity Board (MPEB) from farmers in Chhindwara to establish a coal-power plant. The government assured farmers that the power project would be constructed within three years, with guaranteed jobs for members of families whose land had been compulsorily purchased. In 2010, when the power plant had failed to materialise, the state government sought to revitalise the project by selling the land to Adani Power. The deal was criticised for the low price at which Adani acquired the land.
(Story continues below)
Meanwhile, in the absence of any construction work, farmers had continued to cultivate land which had previously been theirs. The Adani company put an end to this after taking over the project by constructing a wall around the project site. In 2021, when farmers began cultivating the land again, there was a confrontation between them and local authorities. Local people argued that they had had no choice, being on the brink of starvation.
Similar drawn-out controversies dogged the Pench power project’s environmental approval. In 2016, it was the beneficiary of a Modi government policy to extend the duration of environmental approvals for certain industrial projects from five to seven years. By 2019, however, no significant construction works had commenced, so the company was forced to apply for an extension of three years. By 2022, still no substantive work had commenced, and the approval lapsed on 20 October.
Despite alleged political favours doled out to Adani’s proposed Pench coal-power scheme (including a tendering process that critics said was tailormade for the Adani Group), the project languished.
Adani acquires Mahan coal-power plant
Meanwhile, Adani Power was looking further afield. In March 2022, the company acquired the Essar's Group’s bankrupt coal-power plant near Bandhaura in the Mahan area of Madhya Pradesh. (The local pollution caused by this plant has been described by AdaniWatch.)
(Explanatory note: The Mahan power plant is sometimes referred to as the Bandhaura power plant, after the village closest to it; it is referred to on Adani Power’s website as the Singrauli power plant, after the Singrauli coalfields. However, a recent presentation to investors by Adani refers to the plant and its proposed expansions under the name ‘Mahan’. For consistency, the power plant is referred to in this story as the Mahan plant.)
Adani subsequently obtained approval for expanding the Mahan power project to install two new ‘super-critical’ units, each with a capacity of 800 megawatt (MW). The existing 1200 MW units at the Mahan power plant would continue operating as usual, while the new units, with an additional capacity totalling 1600 MW, would serve as an extension to the facility. These additional units are slated to commence operations by 2026. (AdaniWatch has previously reported on this expansion.)
Recently-disclosed documents relating to a meeting held in February 2024 reveal that the Adani Group has proposed yet another expansion of the Mahan coal-power plant's capacity to 4400 MW by adding two more units of 800 MW. This is what has been proposed for the Mahan project: existing capacity of 1200 MW plus two units of 800 MW each plus two more units of 800 MW each, bringing a colossal grand total of 4400 MW.
The Mahan power plant has therefore been a very welcome addition to the Adani Group’s portfolio and features in this presentation to investors of March 2024.
Pench had a higher power tariff than Mahan’s
In March 2020, the Madhya Pradesh state government facilitated the signing of a Power Purchase Agreement (PPA) between the government-owned power company (MPPMCL) and Adani Power's subsidiary, Pench Thermal Energy MP Limited (PTEMPL). The PPA’s power tariff was based on Adani's proposal to develop the Pench coal-power plant and to use coal imported from Indonesia and South Africa until domestic supplies of coal could be secured.
The need for imported coal allowed for a higher tariff for electrical energy to be charged by Adani. The PPA for the proposed Pench power plant provided for a tariff of 4.78 per kWh – a substantially higher tariff than the ‘levelised’ tariff of Rs 3.210 per kWh for the existing Mahan plant.
Adani the developer of coal mines near the Mahan coal-power plant
In 2017, the Modi government instituted a new policy designed to diminish reliance on imported coal by bolstering the development of domestic mines. The policy was called SHAKTI, an acronym for Scheme to Harness and Allocate Koyla (or coal) Transparently in India. (Shakti is a word that literally means ‘power’ in several Indian languages.) SHAKTI facilitates the development of coal supplies for power plants through auctions of coal blocks.
This policy has enabled the Adani Group to develop large coal mines on the doorstep of its Mahan coal-power plant.
In August 2022, an Adani Group subsidiary, Mahan Energen Limited (MEL), acquired the rights to develop the 250-million-tonne Gondbahera Ujheni East coal block in Madhya Pradesh. This occurred despite Adani being the sole bidder in the auction for this block. A report by The Reporters Collective described how the government discreetly modified the auction rules to enable the allocation of coal blocks to single bidders, thereby eliminating competition among private companies. (AdaniWatch also described this outcome, quoting the government saying the auction process had been a ‘tremendous success’.)
The Gondbahera Ujheni East coal block is only about 50 km from the Mahan coal-power plant.
On 12 March 2024, Mahan Energen Limited won another bid for a large coal block near its expanding power plant. This time it was the Mara II Mahan coal block, which holds 995 million tonnes of coal and is only about 10 km from the Mahan power plant.
Currently, coal is transported to the Mahan power plant using trucks that congest public roads. A plan to move the coal using conveyor belts has been shunted into the future, with an ‘expert appraisal committee’ of the Modi government giving the company three years from May 2023 to continue road transport of coal. After the massive and very close-by Mara II Mahan coal mine becomes operational, transportation cost will reduce, further lowering power-production costs at the Mahan plant.
Transferring the Pench power-supply contract to Mahan
In July 2023, (not long after the expert appraisal committee’s handy extension of road transport of coal), the Adani Group filed a petition with the Madhya Pradesh Electricity Regulatory Commission (MPERC) seeking the transfer of its power contract from the yet-to-materialise coal-power plant at Pench to the existing and soon-to-be-expanded Mahan power plant.
This was a significant move, one that would be highly advantageous to the Adani Group.
In its petition, the Adani Group said: ‘It is crucial to emphasise that disclosing the power station's location was not required during the bidding process or before the execution of the original Power Sales Agreement (PSA)’. The petition quoted Article 4.1.3(F) of the original PSA and argued that PTEMPL (Pench Thermal Energy Madhya Pradesh Limited…) was obliged to ‘secure real estate/land for the power station in the State of Madhya Pradesh within 24 months from the Original PSA's date.’
The state electricity regulator was petitioned thus: ‘Consequently, in a letter dated 02.03.2022, PTEMPL informed MPPMCL (the government-owned power utility) that it had identified the land for the power plant in Village Bandhaura, Tehsil Mada, Mahan district Wadham in MP (Madhya Pradesh). However, considering that the mentioned land is owned by MEL (Mahan Energen Limited), a 100% subsidiary of Adani Power Limited, APL, through a letter dated 19.04.2022 (19 April 2022), requested MPPMCL's consent for the transfer of the original PSA from PTEMPL to MEL.’
The Adani Group sought to justify its decision to transfer the power contract from one subsidiary to another by using considerations of land availability. Notably, the original contract was initiated with Pench Thermal Energy Madhya Pradesh Limited (PTEMPL), explicitly referencing 'Pench' in the Chhindwara district of Madhya Pradesh. While this implied that the power plant would be established in the same district, the Adani Group argued that the agreement for the Pench power plant did not explicitly designate any location.
No scrutiny over the transfer of the Pench power tariff to Mahan
The construction of a new coal-power plant was mandated for Adani by the PPA signed between Adani’s Pench company and the state power-supply company in 2020. The associated construction costs and the fuel-transportation charges were cited to justify the power tariff of 4.78/kWh. However, no explanation has been provided to transferring this tariff from Pench to the Mahan pit-head coal-power plant. As mentioned, Pench was supposed to receive imported coal from Indonesia and South Africa until domestic coal procurement was possible.
The case with the Mahan coal-power plant is different because of its proximity to the coal pit-head, resulting in significantly lower generation costs. Thus, the tariff of 4.78/kWh should not have been identical in both the proposed Pench project and the Mahan project without conducting a fresh tariff-discovery procedure.
Nevertheless, in July 2023, the Madhya Pradesh Electricity Regulatory Commission (MPERC) approved the transfer of the contract without discussing the issue of tariffs.
The commission stated that ‘all parties are permitted to engage in a binding agreement transferring the original [contract] with the stipulation that it does not modify or amend the conditions set forth in the original [contract]’. In essence, MPERC gave a walkover to Adani with the original power tariff of Rs 4.78/kWh.
Ambani buys a stake in Adani’s Mahan coal project
On 28 March 2024, the two biggest privately-owned corporate conglomerates in India, Reliance Industries Ltd (RIL), led by Mukesh Ambani, and the Adani Group, headed by Gautam Adani, struck a deal relating to the Mahan power project. RIL is set to acquire a 26% stake in a captive unit of the expanded power station.
RIL announced that it would acquire 50 million shares in Mahan Energen Limited for US $5.9 million, granting access to 500 MW of new power-generating capacity for exclusive purposes. This was disclosed separately by both companies to stock exchanges. The groups have entered into a 20-year long-term power-purchase agreement for the 500 MW under the captive-user policy as defined in the Electricity Rules, 2005. According to news reports, an existing 600 MW unit in Mahan will be designated for RIL after the deal is completed.
Coal ministry overrules environment ministry
The Ministry of Environment opposed the opening of the Mara II Mahan block for mining because it is in an ecologically sensitive zone. According to The Reporters Collective, an industry group called the Association of Power Producers lobbied for the opening of the site for mining. The Ministry of Coal defied the Environment Ministry's objection and conducted the auction.
In the initial auction, Adani was the sole bidder; hence, the auction was cancelled. Mara II Mahan was auctioned again the following year. This time, Thriveni Earth Movers, a company that was once closely connected with Ashwini Vaishnaw, a bureaucrat-turned-politician, who is now an important minister in the Modi government, was the lone competitor to Adani. Adani won the bid with a 6% revenue share offer, the lowest out of 13 successful bids. The average revenue-sharing offer of the other 12 successful companies put together stood at 27.4%.
Stonewalling applications for information
Adani was required to submit quarterly progress reports on the development of the Pench power project to the state government of Madhya Pradesh. Any shortcomings in project development at any stage could invoke a penalty clause, resulting in the forfeiture of the substantial amount submitted by the Adani Group as a ‘guarantee’ during the bidding process. Information has been sought from the Madhya Pradesh government under the Right to Information (RTI) Act seeking copies of those quarterly reports.
The RTI request also sought:
- Information on whether the Adani subsidiary, PTEMPL, ever invoked the force majeure clause after signing the PPA, requesting specifics of the date, duration and other details of such an invocation. (A force majeure clause is a contract provision that relieves a party from performing its contractual obligations when certain circumstances beyond its control, such as natural calamities, arise.)
- Copies of the latest inspection reports on the project, as prepared by the engineers of MPPMCL, and video recordings of the progress made in implementing the project.
- Details about the financing agreements and the penalties imposed by MPPMCL on PTEMPL, and information about the previous status of the PPA.
In response, MPPMCL stated that the inquiries pertained to commercial and business confidentiality, or intellectual-property rights. It said that disclosing such information would be likely to harm the competitive position of relevant businesses, thereby making the information exempt under the RTI laws. Further, it said that information about the PPA is not known.
The authors are independent journalists based in India.
