Adani warns Bangladesh: Settle $800m dues by November 7 or face power cut

Adani Power, part of the sprawling Indian conglomerate led by Gautam Adani, has issued an ultimatum to the Government of Bangladesh: settle $800 million in outstanding payments by November 7 or face a complete power supply cut. The power supplied to Bangladesh originates from the 1,600 MW Godda coal-fired power plant in Jharkhand, India. Adani Power’s move follows months of strained relations, where the debt owed by Bangladesh has been steadily climbing, leading the company to warn of a situation that it considers “unsustainable” if dues remain unpaid.

This threat to cut off power supply directly impacts Bangladesh’s energy stability. The country has been reliant on power from Adani’s Godda plant since its operations commenced in July 2023, providing a critical contribution to Bangladesh’s power grid. The ultimatum has raised fears of exacerbating an energy crisis, which has already been worsened by dwindling domestic gas reserves and financial instability.

Economic and Political Implications

The financial troubles between Adani and Bangladesh have been mounting for some time. Gautam Adani himself has reached out to the newly established interim government of Bangladesh, requesting intervention to expedite the payment. The $800 million overdue is part of a broader $3.7 billion energy crisis that the country faces. In a letter, Adani stressed the urgency of “regular payment of routine bills” while also demanding substantial monthly tranches to liquidate the growing debts.

The current interim government, led by Nobel laureate Muhammad Yunus, has been vocal in reassessing the power agreements signed under the former Prime Minister Sheikh Hasina. They have raised concerns over the high costs of these energy deals, notably pointing out the coal power purchase agreement with Adani as opaque and financially burdensome. Despite Yunus’s government’s intent to maintain good relations with India, it has been struggling to stabilize the economy, seeking financial aid from international institutions like the World Bank and the International Monetary Fund to help cover its $2 billion in outstanding arrears.

A Looming Energy Crisis in Bangladesh

Bangladesh has been enduring chronic energy shortages, and Adani’s power supplies have been a significant lifeline to the country. Adding relevant hashtags like #BangladeshEnergyCrisis or #AdaniPower could help drive engagement on social platforms. The Godda plant’s electricity, however, comes at a steep cost, reportedly 63% higher than that of state-run power producers in India. With the debt spiraling to $800 million, Adani Power finds itself under increasing pressure from creditors, suppliers, and coal lenders. Internal discussions have revealed that while the company aims to avoid cutting off the power supply entirely, continued non-payment would make it difficult to sustain its operations without repercussions.

Adding to the geopolitical complexity is the fact that Bangladesh’s reserves are dwindling, with just enough to cover three months of imports. The newly appointed Bangladesh Bank Governor, Ahsan H. Mansur, highlighted the need to clear all dues promptly to avoid further complications, signaling that the government is urgently trying to secure further loans beyond the existing $4.7 billion IMF program. Adani Power, meanwhile, is looking to secure its financial footing amidst these challenges by keeping the lines of communication open with the Yunus administration.

The Broader Impact on Adani Group

For Adani Group, the unpaid dues from Bangladesh pose a significant risk, especially considering the company’s broader expansion plans in India’s neighboring countries, which include investments in Sri Lanka, Bhutan, and Nepal. Adani has already committed over $2 billion to set up the Godda plant, making it a key asset not just for Bangladesh’s energy stability, but also for Adani’s own international expansion strategy. Despite these challenges, Adani Power has pledged to continue supplying electricity to Bangladesh and reiterated its commitment to the country’s infrastructure development and energy security, though it will require timely intervention to avert the looming crisis.

Expert Insight: The Costs of Dependence

Industry analysts warn that Bangladesh’s dependence on a single source for such a large volume of power puts it in a precarious position. The lack of diversification in energy procurement, combined with unfavorable terms in contracts, means that even minor financial disruptions can have far-reaching effects. Experts argue that the new interim government will need to reconsider its current agreements with a focus on transparency and competitive bidding to secure sustainable energy solutions. Furthermore, they emphasize that reliance on coal-based power from Adani, especially given the global transition to greener alternatives, may not be the most viable long-term strategy.

The ongoing standoff between Adani Power and the Bangladesh government highlights the vulnerability of Bangladesh’s energy sector and the geopolitical complexities of international energy trade. As November 7 looms, it remains to be seen whether Bangladesh can mobilize enough resources to settle its debts and prevent a power crisis. The Yunus administration faces a steep uphill task in stabilizing the economy while maintaining critical infrastructure agreements that are crucial for Bangladesh’s growth and development.