To
Shri Rajiv Gauba
Cabinet Secretary
Government of India
Dear Shri Gauba,
I had earlier addressed you vide my letter of April 6, 2023 (https://countercurrents.org/2023/04/most-mineral-block-allocations-violate-the-doctrine-of-public-trust/‘) referring to prima facie evidence of several Central government agencies extending undue benefits to the Adani Group, which involved serious concerns of propriety, infringement of different laws including those that exist to safeguard the interests of the tribals, violation of the apex court’s directions in 2014 in the Coalgate case that mineral blocks should not be allotted through any procedure other than a competitive route, the adverse implications of the concessions from the point of view of the national interest (recent legislative changes to allow private mining of beach sands) and finally their long-term adverse implications for the taxpayers and the electricity consumers at large.
In my letter of October 7, 2023, addressed to the Finance Minister, with a copy marked to you (https://countercurrents.org/2023/10/sebis-ongoing-investigation-into-allegations-against-the-adani-group-hit-a-dead-end/), I raised further concerns at undue dilution by SEBI in 2018 of its 2014 FPI regulations to weaken its own ability to locate beneficial ownership of FPIs at a time when there was already an ongoing investigation against the Adani Group, the Finance Ministry’s (Dept of Economic Affairs’s) relaxation of overseas investment rules in 2022 to make it easy for domestic companies to stash illicit wealth in overseas shell companies, evade taxes and possibly manipulate domestic stock market through round-tripping their funds and the Corporate Affairs Ministry deliberately not providing a definition for “overseas shell companies” in Companies Act and other relevant laws.
I earnestly hoped that the government would get those allegations independently investigated in view of their seriousness from the public and national interest points of view. Apparently, the government has chosen not to act, for reasons best known to it, forcing me to infer that there are extraneous pressures that have preempted any such investigation.
There are more and more allegations emerging against the Adani Group that cause further serious concern, this time about the over-invoicing of imported coal in different States to the detriment of electricity consumers. According to some estimates made in June 2022 (https://www.moneycontrol.com/news/business/commodities/use-of-imported-coal-in-thermal-plants-to-cost-power-consumers-dear-says-aipef-8659431.html), coal imports have resulted in the electricity charges going up by Rs 0.70-1.00 per kWh and imposed a cost burden of more than Rs 24,000 Crores on the economy, mostly on the States. Since the Centre continues to force the States to import coal even now, the damage suffered by the States would be far greater.
The coal shortage situation has largely arisen from gross mismanagement of indigenous coal supplies on the part of the Centre. Instead of addressing it in consultation with the Ministry of Coal, the Ministry of Power compounded the problem by invoking its authority under Section 11 of the Electricity Act, 2003, somewhat irregularly, and imposed an unreasonable obligation on State utilities to meet a minimum of 10% of their coal demand through imports, allowing a field day to some domestic business houses owning overseas coal mines to take full advantage of it by over-invoicing coal supplied from those overseas mines to State power utilities and laundering funds to their overseas shell companies. There were allegations about this in the past but investigations undertaken by the Directorate of Revenue Intelligence (DRI) etc, could not make headway in the absence of necessary support from the Central government.
For one reason or the other, there has been no let up in the coal crisis as yet, allowing the Ministry of Power to continue forcing the States to import coal, which has apparently allowed business houses like the Adani Group to profit at the cost of the States.
With specific refrence to coal supplied by the Adani Group from Indonesia to domestic power plants over the last few years, an overseas news organisation, Financial Times[FT] found (https://www.ft.com/content/7aadb3d7-4a03-44ba-a01e-8ddd8bce29ed) that the group used “offshore intermediaries” to import billions of dollars worth of coal at prices that were at times more than double the market price. One of the said intermediaries apparently is owned by a Taiwanese businessman who was named by FT as a hidden shareholder in Adani firms.
While what the FT investigation has revealed may still amount only to an unsubstantiated allegation, the veracity of which needs to be investigated further, nevertheless, if the FT findings are true, it implies that the said coal importer had over-invoiced coal imports significantly, thereby overcharging the State power utilities that were forced by the Centre to import coal and, indirectly imposed an unconscionably high cost burden on electricity consumers in different States, which imported coal through the Adani companies. Such a high cost of coal also crippled the finances of the State power utilities. If it is factually correct that the coal importer had laundered illegally earned profits through intermediaries to overseas shell companies, it amounts not only to tax evasion but also accumulating wealth illegally in overseas entities and possibly manipulating the domestic stock market..
This is not the first time that such investigative reports appeared in the public domain on alleged irregularities associated with the Adani Group in terms of undisclosed overseas shell companies through which the Group had apparently laundered money and also manipulated the domestic stock market. A few months ago, the US short-seller, Hindenburg published a report on the subject (https://hindenburgresearch.com/adani/) . The FT itself published a report (https://www.ft.com/content/474706d6-1243-4f1e-b365-891d4c5d528b) sometime ago on alleged overseas shell companies of the Adani Group.
While the allegations made by Hindenburg are presently subject to judicial scrutiny, as stated earlier, the circumstances under which SEBI diluted its own well thought out FPI regulations of 2014 in 2018, when it had an ongoing investigation before it against the Adani Group, call for a closer look.
In addition, there have been reports alleging out-of-the-way favoured treatment meted out by Central government agencies since 2014 to tweak procedures to allot coal blocks to the Group and concessions granted in terms of making exceptions under environment and forest conservation laws. The relevant reports, the veracity of which needs to be investigated, are accessible at
https://www.reporters-collective.in/trc/coal-forests-part-1
https://www.reporters-collective.in/twitter-threads/coal-files-part-2-thread
https://www.reporters-collective.in/newsletters/centre-overturns-coal-reforms
While those investigative reports may amount only to allegations to be further examined for their factual accuracy, the fact remains that they point to favours apparently extended by the present government at the Centre to the Adani Group on several fronts, on a very large scale, and if those allegations are found to have some substance, it implies that they have caused a significant dent to the public exchequer, violated the norms stipulated by the apex court on the need to allot coal and other mineral blocks only through competitive bidding procedures and imposed a cost burden on State power utilities and electricity consumers. Those allegations are far too serious to be brushed aside.
As far as over-invoicing of coal imports is concerned, it is possible that there are several other domestic companies also importing coal from overseas mines and supplying it to State power utilities at over-invoiced prices. It is necessary to get all such coal imports investigated thoroughly.
The allegations on connivance between different agencies of the Central government, the regulatory authorities and the Adani Group relate to a wide range of sectors of the economy and it is desirable that all such allegations are examined together through a credible system of independent investigation, in order to get clarity on the bigger picture of possible high-level collusion between different government agencies and the group. Piecemeal investigation by Central investigation agencies would not serve the purpose nor would it invoke public credibility. In my view, the only way to get those allegations enquired into would be by a high-level judicial commission, which would no doubt take help from several Central investigating agencies such as the Income Tax Dept, Enforcement Directorate (ED), Directorate of Revenue Intelligence (DRI), Serious Fraud Investigation Office (SFIO), RBI and SEBI and exercise oversight on the same. It is important that such an enquiry is completed in a time-bound manner so as to ensure that actual facts underlying the allegations are available for the Parliament and the public to consider.
As long as there is a delay on the part of the Centre to act on the above lines, it would lend more and more credence to the above-cited allegations in the public mind. It is important that the Central government comes clean on this at the earliest so as to ensure that the trust reposed in it by the public is fully justified.
I hope that the government will act on this at the earliest.
Regards,
Yours sincerely,
E A S Sarma
Former Secretary to the Government of India
Visakhapatnam
A detailed FT investigation points to Adani’s use of “offshore intermediaries” to import $5 billion worth of coal at prices that were at times more than double the market price. One of these firms is owned by a Taiwanese businessman who was named by FT as a hidden shareholder in Adani firms.
Gautam Adani. Photo: Adapted from Chirag200201/Wikimedia Commons, CC BY-SA 4.0
New Delhi: The London-based reputed financial daily, Financial Times, in a detailed investigation, titled, The mystery of the Adani coal imports that quietly doubled in value, has found that Adani, “the country’s largest private coal importer, has been inflating fuel costs” leading to “millions of Indian consumers and businesses overpaying for electricity.”
The FT report speaks of how Gautam Adani is described as ‘Modi’s Rockefeller’, referring to his sharply rising fortunes in the past ten years, when his 10 listed companies have “thrived” and he has emerged as “India’s biggest private thermal power company and biggest private port operator.”
A US short-seller Hindenburg Research’s report in January this year raised serious questions about several aspects of how Adani functioned which led to serious questions arising globally about the group and also about regulatory mechanisms in India. Stock market watchdog Securities and Exchange Board of India (SEBI) came under fire even when the Supreme Court expert committee pointed to certain changes in rules that may have made it easier for Adani to escape scrutiny.
Also read: Because of Repealed Provisions, SEBI Hit ‘Opaque Structure’ Wall While Investigating Adani: SC Panel
Adani has denied the charges, both those levelled by Hindenburg and then of coal import over-pricing by the Financial Times and said it has been vindicated by the Directorate of Revenue Intelligence (DRI’s) decision this year to withdraw an appeal to the Supreme Court in a case against one of the 40 importers named in 2016. It said, “the issue of overvaluation in the import of coal was conclusively settled by India’s highest court of law.”
FT cites the “unresolved nature of the DRI investigation and the apparent continuation of the alleged practices” raising “fresh questions about the relationship between Adani and the administration of Prime Minister Narendra Modi.”
Watchdog SEBI’s role too has come in the limelight after it emerged that it knew about allegations against Adani Group since 2014, that a letter which was part of the OCCRP-FT-The Guardian’s investigation showed.
The most recent scandal to hit Adani were allegations that the chairman of SEBI at that time was “now an independent director of Adani-owned NDTV.”
Financial Times has raised three key points in its investigation, after looking at 30 shipments of coal from Indonesia to India by an Adani company over 32 months between 2019 and 2021.
The Adani Group has rejected charges of wrongdoing. Adani has termed the investigation as being based on an “old, baseless allegation”, and is “a clever recycling and selective misrepresentation of publicly available facts and information.”
Inflated prices of imported coal
The inflation in imported coal that FT alleges Adani has been doing may have sometimes, per the report, allowed it to make 52% profit margins in an industry where profit margins are otherwise considered low.
In all cases that FT examined, it says “prices in import records were far higher than those in corresponding export declarations.”
During the journeys, from where they were imported back to a port in India, usually owned by Adani, “the value of the combined shipments unaccountably increased by over $70 million.”
Among the specific instances the London-based financial daily has found, it says that in January 2019, coal meant for Adani, departed “the Indonesian port of Kaliorang in East Kalimantan carrying 74,820 tonnes of thermal coal destined for the fires of an Indian power station. During the voyage, something extraordinary occurred: the value of its cargo doubled.”
While “in export records the price was $1.9mn, plus $42,000 for shipping and insurance. On arrival at India’s largest commercial port, Mundra in Gujarat run by Adani, the declared import value was $4.3mn.”
The inflation in imported coal that FT alleges Adani has been doing may have sometimes, per the report, allowed it to make 52% profit margins in an industry where profit margins are otherwise considered low. File image of the Adani Mundra port in Gujarat’s Kutch. Photo: Emperor Genius at English Wikipedia, CC BY-SA 3.0
This allowed for “52% profit margins” as a result of over-invoicing, and leading to unusual profits.
FT says “annual profits at Adani Enterprises quadrupled over the past five years, to earnings before interest, tax, depreciation and amortisation of $1.2bn in the most recent financial year.”
Little-known middlemen companies used to import paid higher
FT says that Adani Enterprises, the group’s oldest and most valuable company, generates the lion’s share of its sales and profits from its coal trading division called Integrated Resources Management (IRM).
This division, “boasts of its expertise in logistics and commodity trading” based in four global offices and 19 Indian locations.
In its most recent financial year, which ended in March, IRM reported trading 88 million tonnes of coal, says the news report. Its results for the final quarter of that year, the first set of accounts published after Hindenburg’s report, covered a three-month period when the market price of coal had halved.”
Yet, notes FT, “IRM thrived, delivering a 24% rise in earnings before tax and interest to Rs 8.3 billion ($101 million), on a 6% rise in sales to Rs 186 billion ($2.3 billion)”
But IRM did not make extraordinary profits. Three “middlemen” companies it used to buy coal from, that supplied the Adani group with coal, appear to have made more substantial amounts”. FT identifies them as Hi Lingos in Taipei, Taurus Commodities General Trading in Dubai, and Pan Asia Tradelink in Singapore.
For 42 million tonnes of coal supplied by its own operations in that time, the Adani group declared an average price of $130 per tonne. But for the 31 million tonnes of coal supplied by its three middlemen, the average price declared per tonne was $155, per tonne. This was at a “20% premium worth almost $800 million.”
FT identifies Hi Lingos as being owned by Chang Chung-Ling, a Taiwanese businessman previously “identified by the FT as a potentially controversial owner of Adani stock.”
The second middleman company Taurus, it says, is run from Dubai and whose ownership it was unable to conclusively establish.
The third company, Pan Asia Coal Trading, which “primarily supplied Adani Power and did not have other Indian customers for coal in the records reviewed by the FT.”
Senior industry traders FT spoke to, “questioned the use of little-known trading houses, as large buyers of coal generally prefer to partner with big trading houses that have strong credit ratings and a reliable record for commodity deals involving the exchange of hundreds of millions of dollars.”
FT does not rule out the possibility of higher quality coal in some cases leading to a marginally higher price, yet, it notes that Adani also appears to have supplied itself with “unusually expensive coal. For the 508 shipments with a calorific value where Adani companies were listed as both supplier and importer, most — 87% — were priced higher than the closest Argus benchmark, at a median premium of 24%.”
Argus is an independent provider of market intelligence to the global energy and commodity markets, and is treated as a provider of price benchmarks globally.
For 42 million tonnes of coal supplied by its own operations in that time, the Adani group declared an average price of $130 per tonne. But for the 31 million tonnes of coal supplied by its three middlemen, the average price declared per tonne was $155, per tonne. This was at a “20% premium worth almost $800 million.” Credit: PTI
Also read: Adani’s Acquisitions: Why India Needs to Keep Track of the Costs
Public pays higher prices for power?
The other important implication of the allegedly overpriced coal, that the FT investigation draws attention to, is the charge that these high costs translated directly into higher prices paid by consumers, especially in Gujarat where the opposition Congress party has already flagged the issue.
In August this year, opposition politicians in Gujarat accused the state government of making almost $500 million in excess payments to Adani Power over five years under a power purchase agreement linked to the price of coal.
The opposition claimed a letter from the state power utility GUVNL showed it had paid the sums to Adani for coal procured at premium prices, and that “Adani had not provided paperwork.”
“GUVNL paid Rs 13,802 crore ($2 billion) as energy charges to the company. But if coal rates as per Argus index is taken into consideration, then only Rs 9,902 crore ($1.5 billion) should have been paid,” the opposition leader is quoted as saying.
The government then, notes FT, said that the payments were interim and “subject to adjustment,” while Adani called the allegations “baseless” and said the contract had been quoted out of context.
A spokesperson for the Adani group told FT that “coal procurement on long-term supply basis in India is done through an open, transparent, global bidding process thereby eliminating any possibility of price manipulation.”
Gautam Adani and business practices of his companies have been under scrutiny ever since Hindenburg’s report became public. You can read the Hindenburg report here and Adani’s response here.
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