Explained: How Adani Power’s supply cuts will impact Bangladesh’s crisis-hit economy

Adani Power Jharkhand Limited (APJL), a subsidiary of Adani Powr, recently halved power supplies to Bangladesh, citing unpaid debts of $846 million. The move put further pressure on a country already grappling with a growing financial and energy crisis.

The cuts, which began on Thursday evening, have left Bangladesh with a power shortage of more than 1,600 megawatts (MW), with the 1,496 MW Adani power plant now running at half capacity, producing just 700 MW.

Bangladesh is currently facing significant financial difficulties due to inflation, currency devaluation and currency crisis, which are affecting daily life and economic stability.

IMPACT OF REDUCED POWER SUPPLY

The reduction in electricity supply could not have come at a worse time for Bangladesh. Amid an economic slowdown, Bangladesh faces increasing energy demand due to rapid urbanization and industrial expansion.

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

Now that Adani Power has halved its supply, electricity shortages in Bangladesh have worsened, leading to blackouts that have disrupted industries, businesses and households.

The Power Development Board of Bangladesh (PDB) is working to pay part of its dues, but rising costs have made the process difficult. Adani Power, citing its Power Purchase Agreement (PPA) with PDB, has reinstated its original coal pricing method after the expiry of the temporary price cut.

It can be noted that the initial prices link the cost of coal to the Indonesian and Australian Newcastle indices, both of which are rising, resulting in higher electricity costs for the PDB.

WHY BANGLADESH WORKED TO PAY ADANI DUES

Dollar shortages in Bangladesh have exacerbated the problem, affecting PDB’s ability to meet its financial obligations. Although Bangladesh Krishi Bank agreed to issue a letter of credit worth $170.03 million to Adani Power, it was unable to do so due to limited availability of dollars.

As weekly payments from PDB do not match Adani’s increased expenses, collections have risen, forcing the power company to cut its output.

The dollar shortage is also hampering Bangladesh’s ability to secure critical imports such as fuel and food. As foreign exchange reserves dwindle, the country faces rising inflation, making basic necessities more expensive.

The Adani power cut adds another layer to this economic pressure, highlighting the interconnection of Bangladesh’s energy needs and its financial stability.

IMPACT ON THE ECONOMY OF BANGLADESH

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

Sectors that depend on the constant availability of electricity, such as manufacturing and textiles, are likely to be hit hardest by the power shortage, which could potentially impact exports, a critical source of income for Bangladesh.

In a country where stable power supply is vital to economic growth and social stability, the Adani power outage could exacerbate the challenges Bangladesh faces in maintaining energy security amid financial constraints.

As Bangladesh emerges from this impasse, questions arise about the long-term stability of its energy agreements.

As PDB payments are delayed due to economic constraints, other electricity suppliers may also renegotiate their terms if financial guarantees are not met. Adani’s insistence on collecting capacity payments during supply suspensions allowed under the PPA underscores the potential financial risks that could arise if other energy suppliers follow suit.

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