India Coal
Coalgate2: Adani benefits from highly questionable allocations of coal
Apr 17, 2023
Allegations have swirled over the allocation of certain coal blocks to Adani and over the eventual use of the coal concerned.

According to media reports and an Indian MP, the Adani Group has carried out a highly questionable transfer of millions of tonnes of coal from a controversial mine whose allocation to the Adani Group was also carried out in a questionable manner. The coal, supposedly owned by a state-owned power company, was instead burnt in three Adani coal-power plants. Recent media reports that have not been denied suggest that there have been several instances of questionable allocation and diversion of coal by group companies. These reports delve further into one of the damning allegations against the Adani Group published by Hindenburg Research in January.

For decades from the early 1970s, coal in India was almost entirely mined and distributed by government entities. Transportation of coal was handled by the state-owned Indian Railways; mining rights were granted only to public-sector agencies. In 1993, the Coal Mines (Nationalisation) Act of 1973 was amended and the rights to mine coal in 218 blocks were given to both public-sector corporations as well as to private companies. These allotments took place until 2011.

The administration of coal mining in India led to the 'coalgate' scandal of 2014 and continuing allegations of impropriety.

Then came the infamous scandal dubbed by the media as ‘Coalgate’ relating to the improper allocation of coal mines to several private companies. This scandal took place during the period of a coalition government comprising a centre-left alliance of political parties that ruled the country between 2004 and 2014 (the Congress-led United Progressive Alliance). The constitutional authority that oversees public finances, the Comptroller and Auditor General of India (CAG), accused the government of India of allocating coal blocks in a non-transparent manner without competitive bidding, an issue widely reported in India.

Political storm over coal mine allocations

The scandal led to a political storm with opposition parties led by the Bharatiya Janata Party (BJP) demanding the resignation of then Prime Minister Manmohan Singh, who was also the coal minister when the controversial allocations took place. The fallout from ‘Coalgate’ contributed to the electoral defeat of the UPA government in the 2014 general elections.

In 2014, the Indian Supreme Court cancelled 214 coal allocations that had been improperly implemented.

The Hindu nationalist BJP, led by Narendra Modi, made corruption a major issue in the run-up to the elections. The party’s campaign slogan was Na khaunga, na khane dunga (‘I will not indulge in corruption, nor will I allow others to do so’). The BJP won the election and Modi became prime minister in May 2014.

On 24 September 2014, the Supreme Court of India cancelled 214 out of the 218 coal blocks that had been allocated after 1993. Apart from the cancellation of allotments, operators that had begun mining were directed to pay a penalty of Rs 295 for every metric tonne of coal already extracted.

Jailing of top officials

Three officials of a private firm served prison sentences after they were convicted by a court in Delhi in November 2019 on charges of corruption in the allocation of a coal block in the state of Jharkhand. The most senior bureaucrat in the ministry of coal, former Secretary H C Gupta, and a junior civil servant in the same ministry, were handed three-year prison sentences in August 2022 for irregularities in the allotment of a coal block in Maharashtra in western India. This was a rare instance of incarceration of top government officials in India.

Illegalities in the allocation of coal blocks between 1993 and 2014 led to the prosecution and jailing of senior government officials.

A new, ostensibly transparent auction-based framework for allocation of coal blocks was launched in 2014 with much fanfare. The new framework allowed private-sector participation in the process of bidding for coal blocks but limited companies’ activities to ‘captive’ usage of coal. This meant the coal that was mined by the private entities would be consumed solely by themselves or entities in their group in their own power plants. Subsequently, six years later in 2020, the rules were amended and coal mining was opened for ‘commercial’ purposes, which meant that the coal mined by private companies could be sold for use in power plants owned by different entities. That year, 19 coal blocks were put up for auction by the Indian government.

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New auction process allegedly manipulated

The new auction process placed limits on the number of coal blocks for which a particular company could bid, presumably to prevent monopolisation of the sector. Moreover, it was proposed that companies found to be colluding or forming cartels during the bidding process would be penalised and hefty fines would be imposed on them. Nevertheless, the new bidding process was not without its critics who argued that it was skewed in favour of large firms with deep pockets that would be able to outbid smaller players.

In 2015, CAG flagged eleven instances of coal mines that were ‘successfully’ auctioned in favour of private corporate entities where the company that won the bid had an associate company or a parent company or a subsidiary or a coalition/joint-venture partner that had also participated in the bidding process. CAG’s report pointed out clear instances of how the letter and the spirit of the law had been brazenly flouted.

Accusations against Adani

Entities in the Adani Group were among those that participated in these allegedly rigged auctions. A report by the Scroll.in web portal that does not appear to have been denied highlighted how a company in the Adani Group was awarded mining rights to a coal block through an auction where the only other bidder was a company that had a financial relationship with the group. The links between the two entities were described in the report of Hindenburg Research of 24 January 2023.

Of the 214 coal blocks which were cancelled by the Supreme Court in September 2014, there were two for which the Adani Group was the designated manager/operator. These were the Parsa Coal Block and the Parsa East and Kente Coal Block (PEKB) in Chhattisgarh in central India. These had been allotted to two state government companies, the Chhattisgarh State Power Generation Company Limited (CSPGC) and the Rajasthan Rajya Vidyut Utpadan Nigam Ltd (RRVUNL) (that means in English ‘Rajasthan State Power Generation Company’) in 2006 and 2007 respectively.

The PEKB coal mine in Chhattisgarh, managed and operated by the Adani Group.

RRVUNL formed a joint venture with an entity in the Adani Group in 2007, with the latter holding 74% of the shares in the new entity. In 2009, Adani was selected as the Mine Developer and Operator (MDO) by the Rajasthan government. The Chhattisgarh government company set up a joint venture with Adani in 2010 and started mining operations three years later in 2013.

Adani an exception

Adani functioned as the MDO for these coal blocks in Chhattisgarh until they were cancelled by the Supreme Court’s order of 2014. Although cancelled, the Modi-led BJP government enacted a new law titled the Coal Mining Special Provisions Act in 2015 and reallocated both these coal blocks to RRVUNL, which then reinstated Adani as the MDO, making an exception in the list of 214 coal blocks that had been cancelled by the Supreme Court order.

According to a report published in Al-Jazeera on 1 March 2023, a government think tank, known as the NITI Aayog, sent a report on policies and rules pertaining to the mining industry to the office of the Prime Minister (the PMO) in 2020 whose contents were not publicly released. However, The Reporters’ Collective (TRC) obtained related correspondence, resulting in media coverage.  

The report apparently discussed ‘how flawed the MDO model is’. It also described how various Indian government ministries, namely the ministries of coal, finance, mines and steel, found ‘excuses’ to leave the Adani deal untouched. This was done by not changing a specific legal clause in the Coal Mining Special Provisions Act, 2015, that benefitted Adani, the report claimed.

The Mine Developer Operator model championed by Adani has been criticised by a government think tank.

MP alleges highly questionable diversion of coal  

Adani Mining (a subsidiary of Adani Enterprises Limited or AEL) has a contract with RRUVNL which gives Adani rights over lower quality coal from the RRUVNL mine. On 4 March 2023, Sanjay Singh, a member of the Rajya Sabha (or the upper house of India’s parliament) belonging to the Aam Aadmi Party (AAP), held a press conference in New Delhi at which he alleged that the Adani Group had diverted coal in the guise of ‘rejects’ – coal that had ostensibly been rejected by RRUVNL due to inferior quality – to its own power plant, instead of delivering it to the owner of the coal mine, the power authority of the government of Rajasthan. 

Singh claimed: ‘Following the Supreme Court's decision in 2014, the Modi government introduced a new law for the allocation of coal blocks in 2015, allowing states to form joint ventures with private companies for mining, with the state owning 74% and the private entity owning 26%. In contradiction to the said provision in the law, Adani's share in the joint venture is 75% and that of (the government of) Rajasthan is 26%.’

The MP further alleged that ‘according to an agreement made between AEL and RRVUNL, AEL has the authority to sell 25% of the coal rejected for use in power generating following extraction… According to the law, the private partner in the joint venture cannot do so.’

The MP’s allegations were reported in December 2022 by Scroll.in. The report alleged that ‘millions of tonnes’ of rejected coal had been sent to three Adani-owned power plants. The purchase orders indicated that whereas the Rajasthan government company paid Rs 2175 per tonne of coal, Adani Power paid only Rs 450 per tonne for ‘rejected’ coal.

The reject coal was sent to three entities in the Adani Group that run power plants – Raipur Energen, Raigarh Energy Generation Limited and Mahan Energen Limited. The first two are in Chhattisgarh while the third is located in the Singrauli district of Madhya Pradesh.

Doubts were also raised in the report about why the Adani Group paid ‘excessively high’ freight charges of Rs 1228 per tonne to transport ‘rejected’ coal across approximately 250 kilometres.

Singh has addressed more than one press conference and in a recent gathering of journalists, the MP alleged that electricity consumers in Gujarat are having to pay high electricity rates charged by a company in the Adani Group in violation of a power-purchase agreement it has signed with the Gujarat government.

This is not the first instance of the Adani Group allegedly over-charging consumers and diverting power in violation of contracts. AdaniWatch has published articles on this subject that can be read here and here.