Coal Finance India
Is Bangladesh’s electricity contract with Adani legally void?
Feb 09, 2023
Adani's Godda power station under construction in 2020. The contract between Adani and the public power company of Bangladesh appears to heavily favour the Adani Group.

Bangladesh is attempting to re-visit the deal it made with Adani for buying electricity from its Godda power plant. According to the Bangladesh power company buying the power, Adani is charging too high a price for its coal imports. In this exclusive analysis of the official contract between Adani and Bangladesh, AdaniWatch asks whether the agreement should be considered legally void due to Adani’s inclusion of costs that appear to be non-existent. The agreement as it currently stands will cost Bangladesh significantly more than it should. The cost of power from Godda will be three times more than that imported from other Indian power plants.

On 1 February 2023, a report by the United News of Bangladesh stated that the Bangladesh Power Development Board (BPDB) has sought a revision to a 2017 Power Purchase Agreement (PPA) it signed with Adani Power (Jharkhand) Limited. According to the report, the BPDB says that the Adani group company is quoting an excessive price for coal that it will import to its thermal power plant at Godda in the Indian state of Jharkhand, from which it will export electricity to Bangladesh.

An Adani Group spokesperson told the Indian newspaper Business Standard that the BPDB has not sought a revision in the PPA, but only ‘temporary relief’ on the cost of coal.

AdaniWatch has obtained a full copy of the PPA signed between the two parties. In this exclusive analysis, we can reveal that the PPA may be legally invalid. While portions of the PPA have been reported on over the years in various media reports, this is the first time that the full PPA is being analysed in the public domain.


In the first week of June 2015, Indian Prime Minister Narendra Modi embarked on a two-day official visit to Bangladesh. That was his first visit to the neighbouring country as the PM. The text of the Indian PM’s statement in the joint press briefing by the two leaders stated, ‘we can do more together in the power sector, here and in India.’

On 7 June 2015, it was reported by The Daily Star, a Bangladeshi newspaper, that two Indian private companies, Adani Power Limited (APL) and Reliance Power Limited, had signed separate Memoranda of Understanding (MoUs) with BPDB for a combined investment of US $5.5 billion to set up power projects in Bangladesh. Subsequently, Reliance Power said it had decided to set up a gas-based power plant in Bangladesh with an installed capacity of 3000 MW with an investment of US $3 billion, while Adani Power announced it would set up a 1600 MW coal-fired plant by investing US $2.5 billion. 

The Daily Star report also reported that another MoU relating to ‘Adani's export of power from a coal power plant in India to Bangladesh’ had been dropped at the last moment.

(Story continues below)

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On 10 June 2015, the Indian right-wing think tank Vivekananda International Foundation, which is closely associated with PM Narendra Modi’s ruling party, the BJP, and its ideological parent the RSS reviewed the PM’s visit to Bangladesh in a lengthy blog and stated that ‘close on the heels of the PM’s visit, two major Indian private-sector firms have already announced plans to set up thermal and gas-based plants in Bangladesh that would give a major boost to power production in the country’. 

Between June and August, however, this changed. On 9 June, in a statement to the Bombay Stock Exchange APL said that it has no information on news reports on APL signing an MoU with BPDB. According to the PPA eventually signed by the BPDB and APL subsidiary Adani Power (Jharkhand) Limited (APJL) in November 2017, an MoU was signed between the two parties on 11 August 2015 for APL to set up a 1600 MW coal-power plant at a suitable location in India to supply electricity to Bangladesh. 

APL incorporated a subsidiary, Adani Power (Jharkhand) Limited, on 18 December 2015. Two months later, on 18 February 2016, APL submitted ‘an unsolicited techno-commercial proposal’ about the proposed plant in Jharkhand to BPDB. 

In May 2016, APL requested the Jharkhand government to allocate around 1000 ha of land in ten villages in the Godda district for the project.  The then BJP-ruled state government, in March 2017, informed the company that it would acquire 917 acres comprising six villages. How the government and the company used brute force, violated set norms, filed frivolous court cases, and twisted the rules to remove indigenous tribals and local villagers from their ancestral land is well documented and has been widely covered, including in past reports by AdaniWatch.

How Indian authorities bent the rules to enable Adani’s Godda project

In December 2016, India’s Ministry of Power issued a notification titled ‘Guidelines on Cross Border Trade of Electricity’. The guidelines stipulated that ‘any coal-based Indian thermal power projects other than Public Sector Undertakings shall be eligible for export of electricity to neighbouring countries only if surplus capacity is certified by the Designated Authority’. That is, coal-power plants owned by private companies would only be allowed to export electricity if they had surplus capacity.

Was Adani Power Ltd producing surplus electricity when it signed the MoU with Bangladesh and when the Jharkhand government allotted land for it? The answer is no. All of APL’s existing power plants had binding contracts with various state-owned distribution companies in India. Even in 2023, India is still not an electricity surplus country.

The PPA was signed on 5 November 2017. The 2017-18 annual report of APL stated: ‘The Company’s wholly owned subsidiary Adani Power (Jharkhand) Limited (APJL) has signed a long-term Power Purchase Agreement (PPA) on 5th November 2017 with the Bangladesh Power Development Board for a net capacity of 1496 MW for supply of power for 25 years. APJL has also signed an Implementation Agreement with the Government of Bangladesh and Power Grid Company of Bangladesh. Power supply under the PPA will be made from a new 1600 MW (2 x 800 MW) ultra-supercritical, coal-based power plant to be set up by APJL at Godda, Jharkhand. The first 800 MW unit of the plant is proposed to achieve commercial operations within 50 months of the PPA signing date, and the second 800 MW unit within four months thereafter. All relevant clearances and permissions for setting up the project have been obtained, and land acquisition is currently in progress.’

Notably, this meant the acquisition of local farmlands for the plant was still incomplete at the end of the 2017-18 financial year, which ended in March 2018.

The Jharkhand government, in 2016, changed its policy that demanded that a power producer located in the state must supply at least 25% of the electricity generated at its plants to the state. It allowed Adani to export 100% of its generated capacity to Bangladesh.

After obtaining environmental approval from the Ministry of Environment, Forest and Climate Change based on an earlier report, the company applied for a change in the water source for the plant from the Chiru River to the Ganges River without submitting a new environmental study report. The ministry approved it. A petition to the National Green Tribunal (NGT) by an activist based in Delhi was dismissed in July 2022, on the grounds that he had no locus-standi in the matter as he was not an affected person. The NGT also said that the petitioner should have filed the petition within 30 days of the approval, as it is the norm. In a nutshell, the NGT did not even bother to look at the actual violation of the rules by the ministry and the APL.

In 2019, just before general elections in India, the Modi government changed rules pertaining to special economic zones. It amended guidelines issued three years prior, which prohibited a stand-alone power project to constitute a Special Economic Zone. This allowed Adani’s Godda project to become India's first stand-alone power project in an SEZ. This move by the Modi government meant that the Godda project now enjoyed a zero-tax regime. 

Screenshot from the minutes of the meeting of the SEZ board of approval held on 25 February 2019 approving the declaration of the Godda power plant as an SEZScreenshot from the minutes of the meeting of the SEZ board of approval held on 25 February 2019 approving the declaration of the Godda power plant as an SEZ

In one fell swoop, Adani Power had saved all the import duties the company would otherwise have had to pay on importing machinery and equipment for the plant from eight countries – China, Netherlands, Belgium, Germany, Sweden, the United States, Italy and Greece (in descending order of the value of imports in US dollar terms).

Until February 2022, 95.58% of equipment was imported from China. According to documents seen by AdaniWatch, the majority of the company’s imports from abroad came after the project was declared an SEZ.  The company also avoids paying import duty or any other tax on imported coal. It also doesn’t have to pay Goods and Service Tax (GST), surcharges on duties, or any other import duty (such as the GST Compensation ‘Cess’).

While it has been widely reported and assumed that coal for the Godda power plant will be imported from Adani’s Carmichael coal mine in Australia, it is no longer clear that this is the case. On 10 October 2022, APL invited bids for the supply of 5.9 million tonnes of 4600 GAR (gross as received, a measure of the coal’s calorific value) coal for 25 years for the Godda power plant.

A screenshot from the tender issued by Adani Power Jharkhand Limited.Above is a screenshot from the tender issued by Adani Power Jharkhand Limited.

India’s union government charges Rs. 400 ($4.88) as Clean Energy Cess (a form of carbon tax) for every tonne of coal. According to the final Environmental Impact Assessment filed by APL to the Ministry of Environment, the plant will consume anywhere between seven and nine million tonnes of coal annually for its proposed PPA period of 25 years. If the figure is taken at eight million tonnes/annum, a back-of-the-envelope calculation produces an estimate that APL will save US $39.02 million per year on the Clean Energy Cess (a form of carbon tax) and nearly US $1 billion over 25 years, by virtue of being declared an SEZ.

Being in an SEZ, Adani Power (Jharkhand) Ltd will get ‘100% Income Tax exemption for the first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years.’ (more on the Modi govt’s highly questionable support for APL’s Godda coal-power plant can be read here and here).

Yet, in a recent interview with Hindi News Channel India TV, Gautam Adani said, ‘I want to tell you that you can never get any personal help from Modi ji. You can speak to him about policies in the national interest, but when a policy is framed, it is for all, not only for the Adani Group.’

The PPA: A Myriad of Issues 

Of particular interest is the section of the PPA concerning the calculation of the power tariff.

The PPA defines the reference tariff as having two components – Reference Capacity Price and Reference Energy Price. Capacity price is charged by the power producer to recover its investment in the plant, machinery and maintenance. Even if the procurer is not buying power from the generating company, it is bound to pay capacity charges to the company until the end of the contract. Energy price is the price of the electricity sold, which includes the price of fuel and other variables.

Reference Tariff

According to the PPA, applicable taxes in India for the procurement, construction, financing, operation and maintenance of the project and ‘environmental norms which are in force in the Republic of India’ have been taken into account for the calculation of the Reference Tariff.

The document provides a chart detailing the ‘taxes, levies and norms’ taken into consideration while calculating the Reference Tariff under the heading ‘List of Assumptions’. The list included: 12.5% Excise Duty, Customs duty for imported goods, 15% service tax (0.5% Swachh Bharat import tax and 0.5% Krishi Kalyan import tax included) on construction activities, 2% Central Sales Tax on goods purchased from outside Jharkhand, Value Added Tax on Equipment (depending on equipment VAT varies from 5.5% to 14.5%), Composite Tax on civil construction (15% on 40% of total amount charged for works contract), 4% work contract tax, 1% Building & Other Construction Workers' Welfare ‘Cess’ (a form of tax), water charges payable to Jharkhand government, Income tax payable in India as per the applicable slab etc.

There are huge issues with these assumptions. 

First, the PPA, signed on 5 November 2017, mentions VAT (value-added tax) and other state taxes separately. But the union government of India rolled out a comprehensive Goods and Service Tax (GST) regime in the country on 1 July 2017, four and a half months before the PPA was signed. The new GST regime subsumed almost all state taxes, including central excise duty, services tax, additional customs duty, surcharges, state-level value-added tax, Octroi (a type of tax pertaining to transport of goods) and levies which were applicable for interstate transportation of goods. So why were these obsolete provisions included in the PPA? 

Then, the project was declared a Special Economic Zone in February 2019, 15 months after signing the PPA. SEZs in India have a different set of tax rules applicable and enjoy a lot of tax exemptions. As mentioned earlier in this article, APJL doesn’t have to pay taxes on almost every imported item and gets a waiver of Income Tax for many years.

The PPA stipulates that APJL must inform BPDB of any changes in law that might affect these assumptions within 30 days of such an occurrence, and any variation shall be adjusted in the Reference capacity price.

Was the Bangladesh government informed, at the time of signing the PPA, that the GST regime was in place, and VAT and other state level taxes had been subsumed by it? Was it informed subsequently of the changes brought into play by the project being declared an SEZ? If it wasn’t, the agreement may be legally voided by the BPDB for breach of contract. The BPDB’s chairman Md Mahbubur Rahman has been asked these questions by AdaniWatch but no reply had been received at the time of publication.

The PPA also says that the parties ‘expressly agree that no adjustment shall be applied or paid due to a change in assumption resulting from any change in taxes impacting the construction contract price until the project has been commissioned and the impact of such change in taxes is to the company’s account.’

Will Bangladesh be paying above market price for power from Godda?

An article published on 31 October 2022 by Bangla language newspaper Share Biz reveals that the BPDB had submitted a report to the Bangladesh government citing some serious anomalies in the PPA. 

According to this article, THE BPDB will end up paying 16% higher capacity charges and 45% higher fuel charges to Adani’s Godda project compared with similar projects in Bangladesh. Because of this, the report adds, a unit of electricity from APJL will cost $0.17, while Bangladesh is already importing electricity from India at an average cost of $0.062 per unit. As per this calculation, every MWh of electricity from the Godda plant will cost Bangladesh $170 if the full capacity is utilised.

According to the Bangladesh Economic Review 2022, the country has a grid-based installed generation capacity of 22,031 MW, and 21,280 MW generation capacity was available for production. The peak demand reported (as of February 2022) was 15,500 MW, and the maximum generation was only 13,525 MW, meaning that almost 38% of the installed capacity in the country is not utilised for various reasons such as payment backlog, high costs of fuel, private companies struggling to run the plant due to financial crunch etc. 

A research paper published by the Bangladesh Working Group on External Debt (BWGED) in March 2022 says that the Plant Load Factor of the electricity sector in the country was only 40.91% in 2021. The same year, BPDB paid $1.5 billion in capacity charges to 37 private power gencos and reported a loss of $1.35 billion. 

A study by the BWGED and Growthwatch, published in June 2022, says that ‘BPDB will have to pay a maximum of $1.17 billion and a minimum of $918.18 million per year to buy electricity from Godda Power Plant. Of this amount, $423.29 million is the capacity charge per year, which amounts to $11.01 billion over its lifetime, which will only benefit the billionaire Adani Group to make more money.’

An article published on 24 November 2022 by bilingual Bangladesh daily The Business Standard quoted a source from the Bangladesh government saying, ‘if the government refrained from taking power from the Godda power plant when it goes to full production, it would cost the state coffers $28.883 million in monthly capacity charges.’

This huge difference in pricing is caused by the failure of the BPDB to require, as a term of the PPA with APJL, a ‘discount clause’. 

The PPA says, ‘free on-board coal price in USD per metric ton for the relevant month calculated based on average of prices derived from (i) Indonesian Coal Index (HBA) - (pricing of Indonesian coal), and (ii) Global Coal New Castle Index (GC NW) (Pricing of Australian Coal), each for 4600 gross calorific value (as received basis) ...’ would be used for the calculation of coal price and fuel payment. Sea freight / ocean freight, insurance, finance and transaction charges, port handling charges, inland transportation charges payable to the Indian railways for transporting the coal 690 km from the port to the plant and handling losses will be added to the coal price. 

The Share Biz article explains the effect of this formula on the estimated coal price of the Godda power plant. The Payra power plant, the costliest in Bangladesh, is being paid $237 for every tonne of coal it uses. In the case of APJL, BPDB will end up paying $434 per tonne.

The article of 1 February 2023 by United News of Bangladesh revealed that APJL had quoted a price of $400 per tonne for imported coal.

Adani’s last PPA for a COAL-power project was signed on 12 March 2020 between MP Power Management Company Ltd, owned by the government of the central Indian state of Madhya Pradesh, and APL subsidiary Pench Thermal Energy MP Ltd. The agreement, seen by AdaniWatch, says that the weighted average freight charges of Indian Railways for transporting one-tonne coal for 196 km were $6.83 at that time. To Godda, Indian Railways will transport 7 to 9 million tonnes of coal for 690 km. This gives us an idea of the amount BPDB will end up paying the Adani company for fuel transportation only.

When the PPA was signed, the Reference coal price was taken at $90 for the Tariff calculation.

According to the Newcastle Coal futures, the benchmark for the top consuming region of Asia, current coal prices are hovering around $400 per metric tonne. This explains the vast difference in pricing between when the PPA was signed in 2017 and the present day.

In January 2022, BPDB proposed a 66% hike in the wholesale price of power to the retailers, from the then-existing Tk (Bangladeshi taka) 5.17 per kilowatt-hour to Tk 8.58 per kilowatt-hour, arguing the cost of production had increased significantly. The proposal was shot down by the Bangladesh Energy Regulatory Commission (BERC) on the government's recommendation. The government argued that ‘an unprecedented power outage has hit people's daily life that was already reeling under the impact of record inflation, hikes in prices of gas and fuel oils’ as the reason. The BERC also noted ‘paralysis of analysis’ in BPDB’s proposal, which could not give a clear picture of how the hike will impact the levels of distribution and retail charges. 

From 1 December 2022, BERC notified a 19.92% hike in the wholesale price at which BPDB sells power to distribution companies and other bulk consumers. But at the retail level, the government had agreed to absorb the price rise through subsidies. 

Interest clauses

Clause 13.2 (ii) of the PPA has some curious terms that are binding on BPDB. The document says even if BPDB disputes the monthly invoices raised by the company, BPDB should release adequate payments to the company to cover its debt-service obligations, energy payment, operation and maintenance charges and any other statutory liability of the company on or before the due date for the disputed invoice.

The PPA makes it clear that any delay by BPDB in paying the monthly invoice claim of APJL attracts interest at the benchmark rate on a daily basis.

The media in Bangladesh have reported that BPDB’s payments to generation companies were delayed by as much as five months in 2022. 

In the case of APJL, BPDB has another problem on its hands. As per the PPA, BPDB has to make every payment to APJL in US dollars. In 2017, when the agreement was signed, the average US dollar – Bangladeshi Taka exchange rate was Tk 81.19. At present, one US dollar is exchanged at Tk 104.2. This will further increase the outflow of money from BPDB.

No Discount

An unnamed BPDB official was quoted by United News of Bangladesh in the first week of January 2023 saying that Adani managed to negotiate almost double the purchase price of power compared with that paid to Bangladeshi producers and three times the price of other power imported from India at present. According to this official, BPDB’s purchase of power from Adani’s Godda power plant will, of itself, cause a loss of $81.34 million per year. The BPDB official told UNI that a discount on coal prices, which was made mandatory for other PPAs, was not included in the PPA with Adani due to an ‘oversight’. The official said BPDB would have to pay $0.19-0.21/unit of electricity from APJL, considering the current coal prices. Out of this, $0.083 is capacity charges, which BPDB will keep paying the company whether it buys the power or not. As per the documents from the Bangladesh government’s power division, seen by the United News journalists, at the current USD-Taka exchange rate, BPDB will end up paying $23.87 billion to Adani in the PPA tenure of 25 years – much higher than the rate it pays all other power producers.

The 1 February report by United News of Bangladesh wondered whether the failure to include the provisions on discounts were due to a rush to sign the PPA. The report notes that at the time the PPA was signed, ‘reports in Bangladeshi media from the time suggest the agreement had to be rushed through in the end, on the insistence of the Indian company. A date proposed by the Power Division had to be brought forward, reported Energy and Power magazine, as the Indian company ‘was insisting to sign the deal earlier’. Most of the top and senior officials of the Power Division were unable to attend, the report adds. Did this rush to sign ‘ahead of schedule’ in the end cause the absence of the discount provision to be missed?’

In conclusion, the price that BPDB will pay Adani is almost three times the price of electricity that it is importing from other Indian power plants, and about one and half times the price of electricity generated within Bangladesh. This is on account of capacity charges that assume the existence of a tax regime that is no longer in force in India (and wasn’t even at the time of signing the PPA), and which include a component for taxes that Adani won’t have to pay.

It is very unclear why the Bangladesh government signed such an entirely one-sided PPA, and which favours the company of a foreign oligarch. Were the Bangladesh government and its officials short-sighted and unable to fathom the consequences? Or were they under some pressure from the Indian government to help an Adani company to make more money at the expense of the people in Bangladesh? Only the Bangladesh government can answer that. 

In 2021, Bangladesh cancelled 10 out of 18 planned coal power projects, citing global concerns about coal and the cheaper cost of renewable energy. But, according to a Washington Post report, ‘Adani’s project will proceed.’ The report quoted a former director general of Bangladesh’s power regulator, B.D. Rahmatullah, saying that Prime Minister Sheikh Hasina cannot afford to anger India, even if the deal appears unfavourable.

‘She knows what is bad and what is good… but she knows “if I satisfy Adani, Modi will be happy”,’ the report quoted Rahmatullah. 

Questionnaires seeking comments from the BPDB Chairman and Bangladesh’s Prime Minister Sheikh Hasina have been sent to them. This article will be updated with any response that is received. In the meantime, on 3 February 2023, Adani Power Ltd told the National Stock Exchange of India Ltd:

In this regard, we would like to confirm that our wholly owned subsidiary, Adani Power (Jharkhand) Limited (“APJL”) has received a communication from the
Bangladesh Power Development Board (“BPDB”) requesting us to consider a discount on the energy charge as per the Power Purchase Agreement (“PPA”).
We would like to clarify that receipt of communication can’t be a trigger for disclosure as no response has been made or any view communicated on the
same. We add that no PPA amendment is under consideration.

Further delays in production?

On 3 January 2023, Bangladesh’s energy minister Nasrul Hamid visited the Godda plant for an inspection. During his visit, the minister announced that Bangladesh will start receiving electricity from the plant by 26 March, Bangladesh’s independence day. 

Meanwhile, APL’s website says, ‘Unit-1 (800 MW) has been synchronised with Bangladesh power grid. It is available for generation at full capacity and will generate power based on advice from Bangladesh authorities. Hydro test of Unit-2 boiler completed. Preparation for steam blowing and synchronisation is under progress.’

However, on 4 February, the Indian newspaper Livemint reported that the date on which commercial operations of the Godda plant commence may be delayed a further six months, as transmission lines connecting the plant to the Bangladesh grid are yet to be completed. 

This agrees with a report published by AdaniWatch in July 2022, which said that the export of electricity from the plant is only likely to commence in the second half of 2023 at the earliest. 

Meanwhile, a public-interest litigation has been filed at the Calcutta High Court in India by a group of farmers in the state of West Bengal. The Indian website Sabrang reported that the farmers alleged that the Adani Group had inadequately compensated them for losses they have suffered due to the transmission line being built through their orchards. This follows a clash that took place between orchardists and the police in July 2022 over the same issue that AdaniWatch had reported at the time.

With Bangladesh now seeking a revision in the price of Adani’s power from Godda, another spanner may have been thrown into the works.

The authors are independent journalists.