The ‘greatest con in corporate history’ is actually a collection of many smaller cons, such as Adani’s alleged involvement, along with two other companies, in a coal import scam that may have cost the State of Tamil Nadu at least US $730 million. According to a complaint dated 31 January 2023 by Chennai-based NGO Arappor Iyakkam to the Chief Minister of Tamil Nadu, Adani’s Singapore-based subsidiary Adani Global Pte Ltd may have illegally earned more than US $363 million by supplying substandard coal at inflated prices in collusion with the state electricity utility TANGEDCO between 2012 and 2016. The complaint was filed in the wake of the explosive report released by Hindenburg Research in late January.
The NGO’s allegations of irregularities are borne out by a 2017 report by the Indian government’s Comptroller and Auditor General (CAG). (See https://cag.gov.in/ag2/tamil-nadu/en/audit-report/details/46107).
In its audit of TANGEDCO’s functioning, the CAG found that the state-owned electricity utility had amended tender notification criteria in a manner favouring large players, including Adani, awarded coal import contracts to tenders quoting inflated coal prices, and failed to recover penalty for substandard coal. Out of 7 global tenders floated by TANGEDCO for import of 24.4 million MT of coal between July 2012 and February 2016, CAG analysed 5 tenders for import of 21.6 million MT.
According to Arappor, 49% of the orders totalling 11.9 million MT were awarded to Adani Global with irregularities in the process enriching the company by at least US $363 million.
CAG’s findings allege that TANGEDCO was complicit in rigging the bids to favour a few companies.
Finding 1: Fixing Bid Criteria
In a move that excluded small bidders, TANGEDCO arbitrarily amended its own Bid Qualification Requirements restricting bids only to companies with annual average turnover above (approximately) US $120 million. CAG observed that ‘the turnover criterion was more than the Purchase Order value’ of the tender and at variance with ‘the criteria fixed (July 2010) by TANGEDCO for all tenders [at] 25 percent of the estimated value of the tender.’
According to CAG, ‘due to fixation of higher turnover criteria, only three/four bidders repeatedly participated and three of them shared 96% of the total import value of over US $1 billion in all the five tenders covered by the audit.’
The three companies are Singapore-based Adani Global, New Delhi-based Knowledge Infrastructure Systems Pvt Ltd and its Singapore-based subsidiary, and Kolkata-based MSTC Ltd.
Finding 2: Failure to obtain lower coal prices
Coal procurers are expected to finalise the competitive prices for coal based on one of three methods – e-submission of tender, reverse auction and variable price method. The government of Tamil Nadu, too, requires major infrastructure agencies such as TANGEDCO to follow online submission of tenders for procurements exceeding Rs. 1 million. Even as other state and central Public Sector Units (PSUs) adopted the reverse auction method to obtain lower quotes for imported coal, TANGEDCO entertained offline bids and lost an opportunity to reduce payments by US $85 million, the audit body concluded.
Arappor additionally compared Adani’s quotes for supply of imported coal to TANGEDCO with quotations made by other suppliers to other public sector undertakings (PSUs). It found that Adani had secured purchase orders for coal costing up to US $20 per tonne more than coal of comparable quality supplied around the same time to another PSU in Tamil Nadu.
Finding 3: Sub-standard coal
The Gross Calorific Value (GCV) – or the heat energy contained in coal – is an important measure of quality and is expressed as kilocalories contained per kilogram (Kcal/kg) of coal. TANGEDCO had contracted for purchasing and suppliers had offered to provide coal containing 6000 Kcal/Kg.
CAG verified the analyses of coal quality by Indian customs and compared it with the analytical results furnished by Adani and other coal suppliers. The study revealed that the suppliers had sold substandard coal at inflated rates. Normally, a penalty would be levied for supply of substandard coal based on the deviation of supplied coal from the contract specifications. But TANGEDCO failed to levy a penalty on the suppliers.
‘TANGEDCO had accepted lower grade of coal as revealed in the customs test reports but it made payment for coal having GCV as per the test results submitted by the suppliers’ testing laboratory and made excess payment of Rs. 813.68 crore (approximately US $98 million),’ CAG reported.
In early February 2023, the Directorate of Revenue Intelligence (DRI) of the Ministry of Finance moved the Supreme Court against an Appellate Tribunal’s order quashing DRI’s case alleging over-invoicing of coal supplies procured by three Adani Group companies. The DRI’s case, reported in September 2021 by AdaniWatch, alleged that the companies concerned used foreign intermediaries to artificially inflate the prices of imported coal and power plant machinery. Such over-invoicing ‘enables companies to enrich a related third party and even to launder money, while passing on costs to consumers’.
Even as accusations mount against the Narendra Modi administration for allegedly shielding Gautam Adani in the wake of the Hindenburg report, Arappor’s letter to the Tamil Nadu government alleging regulatory feet-dragging suggests that the reluctance to investigate scams relating to Adani extends beyond the Union government to state-level watchdogs.
Scam-ridden TANGEDCO is an ailing entity with accumulated losses in excess of US $12 billion. On 6 August 2018, Arappor Iyakkam complained to the state’s Directorate of Vigilance and Anti-Corruption (DVAC) and sent additional evidence on 15 April 2019.
That complaint, made during the term of the earlier government, was closed without a proper investigation, Arappor claims.
In May 2021, rival party Dravida Munnetra Kazhagam formed the government. As part of his electoral promise, the current Chief Minister had assured voters that his government would investigate the previous regime’s financial scams.
However, Arappor says repeated attempts to motivate the DVAC under the present government have also failed to evoke a response.