Explained: How Adani Power's supply cut impacts crisis-hit Bangladesh economy

Adani Power's supply cut to Bangladesh intensifies existing economic challenges, raising concerns about energy security and financial stability.

In Short

• Adani Power halves supply amid unpaid dues of $846 million
• Dollar shortage hampers Bangladesh’s ability to settle energy payments
• Industries face disruption as power supply cuts deepen economic woes

Adani Power Jharkhand Limited (APJL), a subsidiary of Adani Powr, recently reduced its power supply to Bangladesh by half, citing unpaid dues of $846 million. The move has placed additional pressure on a country already grappling with a mounting financial and energy crisis.

The reduction, which began on Thursday night, has led to a power shortfall exceeding 1,600 megawatts (MW) in Bangladesh, with the 1,496 MW Adani plant now operating at half capacity, producing just 700 MW.

At the moment, Bangladesh is grappling with significant financial strain due to inflation, currency devaluation, and a foreign exchange crisis that are impacting daily life and economic stability.

IMPACT OF POWER SUPPLY REDUCTION

The power supply reduction couldn’t come at a worse time for Bangladesh. Amid an economic downturn, Bangladesh faces a growing energy demand due to rapid urbanisation and industrial expansion.

The country heavily relies on imported energy resources to meet these demands, but high global energy prices have made imports increasingly costly, straining Bangladesh’s foreign currency reserves.

Now, with Adani Power halving its supply, Bangladesh’s power deficit has deepened, leading to blackouts that disrupt industries, businesses, and households.

Bangladesh Power Development Board (PDB) has been working to settle portions of its dues, but rising costs have complicated the process. Adani Power, citing its Power Purchase Agreement (PPA) with the PDB, reinstated its original coal pricing method after a temporary price reduction expired.

It may be noted that the original pricing ties coal costs to the Indonesian and Australian Newcastle indices, both of which have been rising, leading to higher energy costs for the PDB.

WHY BANGLADESH STRUGGLED TO CLEAR ADANI DUES

Bangladesh’s dollar shortage has compounded the issue, impacting the PDB’s ability to fulfill its financial commitments. Although the Bangladesh Krishi Bank had agreed to issue a $170.03 million letter of credit to Adani Power, it has been unable to do so due to limited dollar availability.

With weekly payments from the PDB falling short of Adani’s increased charges, the dues have escalated, pushing the power company to reduce its output.

The dollar shortage also hampers Bangladesh’s broader ability to secure critical imports like fuel and food. As foreign reserves dwindle, the country faces rising inflation, making everyday essentials more expensive.

The cut in power supply from Adani adds another layer to these economic pressures, highlighting the interconnectedness of Bangladesh’s energy needs and its financial stability.

IMPACT ON BANGLADESH ECONOMY

The recent development highlights the broader vulnerability of Bangladesh’s economy, which is feeling the effects of global price hikes, supply chain disruptions, and reduced export earnings.

Industries dependent on consistent electricity, such as manufacturing and textile production, are likely to suffer the most from power shortages, potentially affecting exports—a crucial revenue source for Bangladesh.

In a country where steady electricity supply is vital for economic growth and social stability, the Adani Power supply cut could aggravate the challenges Bangladesh faces in maintaining energy security amid financial hardship.

As Bangladesh navigates this impasse, questions loom about the long-term stability of its energy agreements.

With PDB’s payments falling behind due to economic constraints, other power suppliers may also reconsider their terms if financial assurances aren’t met. Adani’s insistence on recovering capacity payments during the supply suspension — allowed under the PPA — highlights potential financial risks that may arise if other energy providers follow suit.