Bangladesh is working towards restoring its power supply after enduring a significant reduction in electricity availability for over three months.
This situation has arisen due to power shortages linked to supply cuts, which were influenced by low winter demand and ongoing payment disputes.
Adani Power, a crucial electricity provider since signing a 25-year contract with former Prime Minister Sheikh Hasina in 2017, has been supplying power from its $2 billion facility located in Jharkhand, India.
In light of its increasing energy requirements, Bangladesh is now focused on reinstating full power supply.
Overview of the Power Supply Restoration Challenges
Adani Power has been the sole electricity supplier to Bangladesh through its 1,600-megawatt power plant.
However, on October 31, the supply was halved due to delayed payments from Bangladesh, which were a result of a foreign exchange crisis.
As a consequence, one of the two 800-megawatt units was taken offline on November 1, leading to a reduction in the plant’s operational capacity to approximately 42%.
In response to this situation, Bangladesh directed Adani to limit its power supply to half of the usual amount.
With recent financial improvements, Bangladesh is now making monthly payments of $85 million to settle outstanding debts and has requested Adani to restore full operational capacity.
Bangladesh’s Urgent Need for Complete Power Restoration
The demand for electricity in Bangladesh has escalated, making the restoration of power supply a critical focus.
The Bangladesh Power Development Board (BPDB) is advocating for the reactivation of the second unit.
However, recent efforts to restart this unit have encountered technical difficulties, particularly issues related to excessive vibrations.
Disputes Over Payments and Pricing Issues
A significant factor hindering the restoration of power supply in Bangladesh is the ongoing payment dispute.
Adani Power’s rates for electricity supplied to Bangladesh are approximately 55% higher than the average cost of Indian power sold to Dhaka.
The pricing structure established in the 2017 agreement, which is based on an average of two indices, has resulted in inconsistencies in the calculations.
In December, Adani asserted that BPDB owed the company around $900 million, while BPDB countered with a claim of approximately $650 million.
This discrepancy has led to a reassessment of the contract terms. A court in Bangladesh has mandated an expert committee to evaluate the agreement, with results anticipated shortly. The outcomes may prompt renegotiations between Bangladesh and Adani.
Virtual Meetings and Continuous Negotiations
In response to these challenges, officials from BPDB and Adani have been engaged in discussions, including a recent virtual meeting.
These negotiations are aimed at resolving financial and contractual disputes to ensure a reliable power supply.
Another virtual meeting was planned for Tuesday to continue addressing these issues.
While Adani Power recognized the differing power dispatch requirements in a recent filing, it emphasized that such variations are managed within the framework of the contractual agreements.
The company reiterated its commitment to meeting its contractual obligations.
Legal and Political Challenges
The conflict between Bangladesh and Adani Power extends beyond financial implications to encompass legal dimensions.
In September, the Bangladesh government established a panel of experts tasked with reviewing significant energy agreements made during Sheikh Hasina’s administration.
This initiative was prompted by turmoil and student-led demonstrations that forced Hasina to seek refuge in New Delhi in August.
Potential Outcomes of the Contract Review
The expert committee’s assessment of the Adani-Bangladesh contract may lead to various outcomes:
Renegotiation of Terms: Should pricing discrepancies be deemed unjust, Bangladesh may seek to revise the tariff structures.
Full Supply Restoration: If outstanding payments are settled and technical issues addressed, Adani could resume full operational capacity.
Legal Actions: Should any contract violations be identified, Bangladesh may pursue legal avenues to amend or terminate the agreement.
Continued Power Shortages: If disputes remain unresolved, Bangladesh may experience extended electricity shortages, impacting both industries and households.
Bangladesh’s Need for Energy Stability
The demand for electricity in Bangladesh is on the rise, making a reliable power supply crucial for economic development.
The country’s dependence on Adani Power underscores the necessity for sustainable and economically viable energy solutions.
While restoring the power supply in Bangladesh is imperative, the government also seeks equitable pricing and transparency in contracts.
The decision to review energy agreements indicates a shift towards more strategic negotiations in future contracts. With power shortages affecting various sectors, ensuring a consistent electricity supply is of utmost importance.
Expert Editorial Comment
The persistent power supply conflict between Bangladesh and Adani Power highlights the critical need for financial stability, transparency in contracts, and technical efficiency within energy agreements.
With the restoration of power supply in Bangladesh being a significant issue, both parties are actively engaged in negotiations to address the disputes and reinstate full operational capacity.
The results of the expert committee’s investigation will be pivotal in shaping the future of this energy collaboration.
