Adani Power Ltd is requesting new concessions from New Delhi for its $2 billion coal-fired plant in eastern India, which is facing a payments backlog from Bangladesh, the sole buyer of its electricity.

In August, India's power ministry permitted Adani to sell the plant's electricity domestically. However, its location in a special economic zone (SEZ) is complicating these sales, according to sources. Without an exemption from the trade ministry, the power generated would be classified as imported and subjected to a tax.

The company is also seeking to retain the customs duty waiver on the imported coal used to fuel the 1.6-gigawatt plant, according to Business Standard's sources.

Without these concessions, selling the power to India's price-sensitive consumers would become virtually unfeasible.

The Adani plant, which supplies about 10% of Bangladesh's power, had accumulated up to $790 million in outstanding payments by the end of September, according to Adani executives during an analyst call in October. However, some payments from Bangladesh have started to be received.

"We hope that there will be no further deterioration in terms of the outstandings and, as of now, we don't think that we need to look at that option, but if required, we can consider it," Nishit Dave, the company's head of investor relations, said on the call in response to a question on whether Adani plans to link the plant to the Indian grid. "We will explore options." 

The payments owed by Bangladesh, initially the primary market for the plant's electricity, have piled up as the government works to review the power-purchase agreement made under the previous administration, which was ousted earlier this year over allegations of widespread corruption.

Bangladesh's Power Sector Challenges

In recent years, the Bangladesh Power Development Board (BPDB) has faced a significant revenue shortfall, weakening its financial position. From FY2019-20 to FY2023-24, the BPDB's annual expenditure grew 2.6 times, while revenue increased by only 1.8 times, leading the government to allocate a total subsidy of Tk1,267 billion (US$10.64 billion) to maintain power supply and support the economy. Despite these efforts, the BPDB incurred a cumulative loss of Tk236.42 billion (US$1.99 billion).

Bangladesh's power sector has an overcapacity problem.

Even with multiple power tariff hikes, the revenue deficit and reliance on subsidies are expected to continue in the near future.

Adani Power's Long Term Financial Impact

Unpaid Dues Impact: Adani Power faces a financial strain due to Bangladesh's $790 million backlog in payments.

Cash Flow Issues: Ongoing payment delays could disrupt cash flow, affecting the company's ability to invest in other projects or operations.

Creditworthiness Concerns: The unresolved payment backlog could harm Adani Power's credit ratings, increasing borrowing costs and limiting access to financing.

Operational Challenges: Reliance on coal imports and high operational costs may hinder the company's ability to sell electricity to price-sensitive consumers in India.

Growth Prospects: The ongoing financial issues may stall Adani Power's future growth and expansion plans.