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The recent cancellation of a $440 million power purchase agreement between Adani Green Energy and Sri Lanka has sent ripples through the financial markets and highlighted the growing challenges faced by the Adani Group. The news, initially reported by AFP, citing unnamed government officials, led to a significant drop in Adani Green Energy's share price on January 24th. The shares, which had enjoyed a positive trajectory earlier in the day due to strong Q3 results, experienced a near 6% decline from their peak before partially recovering to close 1.19% lower on the BSE. This volatility underscores the significant financial implications of this unexpected development for the Adani Group, a major player in the renewable energy sector.
The power purchase agreement, originally signed in May 2024 by the previous Sri Lankan government, stipulated that Adani Green Energy would supply electricity at a rate of 8.26 US cents per kilowatt. However, the current Sri Lankan administration has revoked the agreement, citing concerns about the cost of electricity. Activists had previously raised objections, arguing that smaller renewable energy projects within Sri Lanka were capable of providing power at considerably lower rates. This suggests a broader policy shift in Sri Lanka towards securing more competitive energy pricing, possibly driven by concerns about the country's economic stability and the burden of high electricity tariffs on its citizens. The decision to revoke the agreement is also likely influenced by post-election policy reviews, as acknowledged by Sri Lanka's Foreign Minister, Vijitha Herath, who indicated in October that the deal would be reviewed after the November parliamentary elections.
While the power purchase agreement has been cancelled, the wind power project itself remains under review by a committee appointed by the Sri Lankan government. This suggests that the cancellation specifically targets the agreed-upon price, not necessarily the project’s viability as a whole. The future of the project will likely depend on the committee's findings and whether Adani Green Energy can negotiate a revised agreement that aligns with Sri Lanka's revised energy policy. This uncertainty adds to the existing pressure on Adani Green Energy and its parent company, the Adani Group, which is already navigating several challenges.
The Sri Lanka situation is just one of several challenges facing the Adani Group. The company is currently under investigation in the US regarding allegations of a $250 million bribery scheme linked to solar energy projects in India. The Adani Group has vehemently denied these allegations. The cumulative effect of these investigations and the Sri Lanka deal cancellation is likely to intensify scrutiny of the Adani Group's business practices and its global expansion strategy. Investors are undoubtedly assessing the long-term implications of these events, potentially impacting the company's future investment prospects and its overall market valuation.
The financial performance of Adani Green Energy, as reflected in its strong Q3 FY25 results, presents a somewhat contrasting picture. The company reported a 2.33% year-on-year increase in consolidated revenue from operations, reaching ₹2,365 crore, and an impressive 85% year-on-year surge in profit after tax (PAT), reaching ₹474 crore. These positive figures, however, are now overshadowed by the significant uncertainty created by the cancelled Sri Lanka deal. The contrast highlights the inherent volatility in the renewable energy sector and the sensitivity of multinational projects to geopolitical and regulatory changes. The market's reaction underscores the importance of considering political risk and regulatory uncertainty when assessing investment opportunities in emerging markets.
Looking ahead, the Adani Group will need to carefully navigate these challenges. Addressing the US investigation and potentially renegotiating the Sri Lanka wind power project are crucial steps. Maintaining transparency and engaging proactively with regulatory bodies will be essential in regaining investor confidence. The long-term success of the Adani Group will depend on its ability to effectively manage these challenges and demonstrate its commitment to ethical and sustainable business practices. The events surrounding the Sri Lanka deal serve as a stark reminder of the complex interplay between geopolitical dynamics, regulatory frameworks, and the financial performance of even the largest corporations.
Source: Adani Green Energy shares slide after Sri Lanka revokes $440 million power deal