Adani hides info for higher capacity charge

    Originally posted in New Age BD on 12 February 2023

    Adani Power Limited concealed the fact from Bangladesh that India exempted almost all import taxes for the Godda power plant in a manipulative bid to get a higher capacity charge in breach of its power purchase agreement, documents showed.

    In the agreement, Adani also hid information about the Goods and Service Tax, introduced four and a half months before it was signed on November 5, 2017, which, according to Indian media, should have reduced other tax burdens such as excise and customs duties, VAT, and surcharges by up to 30 per cent.

    The first unit of the two-unit, 1,600 MW coal-fired Godda power plant being built in Jharkhand for exporting electricity to Bangladesh for 25 years is likely to begin operation at the end of March.

    Section 13.1(e) of the agreement requires Adani to inform the Bangladesh Power Development Board about changes in tax and VAT rates within 30 days of any such change occurring.

    Since the Godda power plant became a special economic zone on February 25, 2019, Adani has imported machinery and equipment almost without any taxes and would not have to pay taxes for importing coal.

    Adani Power Limited has not yet informed the PDB about the matter.

    ‘Capacity charges comprise investment costs, VAT and taxes, and other dues,’ explained Mohammad Hossain, director general of Power Cell, a wing of the power and energy ministry.

    ‘We won’t pay taxes and VAT on the capacity charge if Adani does not pay it,’ he said, adding that they would seek a capacity charge readjustment as part of the revision of the PPA.

    The controversial capacity charge is determined based on several assumptions at the time of the signing of the power purchase agreement, paving legal grounds for power producers to get a return on their investments, after paying off loans and interest, even if no electricity is procured.

    The capacity charge and energy price together constitute the tariff.

    A 2022 study by the Bangladesh Working Group on External Debt estimated the capacity charge to be paid over the lifetime of the Godda power plant to be over $11 billion with a monthly payment of more than $423 million.

    Section 13.1(d) of the agreement with Adani mentioned that a capacity charge determined on some assumptions would be given depending on India’s tax and VAT rates.

    An article on the Godda PPA published by Adani Watch, a project of the Bob Brown Foundation, an Australia-based environmental campaign, provided the list of assumptions from the PPA.

    ‘The list included 12.5 per cent excise duty, customs duty for imported goods, 15 per cent service tax [0.5 per cent Swachh Bharat import tax and 0.5 per cent Krishi Kalyan import tax included] on construction activities, 2 per cent central sales tax on goods purchased from outside Jharkhand, value added tax on equipment [depending on equipment VAT varies from 5.5 per cent to 14.5 per cent], composite tax on civil construction [15 per cent on 40 per cent of total amount charged for works contract], 4 per cent work contract tax, 1 per cent building and other Construction Workers’ Welfare ‘Cess’ [a form of tax], water charges payable to Jharkhand government, and income tax payable in India as per the applicable slab etc,’ according to the article.

    Being in a special economic zone, the Adani Watch article published on February 9 said that Adani power will get 100 per cent income tax exemption for the first five years, 50 per cent for the next five years thereafter, and 50 per cent of the ploughed back export profit for the next five years.

    ‘…the agreement may be legally voided by the BPDB for breach of contract,’ read a line in the article.

    On July 1, 2017, India introduced a comprehensive goods and service tax regime, subsuming almost all state taxes, including central excise duty, services tax, additional customs duty, surcharges, state-level value-added tax, Octroi – a type of tax pertaining to the transport of goods – and levies, which were applicable for interstate transportation of goods, said the Adani Watch article.

    ‘So why were these obsolete provisions included in the PPA?’ the article wrote.

    The Indian government changed its SEZ regulations in February 2019 to give the Godda power plant the benefits of a tax-free zone on the grounds of promoting energy exports, as reported by The Washington Post on December 9, 2022.

    The Post calculated that Adani power would save $35 million a year just on its coal imports for Godda because of the tax exemption. Usually, the coal import tax is 400 rupees, or about $5, a ton.

    ‘Adani should be penalised for breaching the PPA,’ said Hasan Mehedi, member secretary, BWGED.

    In the final week of January, the PDB sent a letter to Adani power seeking their coal price to be fixed on Indonesian coal prices instead of the combination of Indonesian and Australian coal prices, after Adani demanded a ton of coal for $400.

    Indonesian coal with a 5000 GAR, or gross as received, a measure of the energy contained in coal, currently sells for a little over $103. The Godda power plant requires 4,600 GAR coal.

    The government kept promising that power bought from the Godda power plant would be competitive.

    In stark contrast to the promise, a recent PDB assessment revealed that the average per-unit electricity production cost at the Godda power plant would be over Tk 24, about 32 per cent higher compared to the electricity produced at the Payra power plant, another coal-based thermal power plant.

    Despite being repeatedly warned about the Godda plant becoming the most expensive source of power, particularly due to the plan to import coal from Adani’s Carmichael mine, Bangladesh authorities remained completely indifferent until the ongoing economic and dollar crises hit.

    Bangladesh is currently taking a loan of $4.7 billion from the International Monetary Fund, with the current crisis largely attributed to unsolicited power and energy deals shielded by an indemnity law.

    The Adani Group recently made global headlines after losing $100 billion in a week after the New York-based investment research firm Hindenburg Research on January 24 accused it of manipulative and fraudulent practices.

    Bangladesh’s current installed power capacity is 23,482MW, excluding captive power, with more than 50 per cent remaining unused.