Carmichael coal will add pressure for power tariff hikes in Bangladesh, not reduce poverty

13 December 2022 (IEEFA Australia): The Adani Godda coal-fired power plant, due to start generation later this week (on 16 December) and fuelled by coal shipped from Adani’s Carmichael mine in Australia, will supply very expensive power to Bangladesh that it simply can’t afford, finds a new report by the Institute of Energy and Economic Financial Analysis (IEEFA).

Author Simon Nicholas says it was known years ago that power from Adani’s Godda plant fuelled by Carmichael coal would be expensive.

“Coal is being imported from Carmichael and railed 700km from port to the Godda power plant in Jharkhand state, India. The full cost of this is being passed onto Bangladesh. Power from Godda will then be exported to Bangladesh, reportedly costing almost double the initial expectation at around US$150/megawatt hour (MWh).

“During the Carmichael coal mine’s protracted development phase, backers of the Queensland project often stated that the project was needed to help people out of poverty in South Asia. This was merely coal industry spin. If anything, it is doing the exact opposite.”

Nicholas says the original plan for Godda was to use local coal mined in Jharkhand state. The plan was later changed to use Carmichael coal and lock the Bangladesh Power Development Board (BPDB) into a power purchase agreement that allows Adani to import coal into an Indian coal mining state from Australia and pass the full cost onto Bangladesh.

“It is even clearer now that the Godda power plant deal with Bangladesh was aimed primarily at propping up the development of the Carmichael coal mine,” says Nicholas.

The power plant will begin generating at the end of a year that has seen Bangladesh’s growing dependence on fossil fuel imports become a crisis amid record high prices. Credit rating agency Moody’s placed Bangladesh under review for a downgrade in early December 2022, citing its rapidly declining foreign exchange reserves driven by rising costs for energy imports.

The burden of fossil fuels has led to power blackouts and growing pressure to increase consumer power tariffs significantly. School and office hours have been cut in Bangladesh during the year to curb rising fuel costs.

The country will be further impacted as power from the Godda power plant to be exported to Bangladesh will be very expensive.

“This price is two and a half times the price at which the state-owned utility BPDB sells power to distributors,” says Nicholas.

“The huge gap in price at which the BPDB buys and sells power has to be covered by government subsidies that are becoming increasingly unaffordable and which will lead to the need to increase power tariffs significantly to transfer the burden onto consumers.

“This process has already started. In November 2022, the tariff at which the BPDB sells power to distributors was increased 20% and the power distribution companies are now submitting proposals to increase retail tariffs by the same amount.”

“Increasing power tariffs to unaffordable levels will clearly hinder, not help, Bangladesh’s development.”

Nicholas says this was all very predictable.

“The growing burden of fossil fuel imports has been putting Bangladesh’s power system under growing financial strain for years and IEEFA has been warning that this will lead to the need for higher power tariffs.”

With full access to electricity announced by the Prime Minister of Bangladesh in March 2022, the key power issue for Bangladesh’s development is no longer access but quality and cost of generation and supply.

The Adani Godda coal power plant will add to the growing cost of power purchases from Independent Power Producers (IPPs), adding to the worsening financial pressure that the BPDB finds itself under and to rising pressure to shift that burden onto consumers via power tariff increases.

The BPDB has not been able to pay IPPs since May 2022 and currently owes them five months of payments amounting to US$2.5 billion.

Bangladesh approached the International Monetary Fund (IMF) for a US$4.5 billion loan in July 2022 to help it cope with the mounting economic pressure. The reduction in power subsidies via tariff increases is likely to be an IMF condition on the loan.

“Bangladesh will need to focus more on renewable energy going forward if it wants to limit the burden of fossil fuel imports and increase energy security,” says Nicholas.

Read the report: Carmichael Coal Is Not Reducing Poverty in South Asia - High Cost of Coal Is Adding Pressure for Power Tariff Hikes in Bangladesh

Media contact: Amy Leiper ([email protected]) +61 414 643 446

Author contact: Simon Nicholas ([email protected])

About IEEFA: The Institute for Energy Economics and Financial Analysis (IEEFA) examines issues related to energy markets, trends, and policies. The Institute’s mission is to accelerate the transition to a diverse, sustainable and profitable energy economy. (ieefa.org)