Ever since the 1600MW coal-fired power plant built for Bangladesh by Adani Power in Jharkhand, India came into focus in the last 6-7 months, one could sense the apprehension on this side of the border. It was in the context of Bangladesh's installed electricity generation capacity far exceeding its demand, and the price of fuel on the international market, specifically LNG, rocketing up in the international market, preventing the authorities from generating the amount of electricity needed to meet the demand.

What Bangladesh needed at that point was fuel - not more power plants. It was also in the context of 'capacity payments' that the conversation was taking place at that point. A report prepared by the Bangladesh Working Group on External Debt has estimated that the country will have to pay more than $11 billion as capacity payments to Adani during its 25-year power deal. Annually, that comes to around $424 million. Bangladesh had just applied for a loan from the IMF (July 2022) and such seemingly wasteful spending on power that we were not going to use seemed flabbergasting, irrespective of the logic behind their inclusion in the contracts with independent power producers, or IPPs.

The power plant in Godda was the fruition of an agreement signed in 2015 between the two countries' prime ministers, during Narendra Modi's first visit to Dhaka, when Gautam Adani was part of his delegation. Close on the heels of Modi's visit,Adani Power was one of two Indian firms that announced plans to set up power plants for Bangladesh. The location and specifics of the plant would come later, as we'll see, in 2017.

Adani also met with Prime Minister Sheikh Hasina during her visit to New Delhi last September, and it was announced that the two sides remained on course for the power generated at the plant to be added to Bangladesh's national grid by December - but this would eventually be delayed as Bangladesh was yet to build the transmission lines to receive the power from the Indian border (Adani was responsible for carrying the electricity up to there from the plant itself) and then add it on to the grid. One could sense the first tinges of buyer's remorse creeping into the Bangladesh side at the time.

Against this background came the news this week that the Bangladesh government has sought a revision to the power purchase agreement (PPA) it signed with Adani Power Ltd in 2017 for importing electricity from its thermal power plant in Jharkhand. Bangladesh Power Development Board (BPDB), the government agency tasked with overseeing the development of the country's power sector, has already sent a letter to the Indian company in this regard, according to officials familiar with the deal.

It seems the price of coal to be purchased as fuel for the project has emerged as the prime bone of contention.

"We have sent a letter to the Adani Group following a request we received in relation to opening LCs (in India) to import the coal that will be used as fuel for the 1,600 MW plant in Jharkhand," a highly-placed official of BPDB told our sister newsagency UNB, in return for anonymity to discuss the sensitive matter.

Since practically all the power generated by the plant located in the Godda district of Jharkhand state will be exported to Bangladesh, Adani Power requires a demand note from BPDB that it can present to Indian authorities before opening LCs against the coal import.

The cost incurred to import the coal, including transport from port to plant, will ultimately be borne by Bangladesh, with the price factored into the PPA's tariff structure.

Adani Power recently sent a request for BPDB to issue the demand note, where the coal price is quoted at $400 per metric ton (MT) - far above what BPDB officials believe it should be given the present state of the international market.

"In our view, the coal price they have quoted ($400/MT) is excessive - it should be less than $250/MT, which is what we are paying for the imported coal at our other thermal power plants," the official said.

The same sources also said Bangladesh's stance on the issue was communicated to Adani Power officials during the visit of a delegation led by State Minister for Power, Energy and Mineral Resources Nasrul Hamid to the site of the power plant, that took place in the first week of January.

Publicly however, the state minister gave no indication of any such issue during the visit, instead telling reporters that Bangladesh would start importing the power generated by one of the two units at the plant, some 750 MW, from March.

The subsequent letter counts as BPDB's formal request for the PPA to be reviewed and tariff structure to be adjusted before it can start importing the electricity, officials said.

No discounts, please?

A number of BPDB officials told UNB it was the absence of a provision for discounts on the purchase of coal in the PPA signed with Adani Power, that allowed the Indian firm to quote such a steep bill for the coal.

The absence of such a provision is all the more notable since it was made mandatory in the PPAs for thermal power plants signed with other independent power producers, domestic or foreign. In these PPAs, the price of coal to be purchased as primary fuel was kept as "pass-through".

The PPA with Adani Power was signed in November 2017, in Dhaka. Then-Power Division Joint Secretary Faizul Amin, BPDB secretary at the time Mina Masuduzzaman and Adani's Business Development President Kandarp Patel signed two documents - the PPA and an Implementing Agreement - on behalf of their respective sides.

Interestingly, 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?

Incidentally the coal for the project, it is now known, will be purchased from the Adani-owned Carmichael mine in Queensland, Australia.

Normally, the price of coal is calculated on the basis of the Newcastle Price Index, with purchases of high quantities or with higher calorific values enabling the buyer to avail discounts of upto 55 percent on the bulk value.

For example, the provision is present in the PPA for the 1320 MW Payra power plant, a Bangladesh-China joint venture where BPDB is benefiting from discounts on coal purchases. The amount of coal required to operate these plants typically runs into the millions of tonnes.

The annual requirement of coal for the Godda plant is estimated to be 7-9 million tonnes. But given the omission of a discount provision, Bangladesh will ultimately end up paying Adani Power Tk 20-22 per unit of electricity, once all the hidden costs are piled on top of the tariff.

"Compare that to the price it pays for the electricity bought from coal-fired plants in Bangladesh, which is below Tk 12 per unit," the senior BPDB official said.

He and others insist that if Adani doesn't agree to adjust the pricing mechanism for coal in the PPA, it would be simply unviable for Bangladesh to import power from the Godda power plant.

As per Power Division documents seen by UNB, Bangladesh would be paying Adani Power an estimated $23.87 billion, equivalent to almost Tk 240,000 crore (considering US dollar exchange rate at Tk 100), over the 25-year life cycle of the plant, if the PPA remains unchanged.

Adani Power's investment in the plant, including transmission lines till the Bangladesh border, has been estimated at around $2.1 billion.

Ripe for revision

It comes in the same week that Adani Enterprises called off a $2.5 billion share offering after it lost tens of billions of dollars in market value due to fraud claims by a US-based short-selling firm.

Billionaire Gautam Adani's company said Thursday (Feb. 2) that it will review its plans for raising capital after it cancelled the share sale late Wednesday, citing "market volatility."

Adani stocks sank after Hindenburg Research, which has a track record of sending stock prices of its targets tumbling, accused the group of "brazen" stock market manipulation and accounting fraud, among other financial abuses.

The share offering had drawn nearly 51 million bids, exceeding the 45.5 million offered to the public. It was seen as a crucial test of investor confidence in Adani, whose net worth had shot up about 2,000% in recent years as share prices for his listed companies soared.

Adani made a vast fortune mining coal as energy-hungry India grew swiftly after its economy was liberalised in the 1990s. Adani companies operate airports in major cities, build roads, generate electricity, manufacture defence equipment, develop agricultural drones, sell cooking oil and run a media outlet. By the time trading closed Thursday, Adani Enterprises was down by another 27% in a single day, following Wednesday's 30% drop. Stocks in six of Adani's other listed companies sank between 5% and 10%.

Overall, shares in Adani Enterprises have tumbled 54.5% since the Hindenburg report was published last week. In a video address Thursday, Adani said the decision to scrap the share offering was made "to insulate the investors from potential losses."

"For me, the interest of my investors is paramount and everything else is secondary," he said.

Adani Enterprises said in a statement that it would withdraw the transaction and return the money to its investors. The decision would not "have any impact on our existing operations and future plans," it said, adding that the group's balance sheet was "very healthy" with strong cashflows and secure assets.

Hindenburg said it was betting against the group, accusing it of "pulling the largest con in corporate history." It said it judged the seven key Adani listed companies to have an "85% downside, purely on a fundamental basis owing to sky-high valuations."

Most of the allegations involved concerns about the group's debt levels, activities of top executives, use of offshore shell companies to artificially boost share prices and past investigations into fraud. It listed 88 questions for the group to answer.

Adani Group dismissed Hindenburg's allegations, and called its report a "calculated attack on India, the independence, integrity and quality of Indian institutions, and the growth story and ambition of India." On Sunday, it issued a 413-page report that rejected its questions, saying none were "based on independent or journalistic fact finding."

Adani's response included documents and data tables. It said the group has made all necessary regulatory disclosures and abided by local laws.

India's parliament was adjourned Thursday for the first half of the day when the chair of the upper house rejected a request by opposition lawmakers to debate the allegations made by Hindenburg. India's federal government and its finance ministry have not commented on the Adani stock rout so far.

Mallikarjun Kharge, president of the main opposition Congress party, told reporters opposition parties were demanding a discussion of public sector investments "in companies losing market value, endangering the hard-earned savings" of millions of Indians. The opposition parties were pushing for an investigation into the Adani Group by a parliamentary or a Supreme Court-appointed panel.

The stock losses on Wednesday cost Adani his title as the richest man in Asia and in India. He slid from being the world's third richest man to the 13th as his fortune plummeted to $72 billion, according to Bloomberg's Billionaire Index. Prior to the Hindenburg report, his net worth was about $120 billion.

Hindenburg specialises in "forensic financial research." In layman's terms, it looks for corruption or fraud in the business world, such as accounting irregularities and bad actors in management. The firm has even come to be known as Ponzi hunters in some circles, according to the Washington Post, which detailed how it helped bring down an alleged $500 million scheme that targeted Mormons.

The firm says it sees the Hindenburg, an airship that famously caught fire in the 1930s to the cry of "Oh, the humanity," as the "epitome of a totally man-made, totally avoidable disaster." It says it looks for similar disasters in financial markets "before they lure in more unsuspecting victims."

Could that be said to apply in the case of the Bangladesh government as well? It would probably be a bit harsh on the Indian businessman. The BPDB officials, irrespective of whatever pressure tactics may have been applied by the Indian company, should have known what they were getting into. Not honouring contractual obligations is never a good look for any government. But with Adanis' reputation currently taking a hit, the government may just feel the time is ripe to force the company into a concession.

Dhaka-Delhi ties: Too big to fail

The obvious question one may ask here is what effect this rather late realisation on the part of the government of Bangladesh may have on ties with its counterpart, especially given the well-publicised closeness of Adani to the power circles in the Indian capital. But the Indian government has come out and said it is not involved in any agreement between the Bangladesh government and Adani Power for procurement of electricity from the Indian conglomerate's plant in Jharkhand.

"I don't have anything on that. I understand you are referring to a deal between a sovereign government and an Indian company. I am not aware of it. I don't even think we are involved in this," said Indian Ministry of External Affairs Spokesperson Arindam Bagchi while responding to a question in a weekly media briefing in New Delhi on Thursday.

The reporter had referred to the UNB report a day earlier that said the government had sought a revision to the PPA it signed with Adani Power for importing electricity from its thermal power plant in Jharkhand, India.

Responding to a follow up question, the spokesperson said as part of its larger neighbourhood-first strategy, India would like to see greater economic integration and inter-connection with its neighbours which assists their process of development. India wants its neighbouring countries to benefit from its economic growth through the strengthening of connectivity links and cooperation in the power and waterways sectors, he said.

However, the spokesperson added, if some projects are not working for financial or economic reasons, he does not think it is a reflection on the relationship. "We will continue our efforts to bring our two countries closer through greater investment and trade linkages."

Additional reporting by Sadrul Hasan, AP