The Adani Group finds itself at a critical juncture as Bangladesh gears up to renegotiate the Power Purchase Agreement

The energy market dynamics, particularly in rapidly growing economies like India, present unique opportunities for merchant and untied capacities. For the Adani Group, one of India's largest conglomerates with a substantial footprint in the energy sector, the current Power Purchase Agreement (PPA) with Bangladesh is both an opportunity and a potential challenge. With growing voices within Bangladesh calling for the renegotiation of the PPA, the landscape is shifting, presenting both risks and advantages for Adani. Background of the Agreement

The PPA between Adani and Bangladesh was established to enhance energy security for a nation facing persistent power shortages and increasing electricity demands. Under this agreement, Adani constructed a dedicated 1,600 MW power plant in the Godda district of Jharkhand, specifically to supply electricity to Bangladesh. The $2 billion project, including essential transmission infrastructure, was fully commissioned in June 2023 and now meets approximately 7-10 per cent of Bangladesh’s base load demand, particularly serving the northern regions of the country.

Current Challenges

Recent criticisms from Bangladeshi media allege that Adani is selling power at exorbitant rates. In response, Adani has referenced government data to assert that its electricity is indeed the cheapest compared to other similar fuel-based power plants. However, Bangladesh is facing a significant financial crunch, with over $800 million owed to Adani for power supplied. Despite this outstanding debt, Adani has continued its supply but finds the situation increasingly untenable, given its obligations to lenders and suppliers. This growing receivable issue threatens to affect Adani's credit profile, potentially raising the cost of funds across its operations. In a significant policy shift, the Indian government recently allowed power plants exporting electricity to connect to the national grid. This move could be advantageous for Adani Power, as it opens up the domestic market for the Godda plant, which is currently not integrated with the Indian grid. Adani remains committed to honoring its contract with Bangladesh while also requesting the early settlement of outstanding dues. If Bangladesh fails to meet its payment obligations or decides to terminate the PPA, Adani can pivot its focus towards sales within India.

Economic Considerations

One of the main economic factors influencing this scenario is the disparity in electricity rates between India and Bangladesh. The Indian power market has seen a marked increase in electricity prices driven by robust economic growth. By redirecting power supplies to India, Adani could take advantage of these higher rates, thus boosting profitability. Recent trends indicate that peak power prices have reached around Rs 10/kWh for extended periods, a figure likely to rise due to heightened demand for coal-based power. The cost of coal, crucial for power generation, is influenced by global market fluctuations. While the Godda plant operates on imported coal, its proximity to India’s coal reserves allows for reduced logistical costs, further enhancing Adani's operational efficiency.

Given this context, Adani stands to benefit significantly from redirecting its power supply to the Indian market, rather than continuing to fulfill its obligations under the existing PPA with Bangladesh.   Regulatory Environment

The Indian government’s focus on self-reliance and energy security has created a favorable environment for domestic power producers. Initiatives like "Atmanirbhar Bharat" and “Make in India” seek to reduce import dependency and promote local production and consumption. In line with these national priorities, Adani could leverage its resources to address India's escalating energy demands effectively.

The National Electricity Plan forecasts that India’s peak power demand will surge from 203 GW in FY22 to 277 GW by FY27, and further to 366 GW by FY32. This growth implies the need for an additional 80 GW of coal-based capacity by FY32. With its existing 1.6 GW capacity at the Godda plant, Adani is well-positioned to play a pivotal role in meeting this demand.

Navigating Future Decisions

While the potential benefits of terminating the PPA are compelling, such a move carries inherent risks. Breaking an international agreement could lead to diplomatic consequences and adversely affect Adani's global reputation. Nevertheless, if the Bangladesh government were to initiate a renegotiation or termination of the agreement, Adani would likely find itself in a more advantageous position, allowing it to pivot toward the lucrative Indian market without the constraints of the PPA.

The company must balance its commitment to the agreement while remaining agile enough to capitalise on emerging market conditions in India, ensuring its long-term growth and sustainability in the energy sector.

(The writer is a financial journalist; views are personal)