Extract from March Cover Story: The Massive Indebtedness of the Adani Group and Its Convenient Relations with Government Enterprises

In the cover story of The Caravan’s March 2018 issue, “Coalgate 2.0,” Nileena MS reports that a joint venture of the Adani Group and a Rajasthan power corporation that is currently exploiting a captive coal block in Chhattisgarh is in clear contempt of the Supreme Court’s landmark 2014 ruling regarding the “Coalgate” scam and in breach of later laws, yet has faced no action under the Modi government. The Supreme Court had declared illegal 214 coal-block allocations, and noted a pattern of state-owned enterprises granting lucrative contracts to private firms to mine and deliver coal from their blocks. This compelled parties involved in exploiting the blocks to reapply for permissions and renegotiate all mining agreements under stringent new rules—and yet the joint venture continues to operate on the terms of a pre-2014 agreement, which gives the Adani Group control over it. Public documents show that existing arrangements promise the joint venture undue gains of at least Rs 6,000 crore. In addition, the Adani Group will receive an estimated rock-bottom benefit of Rs 1,000 crore through arrangements for a power plant that it is to run at the coal block. Nileena writes, “By anything but the most conservative estimates, these sums are likely to be far higher.”

In the following excerpt from the story, Nileena traces the history of the Adani Group’s legal troubles, and the conglomerate’s beneficial relations with state and central governments across party lines. She writes that it has benefitted greatly from investments by government-owned enterprises that have helped “shore up the finances of the Adani Group at a time when the conglomerate is massively indebted—as it has been for much of its history.”

The Adani Group has a history of highly favourable treatment by governments from across the party spectrum. It also has a long record of partnerships with state-owned enterprises that have proven detrimental to public interests but very advantageous to the conglomerate.

The forerunner to the Adani Group, a trading firm, was established in 1988, with an annual revenue of roughly Rs 2 crore. In the early 1990s, the Gujarat government, with the Janata Dal leader Chimanbhai Patel as chief minister, granted the company and a partner firm a cheap long-term lease on roughly a thousand hectares of land at Mundra, on the Gujarati coast, for the declared purpose of salt production. (Patel had come to power at the head of a coalition with the BJP, before reforming the government with the support of the Congress instead.) The partner firm pulled out of the project, and the Adani Group decided to build a port on the land instead. After the port became operational in 1998—the company had also ventured into trading coal by then—the group’s revenues hit Rs 2,800 crore. Within the first years of Modi’s term as chief minister, the Gujarat government handed over more than 5,500 hectares of additional land at Mundra for the Adani Group to also establish a special economic zone.

By 2006 the company was also building a thermal power plant at the site, and had signed a long-term deal to supply power to the Gujarat Urja Vikas Nigam Limited, the state’s electricity corporation. The Adani Group ventured overseas for the first time when it acquired a coal mine in Indonesia, and was soon the largest importer of coal in India. By 2007, its revenues stood at around Rs 17,000 crore.

The group started generating electricity in 2011, under a subsidiary named Adani Power. The Comptroller and Auditor General, in a report on the performance of Gujarat’s state-owned enterprises for the 2011-12 financial year, revealed that Adani Power, between 2009 and 2012, had not met its commitments to supply power to the Gujarat Urja Vikas Nigam. The electricity corporation recovered only a third of the penalty it was due from this, translating to a loss of Rs 160.26 crore.

This was one of numerous deals involving state-owned enterprises in Gujarat that the CAG flagged as having advantaged the Adani Group. In a report published in 2011, the CAG showed that, between 2006 and 2009, the Gujarat State Petroleum Corporation bought natural gas on the open market and sold it to an Adani subsidiary at a cheaper rate, handing the company a benefit of around Rs 70 crore. In 2014, the CAG revealed that the Gujarat government had failed to monitor the construction of part of the Mundra port, and so failed to recover Rs 110 crore due to it. Questions have also been raised over how, in 2013, Mundra overtook the nearby state-owned port of Kandla as the country’s top port based on tonnage, following a series of seemingly self-destructive decisions by the Kandla management.

The markets read Modi’s arrival as the prime minister as a major boost to the Adani Group’s fortunes. The group’s listed companies saw their value rise by some 85 percent soon after Modi’s inauguration, compared to a roughly 15-percent increase for the Sensex over the same period. Within a year of Modi’s term at the centre, the companies’ market value had risen by over Rs 50,000 crore.

Numerous enterprises owned by the central government have entered partnerships with the Adani Group under Modi’s tenure. In 2017, Indian Oil and Gail invested in a 49-percent stake in a planned natural-gas terminal valued at Rs 6,000 crore at the Adani Group-owned port of Dhamra, in Odisha. This required both corporations to borrow on top of their already heavy debt burdens. The controlling stake in the venture is with AEL [Adani Enterprises Limited, the flagship company of the Adani Group]. Indian Oil has also invested Rs 750 crore in a 50-percent stake in a Rs 5,040-crore natural-gas terminal at Mundra that is part of a joint-venture between the AEL and the Gujarat State Petroleum Corporation.

Such investments help shore up the finances of the Adani Group at a time when the conglomerate is massively indebted—as it has been for much of its history. As of 2007, the group’s debts amounted to a quarter of its revenues. By 2013, according to the financial-services firm Credit Suisse, its debt, of Rs 81,000 crore, had outstripped its Rs 47,000 revenues. Credit Suisse has named four Adani subsidiaries—Adani Power, Adani Ports and SEZ, Adani Enterprises and Adani Transmission—on a list of 19 highly indebted Indian companies. As of April 2017, the total debts of the group’s listed companies alone totalled a breathtaking Rs 1.1 lakh crore, or over $16 billion. The Adani Group, on its website, says it has revenues of over $11 billion.

The State Bank of India has stalled on approval for a proposed loan of Rs 6,200 crore, or $1 billion, to fund a controversial Adani Group project to develop a coal mine and port terminal in the Australian state of Queensland. The bank issued a memorandum of understanding regarding the loan in 2014, after Modi took national power. Four major Australian banks refused credit for the project, and multiple other international lenders—including Deutsche Bank, HSBC, Citigroup, Goldman Sachs and more—also declined to back it. The Queensland government recently announced that it will veto a proposal for a massive concessional loan under an official infrastructure scheme. The Adani Group has twice missed deadlines to secure funding for the project.

The Adani Group’s troubles with the law began as early as in 1999, when the Directorate of Revenue Intelligence arrested Rajesh Adani, a younger brother of Gautam Adani and currently the managing director of the Adani Group, for evading customs duties. Rajesh has since been arrested several more times on charges of customs fraud, most recently in 2013. In 2008, Kamal Trivedi, the advocate general of the state of Gujarat, represented Rajesh before the Gujarat High Court in an appeal against charges of customs fraud by the Enforcement Directorate.

The Directorate of Revenue Intelligence has, since 2010, also been investigating over 40 companies, including five firms of the Adani Group, for over-invoicing coal imported from Indonesia by an estimated Rs 29,000 crore, resulting in inflated prices for power companies and consumers. In 2017, the DRI moved a court in Singapore to order that an Adani company registered in the country hand over records of coal imports from Indonesia. The group has appealed to a higher court to block the order.

In August 2017, three years into the Modi government’s rule, the DRI dropped all charges against Adani Power Maharashtra Limited and Adani Power Rajasthan Limited in a case involving the alleged overpricing of imported power-transmission equipment by Rs 4,000 crore. The customs department has challenged this decision before a tribunal, arguing that the DRI’s order “suffers from several contradictions which indicate either total non-application of mind or recklessness in passing of the order.”

Besides these cases, the Karnataka Lokayukta reported, in 2011, that AEL was involved in a scam worth Rs 6,000 crore involving illegal exports of iron ore through the Belekeri port in Karnataka. A 2017 CAG report found that Adani Ports and SEZ will reap undue gains of Rs 29,217 crore from a deal signed with the Kerala government in 2014, when the state was ruled by a Congress-led coalition, to develop a port at Vizhinjam. The deal is being probed by a commission appointed by the Kerala High Court, and has faced fierce protests from Vizhinjam locals who fear it will damage livelihoods and the area’s ecology.

This is an excerpt from “Coalgate 2.0,” the cover story of the March 2018 issue, by Nileena MS.