Instead of buying fuel for power generation, Bangladesh is buying 10% of the electricity it needs from a dedicated power plant located across the border in Godda in Jharkhand. The Bangladesh Power Development Board (BPDB) has failed to make timely payments and Adani Power is threatening to cut supplies. It is reported that the outstanding payments may be as much as USD 800 million. State-owned coal powered generating plants in Bangladesh are running below capacity because they too lack dollars to buy the needed fuel.
At the peak of the Sri Lankan crisis in 2022, people experienced 13 hour power cuts because the government lacked the money (and creditworthiness) to unload the coal shipments in Colombo port.
Load shedding is not something any self-respecting government should allow in this day and age. Whether the cause is inability to buy fuel for a state-owned plant or the inability to buy electricity from a private supplier, the result is the same: load shedding. The cause for both is lack of dollars.
The Adani contract is said to be unfavourable to Bangladesh. I do not know enough to comment on the details of the complex contract between Adani Power and BPDB. For example, I know enough to say that a capacity-charge component is normal in these kinds of transactions, but lack enough information to say whether the amount (reported to be US $ 450 million/year) is reasonable. When a major dedicated investment (in excess of US $ 1.7 billion) is made to fulfil the terms of a contract, it is normal to include capacity charges. It was upto the BPDB officials to ensure the terms were reasonable.
The coal is brought all the way from an Adani owned mine in Australia to Jharkand, a coal-rich state. This is said to result in excessive costs. But the appropriate comparison is with the alternatives that the BPDB has at this time. “Other coal-fired plants are running at 50% capacity and the country is unable to buy enough coal owing to the dollar crisis, so it is important to continue readymade power supply from Adani. It is marginally more expensive than local producers but it is a crucial supply,” the BBC reported Dr Ajaj Hossain, energy expert and a retired professor as saying.
Right now, and long-term
With the available dollars, should BPDB pay the outstanding debt to Adani or buy coal for the state-owned plants? As Sri Lanka found in 2022, simply making a payment does not cause the electricity to flow instantly. Competitive bids must be sought and assessed. Ships must sail and be unloaded. All this takes time.
Modern societies cannot function without electricity. How can a government allow such matters to be under the control of foreign companies or governments?
On the surface, the answer seems obvious: become self-sufficient in energy. Sri Lanka has enough wind and solar potential to meet its entire requirements and more. Bangladesh has this option too, though its current renewable share is in the single digits. It also has natural gas in the ground. Why are these countries scrambling for dollars to pay for essential electricity and the inputs for electricity?
Solar and wind require major investments and the key inputs have to be brought from outside the country. The early wind plants in Sri Lanka even required the cranes for raising the towers to be brought from India. India has developed the eco-system for renewables, but is not fully self-sufficient. It is widely accepted that the solar panels produced in China are the cheapest. In addition, the grid has to be built out to the locations where the wind and solar power is generated. This requires major investments. Here too, the choices are investment or loans. It’s likely to take three to five years from green light to cut over.
Foreign investment is perhaps the only option for increasing the proportion of electricity generated from wind and solar for governments with fiscal constraints. Contracts such as the one entered into with Adani are seen as necessary to assure the investor in any kind of energy supply that they will continue to earn returns throughout the projected life of the investment. Of course, each element in a contract must be negotiated carefully because parties have incentive to embed favourable provisions within the complex legalese.
Before the investment is made, the investor has a strong negotiating position: treat us fairly or we will go elsewhere. But once the investment is made, the investor cannot dismantle the turbines and go elsewhere. Now the state and the buyer of the output of the plant (often the buyer is owned by the state) have the upper hand.
This is what happened to independent power producers (IPPs) supplying electricity using renewable sources during the 2022-23 crisis in Sri Lanka. The state-owned electricity board did not honour its contractual obligations. The IPPs could have disconnected their plants from the grid, resulting in longer periods of load shedding for the public and no income for themselves. Or they could let the electricity flow while lobbying those is authority for payments to be made, even if late. The Sri Lankan IPPs chose the latter path and have now been made whole.
The Adani contract differs from the Sri Lankan case in two ways. The first and most important is that the Godda plant requires 7-9 million tonnes of coal per year. A plant using renewable sources will require minimal cost outlays for operations. The wind will blow and the sun will shine. By contrast, a coal plant requires continual expenditures for fuel and transport. The second difference is that the Godda plant is outside Bangladesh jurisdiction.
A Google Map depiction of the road route between Godda and Bangladesh’s Dhaka area.
The IPPs in Sri Lanka, whose losses were limited to the costs of serving the debt taken to build their plants and the forgone profits of the shareholders, could afford to be patient. Adani Power has to pay for the coal including transportation costs, in addition. That is likely the reason for Adani’s hard stance.
The second difference is that the coercive power of the Bangladesh government does not extend into Jharkhand state. The Indian government is not supporting the Bangladesh government’s demands. It is instead easing the pain for Adani by allowing electricity from the Godda plant to be sold within India.
Managing dependence
Saudi Arabia is a major energy exporter. If any country can be self-sufficient in energy, it should be Saudi Arabia. Yet it is partnering with multiple Chinese entities to ramp up its renewable energy capacity. If this is the case for Saudi Arabia, how can fiscally constrained Bangladesh and Sri Lanka be self-sufficient?
Issues of dependence cannot be wished away. Russia cut off electricity supplies to Finland in the context of that country’s support for Ukraine. But because Finland had diversified, it was able to make up the difference by getting more power from Sweden. Adani was not the sole external supplier of electricity to Bangladesh, but it was the largest. Even the other suppliers reduced supply because of non-payment.
Usually, what happens is that a supplier withholds service for political reasons (like in Finland). With Adani and the other Indian suppliers, the problem is the opposite. They want to sell. Supply is being withheld because they are not being paid.
Diversification is how dependence is managed. However, problems cannot be avoided if macro-economic mismanagement delays or stops payments for contracted services. Finland was able to avoid load shedding because its electricity companies had the funds to pay the new suppliers.
Energy utilities must actively mitigate risks, including geopolitical risks. But the most fundamental risk-mitigation action is sound macro-economic management. Bankruptcy negates more risk mitigation measures.
Rohan Samarajiva is founding Chair of LIRNEasia, an ICT policy and regulation think-tank active across emerging Asia.
