Adani escapes liability even as CBI prosecutes others for similar coal fraud

The lack of government oversight, and preferential treatment to the Adani Group has raised serious questions on the purported reforms in the scam-riddled coal sector. Mukesh Gupta/Reuters
Elections 2024
09 February, 2019

On 4 January 2018, the Central Bureau of Investigation filed a chargesheet in one of several cases under investigation in what is popularly known as the “Coalgate” scam. In the chargesheet, the CBI accused the state-owned Karnataka Power Corporation Limited, or KPCL, its private partner EMTA and their joint venture, Karnataka EMTA Coal Mines Limited, or KECML, of irregularities in the allocation and mining of six coal blocks in Maharashtra. The CBI has accused these three companies of committing illegal activities that bear a striking resemblance to the actions of a joint venture connected to Adani Enterprises Limited. Yet, the Adani Group company continues to evade scrutiny.

In September 2014, the Supreme Court had declared a total of 214 coal-block allocations illegal, including the six allotted to KPCL. The CBI has been investigating irregularities in the allocation and mining of these coal blocks—some of which go back to 1993—since 2012. During the course of its investigation, in March 2015, the CBI booked the chairpersons and directors of KPCL, EMTA and KECML for violating the terms of allocation, as defined by the ministry of coal, and selling coal rejects—lower-grade coal sifted out during the purification process—in the open market. Three years later, the CBI established that KPCL, EMTA and KECML were all involved in a fraud—it accused KECML of lying to the government saying that coal rejects from their mines had no value even as EMTA sold the very same rejects to a private coal company.

In “Coalgate 2.0,” the cover story of The Caravan’s March 2018 issue, I reported on a similar fraud perpetrated by another trio of companies—Rajasthan Rajya Vidyut Utpadan Nigam Limited, or RRVUNL, a public-sector undertaking, its private partner Adani Enterprises Limited, or AEL, and their joint venture, Parsa Kanta Collieries Limited, or PKCL. AEL is the flagship company of the Adani Group, whose founder and chairman is Gautam Adani, an industrialist known to be close to Prime Minister Narendra Modi.

The CBI chargesheet, a copy of which is available with The Caravan, reveals striking similarities between the functioning of KPCL and RRVUNL’s joint ventures, or JVs. But the CBI has only booked KPCL’s JV which was shut down following the SC order, whereas RRVUNL, AEL and PKCL have all escaped legal scrutiny. The investigating agency’s failure to indict these companies is particularly conspicuous because The Caravan’s March 2018 report, which revealed the irregularities in the functioning of PKCL, relied almost entirely on documents available in the public domain.

The Supreme Court’s 2014 judgment nullified all JV agreements between state public-sector units, or PSUs, and private parties. As a result, KPCL, like all other state PSUs, annulled its agreement with EMTA. RRVUNL, a power company of the Rajasthan government, is the only PSU that has continued its JV agreement—which it signed with AEL in 2007—in complete violation of the apex court’s verdict.

In 2003, the coal ministry allocated six coal blocks in Maharashtra to KPCL—Kiloni, Manoradeep and Baranj I, II, III and IV. In anticipation of these allocations, KPCL had already entered a JV agreement with EMTA in September 2002. The agreement was to develop and transport coal from these blocks to KPCL’s thermal power plant at Bellary, in Karnataka. The coal ministry’s allocation letter specifically stated that the coal from the mines is for exclusive use at KPCL’s power station, and not for commercial sale. The letter was also specific about the use of coal rejects. As per the coal ministry’s letter, rejects should be used only for captive consumption—rejects from a mine which is dedicated exclusively to a particular project could only be used for that project. KPCL’s allocation agreement specified that their rejects had to be utilised at the power plant linked to the mine.

When KECML submitted its mining plan—a document detailing the method of mine development and proposed timeline—to the coal ministry, in December 2010, it assured the ministry that coal rejects would only be used for power generation at its own mines. A fluidised bed combustion plant, or FBC—technology that uses solid fuels to generate power—was envisaged in the mining plan. This was to be set up near the washery—an onsite place where all coal is washed and separated according to its quality. However, neither did KECML and KPCL set up any such FBC plant, and nor did they intend to, according to the CBI investigation.

During the probe, the CBI discovered that two years before submitting its mining plan, KECML had already signed a memorandum of understanding with another private company, Gupta Coalfields and Washeries Limited, or GCWL, to wash the coal and supply it to the power plant. The MoU included a clause stating that the coal rejects shall be the joint property of KECML and GCWL, and can be disposed off or sold as per mutually agreed terms. In the five-year period of the mines’ operations, from 2008 to 2013, KECML’s mining operations generated around 8.28 lakh tonne of coal rejects. In an audit by the Comptroller and Auditor General in 2013, KECML claimed that the rejects did not have any calorific value and were used for levelling and piling jobs at the open cast mines. Technical experts discounted this claim on the quality of rejects, according to the CAG. Instead, the CBI found that GCWL had sold the coal rejects in the open market by blending it with coal that it had purchased from other sources.

The fraudulent MoU, signed by both the director and managing director of KECML, allowed both the private companies to appropriate coal rejects that belonged to KPCL. The CAG estimated that the rejects, appropriated and sold by KECML and GCWL, were worth Rs 52 crore. The CBI termed GCWL’s involvement as a “criminal conspiracy” to sell the rejects illegally.

As reported in The Caravan’s March 2018 cover story, RRVUNL, AEL and their joint venture PKCL followed a similar modus operandi. In 2015, following the Supreme Court judgment, the coal ministry issued a new draft model contract, which stated that “the rejects from the Washery shall be the property of the Authority”—in this case, RRVUNL. The same year, RRVUNL and AEL entered into a reallotment agreement for Parsa East and Kanta Basan, or PEKB—a coal block in Chhattisgarh allocated to PKCL—stating that washery rejects should be utilised in any captive power plant of the allottee, which would be RRVUNL.

However, similar to the fraudulent MoU of KECML, in July 2009, PKCL signed a mining-services agreement with Adani Mining giving away the washery rejects to the Adani Group’s company. Notably, Adani Mining was absorbed by AEL in 2015, around the same time of the reallotment. According to the 2009 agreement, PKCL was to establish a coal washery at Parsa East and Kanta Basan, and “the washery rejects are the property of Adani Mining Pvt. Limited.” In March 2013, Surguja Power Private Limited, a fully-owned subsidiary of Adani Mining, applied for environmental clearance for a power plant. The application stated that “the coal washery rejects [from Parsa East and Kanta Basan] are proposed to be used by Surguja Power for this project.”

AEL and RRVUNL’s annual reports continue to abide by the 2009 mining-services agreement, even though it violates the terms of the model contract and the reallotment. The website of Adani Power states that the coal from washery rejects would the primary fuel in the FBC-based Surguja Thermal Power Project, which it is planning to set up in Chhattisgarh. In addition, RRVUNL’s half-yearly environmental clearance compliance reports, submitted to the environment ministry between 2016 to 2018, state that all rejects shall be used at a FBC power plant, which would be built in six to seven years. Until then the rejects shall be sold to users of coal rejects “for which an agreement shall be entered into,” the compliance report said. That power plant has not seen the light of day and still remains only on paper.

In 2017, RRVUNL reported that PKCL sold the 2.25 MTPA—million tonnes per annum—of coal rejects to “users of rejects under agreement.” This indicates that after absorbing Adani Mining, AEL has been allowed to sell rejects from PEKB, which were slated only for RRVUNL’s power plants. Moreover, when the details of utilisation of coal rejects generated at PEKB were requested in a May 2017 RTI application, RRVUNL said that it did not have that information.

The Caravan’s March 2018 report stated that based on AEL’s 2016-17 annual report, the company had appropriated 8.6 lakh tonne of coal rejects worth Rs 40.42 crore. Extrapolating this figure for one year with the mine’s stipulated 30-year lease, the illegal gains go up to Rs 1,212.6 crore. In April 2018, Sudiep Shrivastava, a lawyer who is one of the petitioners in the coal scam cases, approached the Supreme Court with details of the unchecked flouting of rules by RRVUNL and AEL. Shrivastava estimated that the illegal gain from the sale of rejects over the 30-year lease stood at a much higher amount—of over Rs 5,500 crore.

Shrivastava argued that as per the RRVUNL’s coal mining delivery agreement, or CMDA, the optimum grade of coal from PEKB should have a gross calorific value, or GCV, of 4500 kilocalories per kilogram, and that coal with a GCV of less than 4000 Kcal/kg would be rejected. He said that all coal with a GCV between 2,200 to 4,000 Kcal/kg has good market value and cannot be treated as coal with no value. As per the preliminary information memorandums published by RRVUNLbetween 2015 and2017, mining operations at PEKB generated 22.5 percent rejects, an estimate which holds true for the entire 30-year lease period. Shrivastava argued that out of the total estimated reserves of 454 million tonnes at PEKB, even 20 percent rejects would amount to 90 million tonnes. At the benchmarked price for coal of Rs 615 per tonne—notified by the central PSU Coal India Limited on an annual basis—AEL would make an illegal profit worth Rs 5,535 crore. Even after five years of its investigation into the irregularities in the coal block allocations at PEKB, the CBI seems to have failed to notice any of these irregularities.

The preferential treatment to RRVUNL and AEL seems to have extended further. In 2013, the coal ministry approved an expansion plan at PEKB from ten million tonne per year to 15 million tonne per year. Despite the discernable irregularities, the environment ministry, too, approved the revised plan in August 2018. The quantity of rejects received by AEL will increase by almost half once the production of coal increases. This effectively implies that AEL will continue to receive coal rejects for free to fuel its plant, even when the Surguja plant becomes operational.

The coal ministry and the Coal Controllers Office are the designated authorities responsible for monitoring all coal mining activities by PSUs and their respective JVs. I emailed both these agencies and AEL for comments. None of them had responded by the time this story was published.

Despite the multiple instances of norms being flouted at PEKB, the Adani Group has secured approval to expand its mining operations, while the officials of EMTA, KPCL and KEMCL are being prosecuted by the CBI. In June 2018, the Enforcement Directorate, which is also investigating the case based on CBI’s March 2015 FIR, attached KPCL’s assets worth Rs 49 crore, and proceeds from sales of rejects under the Prevention of Money Laundering Act. Meanwhile, the CBI has continued its investigation and the special court has listed the case for hearing in April 2019.

The differential treatment of the two cases strengthens the criticism that the CBI has been selective in its investigation into the coal scam. The continuation of PEKB-AEL joint venture also indicates that though Modi had raised illegal coal block allocations as a major election plank in 2014, in the last four years, his government has failed to implement the SC order and curb irregularities in the coal sector.