business reportage BUSINESS

Coalgate 2.0

The Adani Group reaps benefits worth thousands of crores of rupees as the coal scam continues under the Modi government

By Nileena MS | 1 March 2018

WHEN THE SUPREME COURT, in a landmark decision in September 2014, cancelled nearly all existing permissions for the captive mining of coal blocks, it was seen as having halted the “Coalgate” scam. State-owned enterprises and private companies across the country were compelled to dissolve partnerships that most often favoured the corporate purse over the public good. Those state-owned enterprises that subsequently reapplied for permissions had to operate under a new law that restricted private firms to the role of contractors. None were allowed to carry on with things the way they were—with just a single exception.

The partnership between the Rajasthan Rajya Vidyut Utpadan Nigam Limited, a power corporation of the Rajasthan government, and Adani Enterprises Limited, the flagship company of the Adani Group, continues on the basis of agreements that pre-date the Supreme Court ruling. In Chhattisgarh, a joint venture formed by the two entities in 2007 is exploiting a captive coal block called Parsa East and Kanta Basan. The terms of the joint venture give the Adani Group effective control over it. Numerous other arrangements regarding the block also violate the 2014 ruling, as well as later laws and guidelines, and this state of affairs is clearly laid out in company documents and regulatory filings. Yet, despite the clear breach of law and contempt for the Supreme Court decision, there has been no action or complaint against these arrangements from either the Rajasthan and Chhattisgarh governments, both headed by chief ministers from the Bharatiya Janata Party, or the central government, headed by Prime Minister Narendra Modi.

RRVUNL pays the joint venture for coal from Parsa East and Kanta Basan. The pricing calculations involved in this are not normally published, but RRVUNL has disclosed pricing breakdowns from 2016. Based on the figures in these and production numbers reported by Adani Enterprises Limited, even the lowest possible estimates calculated by The Caravan show that RRVUNL will pay the joint venture at least Rs 6,000 crore—approaching $1 billion at present rates—in excess of prevailing coal prices over the 30 years that it has rights over the coal block. To add to this, arrangements for a power plant to be run at the block by the Adani Group promise the conglomerate a rock-bottom benefit on fuel of Rs 1,000 crore over the same period. By anything but the most conservative estimates, these sums are likely to be far higher.

THE GOVERNMENT ALLOTTED 218 captive coal blocks to individual private and state-owned entities between 1993 and 2011. These were to funnel their allotted coal to their facilities for power generation or heavy industry—both official priorities. Instead of auctioning the blocks, the government simply assigned each one to the interested entity that it thought would put it to best use. Many of the private companies that had received leases were owned by politicians or closely linked to them, and many of the state-owned enterprises that had received them formed joint ventures with politically connected private firms to exploit their captive blocks.

In March 2012, it emerged that a draft report by the Comptroller and Auditor General described the allotment system as arbitrary, and estimated the resulting loss of potential government revenue—and effective gain to allottees entities—at Rs 10.7 lakh crore, or over $200 billion. The Congress-led government of the day had presided over the majority of the allotments, and was the major target of the ensuing scandal. The matter was taken up by the Central Bureau of Investigation, and then the Supreme Court.

In its damning 2014 verdict, the court found all the allotments of coal blocks to have been illegal, barring just four that were being run by the central government without any private partners. The court noted a pattern of state-owned enterprises granting lucrative contracts to private firms—often sister concerns of the same private firms they had formed joint ventures with—to mine and deliver coal from their blocks. It stated that “this modus operandi has virtually defeated the legislative policy in the CMN Act”—the Coal Mines (Nationalisation) Act, 1973—“and winning and mining of coal mines has resultantly gone in the hands of private companies.” One of the government’s main justifications for the allotment system was that allowing state-owned enterprises to exploit captive blocks would allow them to reduce their costs on coal, and so to pass the savings on to consumers—through lower electricity fees, for instance. But hefty payments to private contractors were often driving up state-owned enterprises’ expenses to the point that consumer benefits were negligible at best.

The Supreme Court ruling came a few months after the BJP’s ascent to power in the 2014 general election. A major part of the party’s campaign, with Narendra Modi at the helm, involved criticising the Congress over Coalgate and other scandals, and promising action against corruption if it came to power.

A year into office, the Modi government enacted the Coal Mines (Special Provisions) Act, 2015, which required auctions for all captive coal blocks offered to private companies. The law retained the power for the government to allot blocks without auction to state-owned enterprises, and to joint ventures between state-owned and private firms, so long as “no company other than a Government company or corporation shall hold more than twenty-six percent of the paid up share capital in the Government company or corporation or in the joint venture … either directly or through its subsidiary company or associate company.” The coal ministry also issued a Draft Model Contract Agreement which made it clear that provisions for state-owned enterprises to engage private mine operators “shall not be interpreted or construed to create an association, joint venture or partnership between the parties.”

The original allotment of Parsa East and Kanta Basan dates to June 2007, when it was handed to the Rajasthan Rajya Vidyut Utpadan Nigam Limited, Rajasthan’s state power corporation. That same year, RRVUNL agreed to form Parsa Kanta Collieries Limited, a joint venture to exploit the block, in partnership with Adani Mining Private Limited. The terms of the agreement gave Adani Mining 74-percent ownership of PKCL, and 26-percent ownership to RRVUNL. After the 2014 Supreme Court judgment, RRVUNL applied for and was granted a reallocation of Parsa East and Kanta Basan for 30 years. In early 2015, Adani Mining was absorbed by Adani Enterprises Limited. In March of that year, RRVUNL decided, as described in AEL’s annual report for the 2016-17 financial year, “to continue its joint venture agreement with AEL,” with the same division of ownership as before. PKCL’s annual filings to the registrar of companies, under the ministry of corporate affairs, have consistently reflected 74-percent ownership by AEL.

The founder and chairman of the Adani Group, the parent conglomerate of AEL, is the billionaire Gautam Adani, who rose from relative humility in Gujarat to become one of the country’s most influential businessmen in energy, infrastructure and more. Modi’s time as the chief minister of Gujarat, between 2001 and 2014, coincided with massive increases in the Adani Group’s fortune, and the conglomerate has continued to prosper under Modi’s prime ministership. Adani and Modi are frequently pictured together at high-profile events, including on the prime minister’s foreign visits, and Modi unabashedly used Adani Group aircraft while travelling to campaign for the 2014 general election. Modi’s administrations, at the state and national levels, have repeatedly been accused of giving preferential treatment to Adani’s businesses—through such things as concessional land deals and advantageous changes in regulation. The Adani Group has faced multiple allegations of tax evasion, money laundering, bribery and environmental crimes, yet it has largely evaded any action from regulatory bodies and investigative agencies. The conglomerate is highly leveraged. As of 2017, the combined debts of just its listed companies totalled Rs 1.1 lakh crore, or over $16 billion—most of it owed to Indian state-owned banks.

The 2007 deal to form PKCL was agreed when the Rajasthan government, which controls RRVUNL, was led by the BJP, with Vasundhara Raje as the chief minister. Raje was replaced in 2008 by the Congress’s Ashok Gehlot, who lobbied for RRVUNL to receive clearances from the central government in order to begin mining operations at Parsa East and Kanta Basan. Raje, after regaining power in 2013, was the chief minister again at the time of the decision to continue the joint venture unaltered, in 2015.

RRVUNL received the necessary clearances from the central government over the course of 2011 and 2012, when the Congress-led government held national power. The Chhattisgarh government gave the final go-ahead for mining at Parsa East and Kanta Basan in 2013, and production started at the block that same year. Chhattisgarh has been ruled by the BJP since 2003, with Raman Singh as the chief minister throughout.

After the block was reallotted in 2015, PKCL continued with an earlier contract for mining services that had been agreed with Adani Mining in 2009. The 2015 reallotment agreement states, “In the event the Allottee enters into any agreement with any contractor in relation to the mining operation at the Coal Mine, then a duly certified copy of such agreement shall also be submitted to the Nominated Authority within fifteen Business Days of the execution.” The nominated authority in this case is a joint secretary at the coal ministry. Since 2014, the ministry has been headed by the BJP’s Piyush Goyal.

The reallotment agreement also stipulates that any contractor brought in to run mining operations must be selected through competitive bidding, and that any agreement with such a contractor must be brought to the attention of the state government, the central government and the nominated authority as soon as it is finalised. There was no bidding before PKCL’s mining-services contract with Adani Mining in 2009, and there has not been any since.

In response to queries from The Caravan, the coal ministry stated that “RRVUNL had informed the Nominated Authority that RRVUNL shall adopt and continue” the existing mining-services contract, and that “PKCL works as the exclusive Mining Contractor.” It added that coal-block “Alottees are required to submit Pre Commencement Report for every month to the office of the Nominated Authority furnishing the progress made towards development of the coal mine,” and that “this office holds regular Review Meeting with the Allocatees to monitor the progress and remove any bottlenecks being faced by them.” In reply to a question as to whether the 74-percent ownership of PKCL by AEL violated the Coal Mines (Special Provisions) Act, the ministry replied that “there is no stipulation of any investment/shareholding pattern in mining contractor”—although the question specifically pointed out that AEL is the majority partner in the venture and not a contractor.

Besides PKCL, RRVUNL has also formed another joint venture with AEL, called Rajasthan Collieries Limited. This joint venture was formed in December 2011, to exploit two coal blocks, Parsa and Kente Extension, also allotted to RRVUNL. These blocks are adjacent to Parsa East and Kanta Basan. AEL owns 74 percent of Rajasthan Collieries Limited, and RRVUNL owns 26 percent. The joint venture remains active, and has a mining-services agreement with AEL, although production is yet to begin at either of its blocks.

Parsa was handed to RRVUNL during the reallotments of coal blocks in the wake of the Supreme Court’s 2014 ruling. It had originally been allotted to the Chhattisgarh State Power Generation Limited, a corporation of the Chhattisgarh government, which formed a joint venture to develop the block, and then signed a mining-services agreement, with Adani Mining. In 2012, the Comptroller and Auditor General reported that CSPGL had subsequently tweaked the mining-services agreements to Adani Mining’s benefit, resulting in a potential loss to itself of Rs 1,549 crore.

PARSA EAST AND KANTA BASAN lies in the north of the Hasdeo Arand forest, roughly 300 kilometres north-east by road from Raipur, Chhattisgarh’s capital. The block forms a rough square, with sides of approximately 5 kilometres. According to documents from the environment ministry, it contains over 450 million tonnes of minable reserves, at a maximum depth of 225 metres. This is too shallow for underground mining, and calls instead for open-cast operations—digging the coal out after stripping away the soil and the forest above it. It is also shallow by the standards of open-cast mining, making Parsa East and Kanta Basan particularly cheap and profitable to operate.

The Forest Survey of India, a body under the environment ministry, described Hasdeo Arand in 2011 as the largest uninterrupted tract of forest anywhere in central India beyond protected areas. The forest and its surroundings are home to numerous communities, with significant Adivasi populations, who depend on it for their livelihoods, and who can claim rights over it under the Forest Rights Act, 2006. Hasdeo Arand is also highly biodiverse and ecologically sensitive. The Chhattisgarh government had earlier proposed setting up an elephant reserve in the area, and received approval from the central government in 2007, but subsequently backtracked. The environment ministry declared large parts of Hasdeo Arand “no-go” areas for mining in 2010, but the area lost this status when the system of designating such areas was ended in 2012.

In May 2006, RRVUNL invited tenders from firms interested in mining coal and transporting it to the power company’s plants in Rajasthan as part of a joint venture. The company was acting in anticipation of being allotted a coal block; it would be over a year before the government announced, in June 2007, that Parsa East and Kanta Basan had been allotted to RRVUNL. Yet in 2006 itself, the company issued a letter of intent stating that it had chosen to partner with AEL, based on the “quoted price of coal for the first year of mining operations.” AEL had submitted its tender before factors crucial to determining the cost of mining and delivery for RRVUNL—such as the grade of the coal to be mined or the distances between the mines and the company’s power plants, all dependent on the location of the block allotted to it—were known. The details of the tender process have never been made public.

The joint-venture agreement was signed in August 2007. According to RRVUNL’s annual report for the 2015-16 financial year, under this agreement the company “handed over its coal mines to PKCL during 2008-09 free of cost, for prospecting, exploration and coal mining … for a period of 30 years from commencement of supply of coal.” In 2009, PKCL signed the mining-services agreement with Adani Mining. According to the Adani Group website, this entailed such work as “obtaining approvals (including approval of mining plan), acquisition of land, setting up washery and construction of railway siding at the mine.”

Plans to begin mining at Parsa East and Kanta Basan required the assent of local communities as well as numerous environmental permissions. After it was allocated the coal block, Parsa Kanta Collieries Limited faced strong resistance from the area’s locals, and had multiple applications to the environment ministry turned down. These hurdles were removed by an unprecedented revocation of local land rights, and a sudden about-turn by the environment ministry against the recommendations of its own advisers.

By law, mining in a forested area requires official clearance. The large majority of Parsa East and Kanta Basan was covered by forest. RRVUNL submitted a proposal for the “diversion” of forest land, for the consideration of the coal ministry’s Forest Advisory Committee. On three occasions in 2010, the committee recommended rejecting the proposals, and Jairam Ramesh, the minister of state for the environment, did just that. In 2011, the committee again considered a proposal, and in June of that year it again recommended that the ministry turn RRVUNL down. That same month, however, Ramesh issued an order granting initial approval to the proposal, opening the way for further proceedings. He attached to the order a series of letters from Ashok Gehlot persistently asking for permission to mine coal for Rajasthan’s power projects.

The ministry granted environmental clearance for work at Parsa East and Kanta Basan in December 2011. It followed this with forest clearance, permitting the razing of forested areas, in March 2012. Soon afterwards, the lawyer Sudiep Shrivastava approached the National Green Tribunal to challenge the forest clearance, calling into question the validity of the ministry’s initial approval for the “diversion” of forest land in June 2011. The case proceeded through the following years.

Even with the environmental approvals in place, before the Chhattisgarh government could issue RRVUNL a mining lease, finally handing the land over for mining, it had to deal with the people on it. Many local residents had sent in applications to claim land rights allowed to them under the Forest Rights Act. By law, the state government had to ensure that all such claims were settled before it granted a mining lease. Yet the applications were still pending when it issued the mining lease, in May 2012. Adani Mining began production at Parsa East and Kanta Basan in March 2013.

The journalist Nitin Sethi later reported that orders from the environment ministry granting initial approval for the diversion of the forest land stated that the ministry’s final permission to hand the land over for mining would depend on settling all local claims over it—yet the ministry eventually granted its permission without establishing that this condition had been met. In September 2013, residents of the village of Ghatbarra, acting under the Forest Rights Act, won official recognition of their community rights over forest land within Parsa East and Kanta Basan.

In March 2014, the National Green Tribunal ruled on the appeal against the forest clearance. It set the clearance aside, and directed the environment ministry to reassess RRVUNL’s proposal. It also ordered that all work at Parsa East and Kanta Basan, “except the work of conservation of existing flora and fauna, shall stand suspended,” pending fresh orders from the environment ministry. RRVUNL appealed before the Supreme Court, which ruled the following month that work at the coal block could continue, but that the environment ministry should move ahead with reassessing the proposal. Four years after the order to reassess the forest clearance, the ministry is yet to issue any new orders.

In early September 2014, locals displaced or otherwise affected by the mining managed to temporarily halt all work at the block as part of a campaign to protest Adani Mining’s failure to provide them with compensation and jobs that had been promised when the company moved in. The Supreme Court verdict annulling all coal-block allocations came later the same month, but the court allowed operations at active blocks to continue for a grace period of six months.

The Supreme Court ordered a levy on all coal mined at active blocks from the moment they began production until the end of the grace period, calculated at Rs 295 per tonne. For Parsa East and Kanta Basan, the total came to Rs 145.5 crore, for almost five million tonnes of coal mined. The legal obligation fell on the allottee, RRVUNL, which paid the full amount.

A few months after the ruling, residents of villages from across Hasdeo Arand, including Ghatbarra, passed a resolution telling the government not to auction mining rights for any coal blocks in the region. They also demanded that the government honour their rights over the land under the Forest Rights Act, as well as the Provisions of the Panchayats (Extension to Scheduled Areas) Act, 1996.

RRVUNL was reallotted the block in March 2015, just as the grace period was running out. Operations at Parsa East and Kanta Basan never stopped during this period, and have carried on ever since.

In 2016, the administration of Surguja district, which takes in Ghatbarra, issued an order to cancel the village’s community forest rights. This made Chhattisgarh the first state ever to revoke rights already granted under the Forest Rights Act; there is no provision in the law for such action. The order stated, “When the administration tries to get diversion of forests done for the Parsa East and Kanta Basan coal block, the villagers, using the pretext of the land rights given to them by the [district] collector, create barriers and protest to stop the work.” It argued that since the handover of land for mining operations predated the recognition of local rights over it, the recognition was never valid.

RRVUNL was one of 77 state-owned companies to enter into joint-venture agreements with private firms upon being granted permission for captive mining. After the 2014 Supreme Court ruling, all these agreements were to be cancelled, and state-owned companies interested in securing captive blocks were to submit new tenders. The 2015 legislation banned state-owned companies from forming joint ventures with private firms to exploit any fresh allocations, or from bringing them on as partners via mining-services agreements, though it permitted private firms to be brought in as contractors or subcontractors.

All the state-owned companies with prior allotments complied with these directives—except for RRVUNL. The company applied for a reallocation of Parsa East and Kanta Basan, and received it in 2015. The environmental clearance for the block was reaffirmed as well. In its 2015-16 annual report, RRVUNL indicates that PKCL remains functional, even though this joint venture was formed in 2007.

Adani Enterprises Limited, in its annual report for the 2016-17 financial year, mentions both the 2014 Supreme Court judgment and the 2015 mining law, yet also declares, “Pursuant to the re-allotment, RRVUNL has decided to continue existing contract with PKCL for development and operation of the coal block.” RRVUNL’s 2015-16 annual report states, “A Coal Mining and Delivery Agreement (CMDA) were signed with the Joint venture (PKCL),” and makes clear that the agreement was signed before the Supreme Court ruling. The reallocation agreement makes it clear that “the selection of contractors in relation to coal mining operation shall be through a competitive bidding process.” No information of bidding for mining services at Parsa East and Kanta Basan was ever made public, although AEL continues to run operations at the block for PKCL.

The terms of the allocation of Parsa East and Kanta Basan set its maximum annual production at 10 million tonnes, all destined for RRVUNL facilities. RRVUNL has signed fuel-supply agreements with PKCL to supply three of its power stations in Rajasthan—Kalisindh, Chhabra and Suratgarh.

In 2016, the Rajasthan government, under Vasundhara Raje, decided to divest RRVUNL of its stake in Chhabra and Kalisindh, in what it described as an effort to cut losses. (NTPC Limited, the central government’s power company, is currently in the process of taking over the plants.) RRVUNL has since published Preliminary Information Memorandums regarding the divestment for both plants. In these documents, it has disclosed the calculations behind the prices it paid PKCL to supply coal to the stations as of 2016. This entails the first and only instance when the breakdown of the pricing for PKCL coal has become publicly available; no such disclosure has been made since, and no details of the pricing breakdown for Suratgarh have ever surfaced.

The Preliminary Information Memorandum shows that the raw coal being dug up at Parsa East and Kanta Basan is of G11 grade, and that RRVUNL is paying PKCL for G9 coal to power Chhabra and Kalisindh. (The coal ministry has published grading guidelines for non-coking coal—the kind used in power generation—based on gross calorific value. GCV is a measure of the heating capacity of a set weight of coal, and varies according to the amount of moisture and non-coal substances present in it. The highest grade is G1, and the lowest G17.) Turning G11 coal into G9 coal requires a process called “beneficiation,” which reduces the amount of non-coal substances present and removes lower-grade coal. PKCL is charging RRVUNL for the process. Not counting transportation fees, the total cost of G9 coal from PKCL—including beneficiation charges, taxes, duties, royalties and cesses—is Rs 2,267.12 per tonne.

Chhattisgarh falls under the command area of South Eastern Coalfields Limited, a subsidiary of Coal India Limited, the state-owned enterprise that dominates coal production in India. SECL offers coal to power utilities at concessionary rates. According to SECL’s published rates for mid 2016, it charged power utilities a rate, not including transportation costs, of Rs 1,100 per tonne of G9 coal—which amounts to a total price of Rs 1,992.96 after adding taxes, duties, royalties and cesses.

SECL operates over 50 mines in Chhattisgarh, and RRVUNL could purchase G9 coal from them instead of from PKCL. Transportation costs from any of SECL’s mines to RRVUNL’s plants in Rajasthan would be comparable to those the company pays PKCL for the delivery of coal from Parsa East and Kanta Basan.

Setting aside transportation charges, the difference between the total cost paid to PKCL and that offered by SECL for G9 coal is Rs 274.16 per tonne. AEL’s annual report for the 2016-17 financial year declares that PKCL dispatched 7.33 million tonnes of beneficiated, or “washed,” coal to power plants in that period. Applying the per-tonne cost to this amount, the total annual amount paid to PKCL above the available SECL rate comes to Rs 200.9 crore. Projecting this over the 30-year duration of the mining lease for Parsa East and Kanta Basan, the excess amount paid by RRVUNL to PKCL would come to Rs 6,029 crore—approximately $860 million, based on 2016 exchange rates.

(In the absence of a pricing breakdown for the Suratgarh plant, the calculation assumes that the pricing breakdown declared for Chhabra and Kalisindh reflects that for Suratgarh as well. The calculations here and throughout the piece make reasonable extrapolations based on figures from the 2016-17 financial year, as that is the only period for which all relevant information has been disclosed. SECL updates its prices every six months, and the exact sums in the calculation may vary if based on a different period; without timely pricing information from PKCL or RRVUNL, those sums cannot be determined. SECL prices have risen since 2016, but as the pricing disclosed for the 2016-17 financial year calculates the final PKCL price starting from a SECL base price, it is reasonable to assume that PKCL’s prices have kept pace with the increase.)

Captive mining is meant to slash companies’ fuel costs by giving them raw fuel for free, and allowing them to pay outside parties only for essential services such as mining and delivery. The pricing calculation disclosed by RRVUNL completely defeats the logic behind the practice. Industry experts place the cost of mining coal in India—averaging across open-cast mines and more expensive underground mines—at a maximum of Rs 450 per tonne. The cost paid by the allottee of a captive coal block to any outside party mining it should be in the vicinity of this figure at most. The pricing breakdown for PKCL begins by pricing the G11 coal mined from Parsa East and Kanta Basan at the prevailing base rate from SECL, of Rs 810. This violates a condition of the reallocation agreement for the block, which specifies that “the allottee shall ensure that the criteria of bidding for engagement of contractors are not linked to CIL notified price.” The pricing calculation then shows an 8.5-percent discount on the SECL base rate, but this amounts to a discount only in theory—with all other charges, including beneficiation costs, added on, the total cost of the G9 coal produced exceeds the rate for G9 coal offered by SECL.

In effect, RRVUNL is paying more to use coal granted to it for free than it would for coal available from another state-owned enterprise—to the benefit of a joint venture controlled by a private entity, the Adani Group. The additional cost is passed on to consumers in Rajasthan, in the form of higher electricity tariffs.

While the Preliminary Information Memorandum shows that RRVUNL is purchasing G9 coal, a submission by RRVUNL to the Rajasthan Electricity Regulatory Commission in 2016 shows that units at Chhabra being supplied by PKCL are being run on G10 coal, and that units supplied by the company at Kalisindh and Suratgarh are being run on G11 coal. RRVUNL has never publicly explained the discrepancy, and did not respond to queries from The Caravan.

If the submission to the regulatory commission is accurate, it is not clear why RRVUNL would pay PKCL for a higher and costlier grade of coal than required for its plants. In the case of Kalisindh, if the plant only needs G11 coal, it is unclear why RRVUNL should pay any of the beneficiation costs reflected in the Preliminary Information Memorandum when the same document shows that the raw coal from Parsa East and Kanta Basan is already of G11 grade. If, in fact, it is the Preliminary Information Memorandum that is accurate, then it is surprising that RRVUNL has chosen to pay PKCL a higher price for the required G9 coal than the one offered for equivalent coal by SECL. Wherever coal from PKCL is not sufficient to meet the needs of the three plants, RRVUNL is already purchasing coal from SECL to cover the shortfall.

To add to this, RRVUNL has also granted AEL ownership over lower-grade coal sifted out during the beneficiation process—known in the industry as “middlings” and “rejects.” The draft model contract issued by the coal ministry in 2015 states that the “rejects from the Washery shall be the property of the Authority”—in this case, RRVUNL. The reallotment agreement for Parsa East and Kanta Basan states that the “allottee”—RRVUNL—shall “make best efforts to reduce generation of middling or washery rejects and utilise the same in any captive power plant of the Allottee.” It adds that any middlings or rejects that “may be sold by the Allottee and the Allottee shall maintain separate records for the middling or washery rejects generated, utilised and sold.”

The mining-services agreement between PKCL and Adani Mining, signed in July 2009, provided for the establishment of a coal washery at Parsa East and Kanta Basan, and states that “the washery rejects are the property of Adani Mining Pvt. Limited.” In March 2013, the same month that production at the block began, Surguja Power Private Limited, a fully-owned subsidiary of Adani Mining, applied for environmental clearance for a power plant at Parsa East and Kanta Basan. The application stated that “the coal washery rejects are proposed to be used by Surguja Power Private Limited for this project.”

AEL and RRVUNL’s annual reports have continued to refer to the 2009 mining-services agreement, even though it violates the terms of the model contract and the reallotment. The Surguja plant has been delayed, but the plans to build it remain in place. The website of Adani Power states that “Adani Group is planning to setup Surguja Thermal Power Project … The Coal Washery reject will be used as Primary Fuel.” An Environmental Clearance Compliance Report submitted to the ministry of the environment by RRVUNL in June 2016 states that all rejects shall be used at a power plant that “shall be commissioned in 6-7 years.” Until then, it continues, “the coal rejects shall be sold … to users of coal rejects.”

In effect, AEL, since absorbing Adani Mining, has been allowed to sell rejects from Parsa East and Kanta Basan, a captive coal block, on the open market. According to AEL’s 2016-17 annual report, the block yielded 8.27 million tonnes of raw coal that year, and washed coal of 7.41 million tonnes. Calculating the difference, the quantity of rejects generated over the period is 0.86 million tonnes. The rejects from beneficiating G11 coal would be of a variety of lower grades, the very lowest and cheapest of which is G17. In 2016, SECL’s concessionary rate on G17 coal for power utilities was Rs 470 per tonne. Even assuming that all the rejects from Parsa East and Kanta Basan were of G17 grade—and so yield the lowest possible earnings on the market—an estimate of the lowest possible benefit to AEL from selling 0.86 million tonnes of the rejects comes to Rs 40.42 crore.

AEL will lose the right to sell the rejects once the Surguja plant becomes operational, but even so it will continue to receive them for free to fuel the plant. Again, assuming that all the rejects are of G17 grade, the resulting benefit to AEL for each tonne would be at least equal to the SECL price of G17 coal for power utilities. Put another way, the estimate of the minimum annual benefit remains the same whether AEL sells the rejects or uses it for its own plant.

Extrapolating from the 2016 figures for the 30-year duration of the lease, the total estimated gain for AEL just from this arrangement on the rejects is then no less than Rs 1,212.6 crore—over $170 million. Environmental filings on Parsa East and Kanta Basan estimate that the amount of rejects generated from an annual raw yield of 10 million tonnes could be 2.25 million tonnes per year. If the actual yield of rejects each year is closer to that figure than the 0.86 million tonnes reflected in AEL’s 2016-17 annual report, the benefit to the company could be significantly greater.

In September 2016, RRVUNL applied for approval to expand the permitted production at Parsa East and Kanta Basan to 15 million tonnes per year. It did so despite not having raised production to the existing limit of 10 million tonnes per year; in May 2016, RRVUNL forfeited a deposited guarantee of Rs 16.48 crore after missing a stipulated deadline to do so. The proposed expansion is still awaiting approvals. If it is authorised and production rises, the potential benefits to PKCL from overpricing coal and to AEL from receiving washery rejects would multiply.

PKCL and RRVUNL have turned down right-to-information requests from activists seeking details of the mining-services agreement for Parsa East and Kanta Basan. The Caravan sent queries to RRVUNL and PKCL seeking details of tenders and agreements related to the mining and purchasing of coal from the block, but these had not been answered when this piece went to press.

TODAY, BESIDES ITS INTERESTS IN the three coal blocks in Chhattisgarh, the Adani Group holds the rights to the Jitpur coal block in Jharkhand, which it successfully bid for in 2015. It also has active power plants in Gujarat, Maharashtra, Rajasthan and Karnataka, and owns four ports and five shipping terminals across the country, among other interests.

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. 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.

Environmental controversies have accompanied multiple Adani Group projects beyond Vizhinjam as well. In Goa, the group has been accused of flouting environmental laws at its port terminal in Mormugao, and causing alarming pollution at the nearby town of Vasco. The group’s planned port terminal in Australia has faced protests for threatening sensitive ecological areas, including the Great Barrier Reef. In 2014, the Gujarat High Court shut down a dozen units of the group in the Mundra special economic zone that were operating without environmental clearance. The Supreme Court has ordered an expert committee under the environment ministry to probe allegations that the group has flouted environmental regulations at Mundra, resulting in the large-scale destruction of mangrove forests and sand dunes.

THE COMPTROLLER AND AUDITOR GENERAL’S draft report on the coal scam estimated the undue benefits to both private and state-owned allottees when it valued the coal scam at Rs 10.7 lakh crore. In its final report on the allocations, submitted in August that year, the CAG only put a figure on the gains to private allottees—Rs 1.86 lakh crore.

The CBI’s early investigations into the scam looked only at blocks allotted to private companies, until, in September 2012, the Central Vigilance Commission, a government body tasked with fighting corruption, directed the agency to probe all allocations since 1993. (Private companies were barred from coal mining after the nationalisation of the sector in the early 1970s, but were permitted to operate mines with specific end-use projects after 1993. In February 2018, the government lifted that restriction as well, to allow private companies to mine coal commercially and sell it on the open market.) The Supreme Court, when it cancelled all but four prior allocations in 2014, also appointed a public prosecutor and a judge to hear all cases related to the allocations in a CBI special court.

The investigations surrounding the coal scam have been ongoing for over five years now. Only a relatively small number of the many firms and individuals involved have been charged, and an even smaller number have faced prosecution. Throughout this period, questions have been raised over procedural delays in certain cases, the rapid dismissal of others, and the lack of action against powerful politicians, businessmen and corporations.

The Supreme Court began monitoring investigations into the scam by late 2012, long before its final verdict. The court asked the CBI to report directly to it, without sharing any information about its probe with the government. In 2013, Ranjit Sinha, the CBI director, admitted that a draft investigation report had been vetted by the law minister and the prime minister’s office. The Supreme Court remarked that “the heart of the report was changed on the suggestions of the government officials.” It described the CBI as “a caged parrot speaking in its master’s voice,” and added, “It’s a sordid saga that there are many masters and one parrot.”

In September 2014, the judge of the CBI special court questioned the agency’s hurried closing of a case in which it had earlier filed a First Information Report that named the industrialist Kumar Mangalam Birla, the former coal secretary PC Parakh, and Manmohan Singh, whose term as prime minister had ended just a few months earlier. The special court also summoned Singh, but that order was subsequently stayed by the Supreme Court. In 2017, while hearing another case, the CBI special court concluded that Singh had been “kept in the dark by former coal secretary HC Gupta who had prima facie violated the law and the trust reposed in him on the issue of coal block allocation.”

Also in September 2014, it emerged that a visitors’ diary for the official residence of Ranjit Sinha showed visits by a host of individuals accused in the coal scam while he was still the CBI director, including senior politicians, as well as representatives of corporations involved, such as the Essar Group and the Anil Dhirubhai Ambani Group. Sinha is currently being investigated by the CBI for abusing his authority to scuttle coal-scam cases.

The agency’s latest status report on the coal-scam investigations, dated January 2018, shows that it has registered a total of 55 FIRs in connection to the allocations. (Based on the CBI’s FIRs, the Enforcement Directorate has started looking into economic offences by the companies involved, and has so far issued attachment orders in 13 cases.) The CBI special court’s first convictions were handed down in July 2016, to directors of a private firm that had been allotted a coal block in Jharkhand, and officials of another private firm that been allotted a block in Chhattisgarh. In the latest convictions, in December 2017, the court sentenced the former Jharkhand chief minister Madhu Koda, other former Jharkhand officials, and the former coal secretary HC Gupta. Gupta had earlier been sentenced in another case as well, along with two officials of the coal ministry.

These cases, and others that have reached various stages of prosecution, by and large involve relatively small private companies; the major exceptions are two cases that involve the industrialist and Congress politician Naveen Jindal and his Jindal Steel and Power Limited. No officials of allottee companies linked to high-profile corporations such as the Tata Group, the Essar Group, the Reliance Anil Dhirubhai Ambani Group and the Adani Group have been charged so far. The status of the CBI’s investigations into these companies has not been made public. The agency is yet to file final reports in the cases of 138 out of 168 private companies that were allocated coal blocks between 2006 and 2009.

When it comes to allocations to state-owned enterprises, the CBI’s latest status report says that it has completed inquiries regarding 101 coal blocks. The agency has reported that “no case is made out in respect of 85 coal blocks,” and that the Central Vigilance Commission has agreed to this. With regard to the remaining 16 blocks, the agency has registered six FIRs. Yet among these six, the CBI has filed its final reports, and proceeded with the cases, in connection to only two FIRs. The two state-owned enterprises charged in these FIRs—and the only state-owned companies to face prosecution so far—are Karnataka Power Corporation Limited and Himachal Pradesh Power Corporation Limited.

The CBI did not respond to repeated requests from The Caravan for information on the status of its investigations.

Among the state-owned enterprises against which the CBI has not filed any FIRs so far is the Gujarat Mineral Development Corporation, which had been allocated two coal blocks—one in Chhattisgarh, in the Hasdeo Arand forest, and another in Odisha, in partnership with a corporation of the Pondicherry government. In January 2015, the Supreme Court issued a notice to the chief secretary of the Gujarat government after the state ignored repeated requests to provide the CBI with documents pertinent to the matter.

The relevant coal block in Odisha, called Naini, was allotted in 2007 to the GMDC and the Pondicherry Industrial Promotion Development and Investment Corporation, or PIPDIC, on the understanding that each would set up a power plant to run on coal from the block. The two corporations formed a joint venture, with 50-percent ownership by each, to exploit the block. GMDC’s power plant was to be located at either Angul, in Odisha, or Dumka, in Jharkhand.

A 2015 CAG report revealed that the joint venture suffered a loss of around Rs 55 crore after the Gujarat government, under Narendra Modi, insisted on altering the terms of these prior agreements. It noted that, in 2009, the state government declared that GMDC’s share of coal from Naini would be supplied to Adani Enterprises and another private company, Torrent Power, and that these companies would set up the required plant. As both companies wanted to locate the plant in Gujarat instead of Odisha or Jharkhand, the Gujarat government proposed to transport the coal there, across the breadth of the country. (One of the factors considered when allotting blocks was the proximity of the proposed mine and power plants, in order to avoid the expenses of transporting coal over long distances.) The coal ministry consented to the proposal on the condition that the ministry of power and the government of Odisha agree. The former did, but the latter refused as the proposal violated the terms of the allotment. In December 2012, the coal ministry cancelled the allocation of the block. The GMDC and the PIPDIC each had to forfeit a deposited guarantee of Rs 16.5 crore as a result of their failure to develop the block within stipulated deadlines. The joint venture also lost around Rs 23 crore that it had already sunk into the project.

The CBI’s FIR against the Karnataka Power Corporation Limited, which was filed in 2015, also involved the EMTA Group, a private company that had formed a joint venture with KPCL to exploit the coal blocks allotted to the state-owned enterprise. In the FIR, the CBI had charged EMTA and KPCL with “cheating and corruption.” KPCL had also signed a mining-services agreement with EMTA to develop the blocks. After the Supreme Court dissolved all prior allotments, KPCL annulled the agreement with EMTA. The private company chose to challenge this. Before the Karnataka High Court, EMTA’s lawyer brought up how RRVUNL had continued its mining-services agreement with Adani companies, and argued that EMTA should be allowed to continue its prior agreement with a state-owned allottee as well. In its ruling, in December 2015, the high court reminded EMTA that the Supreme Court had “held that the law did not permit a joint venture by a state government with a private party, in mining,” and reaffirmed the annulment of the contract between KPCL and EMTA.

THE SUPREME COURT’S HISTORIC 2014 judgment was an opportunity for India to end the coal scam once and for all. The court’s message was clear—fix the legislation and prosecute the violators. Yet the Modi government has applied a double standard when it comes to the Adani Group’s involvement with RRVUNL, with the CBI and multiple other official bodies turning a blind eye to clear violations of law and contempt for the Supreme Court’s judgment. From publicly available evidence, it is clear that the Adani Group has, at great cost to the public exchequer, received massive advantages from Gautam Adani’s relationship with Modi—first through Modi’s tenure as the chief minister of Gujarat, and now his tenure as the prime minister of India. As long as Parsa East and Kanta Basan continues to be exploited on the basis of pre-2014 agreements, the coal scam lives on.

Nileena MS is a reporting fellow with The Caravan. 


3 thoughts on “Coalgate 2.0”

Well done…its extremely detailed article…it took me three attempt to read it……but seriously that real journalism……I will talk abt it with my friends and I really commend the hard you have done….Thank you keeping REAL journalism alive

Awesome work. After SC judgement, previous govt passed an executive order to form Coal Regulatory Authority. It was even mentioned in the minutes of first cabinet meeting of Piyush Goyal. Never really heard about it after that. Not that it would have solved everything, but the step was supposed to be in the direction of reform.

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