Adani Group Lifts Power Cut Threat to Bangladesh, Secures New Payment Terms

The Adani Group, a major player in India’s power sector, has recently resolved a critical standoff with Bangladesh regarding overdue payments. After intense negotiations, the conglomerate lifted its deadline to cut off power supply, securing fresh repayment terms from the Bangladeshi government. Here’s a look at the key developments and what this means for both parties.

The Background: Power Supply and Payment Challenges

Adani Power Ltd operates a 1,600 MW Godda Thermal Power Plant in Jharkhand, which supplies electricity exclusively to Bangladesh. The plant’s output accounts for around 10% of Bangladesh’s electricity consumption, making it a vital component of its energy infrastructure.

However, economic challenges in Bangladesh have strained its ability to pay for electricity. Despite an agreement to clear dues promptly, the nation had been paying only a fraction of the monthly bill, leading to a backlog of nearly ₹7,500 crore. By October, Adani had shut down one of the two units at the Godda plant, halving the supply to Bangladesh.

Fresh Repayment Terms: A Temporary Relief

The turning point came after five days of rigorous discussions. The Bangladeshi government proposed to reinstate a letter of credit (LC) with immediate validity, unlike its previous offer of a post-dated LC, which Adani had rejected for violating the terms of the existing Power Purchase Agreement (PPA).

In response to this new assurance, Adani agreed to restore full power supply and resume operations from both units of its Godda plant. The revised LC, valued at $170-180 million, is seen as a strong commitment from Bangladesh to honour its dues. 

Additionally, the Bangladeshi government promised to settle the outstanding amount within two to three months, anticipating financial support from institutions like the International Monetary Fund (IMF) or the Asian Development Bank (ADB).

A Backup Plan: Preparing for the Worst

Despite the renewed agreement, Adani Group remains cautious and has initiated a backup strategy to safeguard its operations. The company plans to build a 100 km transmission line connecting the Godda plant to India’s national grid. This will enable Adani to sell electricity locally if Bangladesh faces further repayment issues or defaults again.

The backup plan is crucial for Adani, as keeping the plant idle would be costly and could impact the company’s credit rating. The group can continue generating revenue by connecting to India’s grid even if transnational supply is disrupted.

Impact on India-Bangladesh Relations

The power supply deal from Adani’s Godda plant was a significant milestone in India-Bangladesh economic relations. However, the current payment issues have put the partnership to the test. The recent resolution suggests a willingness on both sides to maintain the agreement, but it also highlights the underlying economic and political instability in Bangladesh.

With Adani’s contingency measures and the amendments by India’s power ministry to allow export-focused plants to sell domestically, the situation appears to stabilise. Nevertheless, the group’s readiness for a backup reflects the ongoing uncertainties in the region.

Conclusion

The recent negotiations have averted an immediate power crisis in Bangladesh, but the deal’s long-term stability will depend on the country’s ability to meet its financial commitments. The situation has prompted a strategic pivot for Adani Group, ensuring it can adapt quickly if similar issues arise.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.