Some basic facts about Adani’s 1,600 MW power plant for Bangladesh

Mohammad Arafat: New York City-based Hindenburg Research on January 24 this year published the findings of a two-year investigation alleging that the Adani Group had engaged in market manipulation and accounting malpractices.

It is important to note that Hindenburg Research itself is into short selling of shares, which is considered unethical in many countries. Certainly, its position as a short seller may influence the positions it takes.

Since the publication of the Hindenburg report, the Adani Group and its founder, Gautam Adani has been the most talked about subject in the global financial sector, let alone in India.

The Adani controversy has put BJP as well in a tight spot in India’s domestic politics because of Narendra Modi’s close ties with Gautam Adani.

Adani and Bangladesh

Bangladesh signed the deal with Adani Power back in 2017, long before all these controversies popped up.

As per the agreement with the Bangladesh government, Adani set up a power plant in the Godda district of Jharkhand state in India and once the plant starts to produce power, will supply electricity to Bangladesh for the next 25 years.

Because the Adani Group as a whole is being talked about following the Hindenburg report, therefore, taking advantage of it, the anti-government elements in Bangladesh, started talking against the deal the government signed with Adani Power — but with little in the way of solid evidence.

All the critics can muster is to provide vague anecdotes and sometimes absolutely false information to criticize the power deal with Adani.

As Transparency International Bangladesh (TIB) mentions in one of its statements: “According to national and international media reports, the electricity generated from the Adani power plant located in Godda, Jharkhand, will cost almost three times more than the electricity produced in the country.”

The statement issued by TIB — quoting national and international sources — claims that the electricity generated from the Adani power plant in India will cost almost three times more than the electricity produced in Bangladesh — but is unfortunately absolutely baseless.

Indeed, I would challenge the critics of the deal to show us a way to produce power within Bangladesh by any other conventional energy other than coal at a lower rate than what it is going to cost in the Adani Power deal.

Cost of power

To understand the whole deal, it is also important to know a little pertinent information, especially the cost of power production by using different conventional energy sources.

The cost of production of electricity by different fuels within Bangladesh at current (international) market prices is given below:

(1) Cost of power generation with diesel is Tk 30 per unit

(2) Cost of power generation with imported gas (imported LNG) is Tk 20-22 per unit

(3) Cost of power generation with furnace oil is Tk 18-20 per unit

(4) Cost of power generation with imported coal is around Tk 14 per unit (Payra, Rampal etc)

In comparison to the above, through the Adani Power Project, Bangladesh will get power at Tk 15-16 per unit.

Capacity charge

One thing to keep in mind is that every power plant has an age, after a period of time power plants expire. The age of this power plant of Adani is estimated to be 25 years.

Until its expiry, this entire 25 years, the power plant is essentially owned by the government of Bangladesh. The government of Bangladesh will produce or not produce electricity (depending on variation of seasonal demands) from this Adani power plant according to the needs of the people of this country.

No power plant operates year-round, all the time. Sometimes it is kept at rest. Running power plants incur fixed costs even when the plant is not running and variable costs (mostly fuel costs) when they are running. Fuel costs are not incurred when the plants are kept in rest, but fixed costs are still incurred.

This fixed cost is called capacity charge. In the case of all the power plants in Bangladesh or in all the countries of the world, the government of the respective country has to bear the fixed cost or capacity charge until the plants expire.

In point of fact, this is perfectly normal, notwithstanding the barrage of misinformation and misleading news that has been published about the cost of fixed cost or capacity charge.

Not even one kilowatt of electricity from this power plant can be provided anywhere else without the permission of Bangladesh. This power plant will be dedicated for Bangladesh for 25 years. Although located in India, it is another power plant essentially owned by Bangladesh, at least for the next 25 years, just like other public or private power plants inside Bangladesh.

Cost comparison

The cost of the Adani power project is roughly Tk 1-2 per unit more than the cost of power generation within the country with imported coal. The reason being that a dedicated rail track had to be built for bringing in the coal and a dedicated transmission line had to be built to transfer the electricity to Bangladesh.

Adani power plant will also import coal from its own coal mine in Newcastle, Australia. The cost of importing coal from Australia is slightly higher than the cost of importing coal from Indonesia. Bangladesh’s coal-fired power plants generally import coal from Indonesia.

The point to be noted here is that we have already built 4,500 MW of electricity (own and imported) coal-fired generation capacity within the country. Another 3,500 MW of coal based power is under process. However, it is currently not possible to generate more coal-based electricity within the country due to a number of reasons.

That is, since the 1,600 MW coal-based power project taken up by Adani in India could not be done inside Bangladesh, therefore, this 1,600 MW of electricity inside Bangladesh would have had to be produced with diesel, furnace oil, or imported LNG instead of coal.

In that case, the cost of generating this 1,600 MW electricity would have been much higher than we are paying Adani.

If we built the plant

Adani’s 1,600 MW of electricity will be generated from coal. We will need this electricity. The people of Bangladesh will use and enjoy this 1,600 MW electricity generated from coal.

In the present world reality, since the prices of diesel, furnace oil and imported gas (Imported LNG) have increased a lot, coal based power projects will now meet our uninterrupted power needs.

If this power plant were to be built inside Bangladesh, in this densely populated country, the disadvantages are obvious:

First, a huge tract of land would have to be allocated for the plant to be arranged.

Second, the coal would be burned in Bangladesh, causing massive pollution.

And, finally, the government would have had to invest the entire sum up front to build the plant.

In contrast to the above, through the Adani power plant, we are using Indian land to build the plant, burning the coal in India, and the entire investment is being made by Adani.

It seems to me that Tk 1-2 per unit is a small price to pay for these advantages.

This 1,600 MW of electricity will be brought to Bangladesh at a much lower price than the cost of producing it with diesel, furnace oil or imported LNG.

Contrary to popular perception, the Adani deal provides power to Bangladesh at a much cheaper rate than any other option other than building our own coal-fired plant, and as we have seen, building our own coal-fired plant would come with a lot of other disadvantages.

In short, the Adani deal is a good deal for Bangladesh. But you’d never know this from reading most of the coverage surrounding it.

Mohammad Arafat is a Professor of Management at Canadian University of Bangladesh and Chairman of Suchinta Foundation.