Modi executive allowed Adani coal offers it knew have been ‘Irrelevant’ | Trade and Economic system


New Delhi, India – The Indian government granted an extraordinary favour to controversial tycoon Gautam Adani, boosting his coal business, documents reveal.

After Prime Minister Narendra Modi’s office had ascertained that a particular regulation handing over coal blocks to the private sector was ‘inappropriate’ and lacked transparency, his government made an exception. It allowed Adani Enterprises Limited to mine from a block holding more than 450 million tonnes of coal in one of India’s densest forest patches.

The government did not explain why the Adani Group, owned by billionaire Gautam Adani, was given an exception, documents accessed by The Reporters’ Collective (TRC), a non-profit media organisation based in India, and Al Jazeera show.

Until a recent stock market rout on allegations of accounting fraud by a US-based short seller, Adani was the third-richest person in the world.

His group was given the exception under a regulation introduced by the Modi government following a 2014 Supreme Court ruling that cancelled the allocations of 204 coal blocks. Many of the blocks had been illegally allocated to companies owned by state governments, the court found. These companies, in turn, had been handing over the lucrative business of mining to private companies at prices that were kept under wraps in secret contracts. The Adani Group got one such contract in July 2008.

The court had found all this had gone on without legislative sanction and, in its ruling, cancelled all the coal blocks and the mining contracts that had been handed out, forcing the companies to forfeit them.

But the Modi government’s decisions enabled the Adani Group, whose business fortune has risen in parallel with Modi’s political heft, to continue to mine coal, unfettered by the court ruling as well as the government’s own policy decisions that put many other private players at a disadvantage. To date, the company has mined more than 80 million tonnes of coal from the block.

Coal scam

In 2014, a new government led by Modi’s Bharatiya Janata Party (BJP) rode to power on an anticorruption wave. The previous Congress-led United Progressive Alliance (UPA) government had been caught in a swirl of news reports, auditor findings and litigation pointing to large-scale corruption and crony capitalism in two particular sectors — the allocation of airwave spectrum to telecom companies and distribution of coal blocks to private miners. The latter was dubbed “Coalgate”.

Instead of auctioning them to earn the highest possible revenue, the UPA government allocated coal mines to industries through an opaque and discretionary method, charging a minimal royalty. The Comptroller and Auditor General of India (CAG), the government account’s auditor, concluded that this modus operandi had caused a nominal loss of $22bn to the exchequer.

In his political campaigns in the lead-up to the 2014 national elections, Modi berated the UPA government, “Coal scam has darkened the face of entire nation,” he tweeted on September 13, 2012. “AICC is now an abbreviation for All India Coal Congress,” he added, twisting the abbreviation for All India Congress Committee, the formal name of the incumbent Congress party’s central decision-making body. After winning the elections, his government set out to “transparently” re-auction the coal mines.

 

Our investigation, however, reveals that even the new administration allowed private corporations to continue to bypass the competitive process to corner large coal reserves. Part one of this series showed how the government allowed business conglomerate RP-Sanjiv Goenka (RPSG) group to use shell companies to undercut competition in coal auctions and regain access to a coal mine. Part two reveals how the government helped the Gautam Adani-owned group to continue its coal-scam-era deals through another route.

Bypass route

During the UPA administration, coal blocks were allocated not just to private sector firms but also to central and state government-owned companies. They in turn gave the mining rights to private companies under secret contracts at undisclosed rates. In the mining industry jargon, these contracts are called Mine Developer and Operator (MDO) contracts.

For the Adani Group, the MDO route, with its higher profit margins compared with the investment and operating cost of running the business, was a lucrative entry point into the coal business even though, technically, commercial coal mining was still prohibited at the time. Over time, the group has emerged as India’s biggest coal MDO — currently, it has nine MDO contracts for blocks holding more than 2,800 million tonnes of coal.

By 2014, the Adani Group had cornered five such contracts.

Two contracts were signed directly by BJP-ruled state-owned firms. One was signed by a Congress-ruled state government. Two others were joint ventures between different state-owned companies. In both these latter cases, one of the joint-venture partners was a firm owned by a BJP-ruled state government.

Enter the Supreme Court

Then the Supreme Court stepped in to ruin the party.

In response to a public interest litigation, India’s highest court held that most coal block allocations had been arbitrary and illegal.

It concluded that the allocation method had set up an illegal backdoor route for the mines to go into “the hands of private companies for commercial use”. It struck down 204 coal-mine leases that were at the centre of the scandal.

It concluded that the extant law permitted allocating coal blocks to central government companies but not to state government-owned companies. The 204 cancelled coal-block leases included 101 leases made to state government-owned companies. Many of them had already outsourced the mining to private companies through MDO contracts.

With the original allocations to the state governments’ companies cancelled by the court, the subsequent MDO contracts by these companies with private players were automatically annulled.

Loopholes in the fine print

Indian Prime Minister Narendra Modi.
Indian Prime Minister Narendra Modi swooped into power in 2014 on an anti-corruption wave and promised to bring in a clean and transparent system to allocate natural resources [File: Adnan Abidi/Reuters]

The Modi government now had a clean slate to work with. The court’s order meant the government could now auction all 204 coal blocks without worrying about previous beneficiaries who had got the blocks for a song. The government promised to usher in a clean, transparent regime to exploit coal mines. “We are focusing on bringing transparency in allocation of natural resources including coal blocks,” then Home Minister Rajnath Singh said at a public event in January 2015. “We have been able to rebuild confidence and trust that is extremely important to revive investments and drive higher growth,” he said.

The federal government brought in a new law and amended existing mining laws, claiming they would ensure coal blocks are auctioned to the highest bidder and not allocated for free.

This was only half the truth. The government had left open a window of discretion in the regulations. It could choose which ones to auction and which ones to allocate to states. What the Supreme Court had termed illegal, Modi’s government gave legislative backing and empowered itself to make discretionary allocations yet again to state government-owned companies.

This was not all. For the first time, it gave explicit legislative backing to the controversial MDO contracts as well. A model contract was also prepared which bared the government’s intentions: Parts of or the entire contract could be kept away from citizens’ scrutiny, the model contract recommended. Yet again, no one would come to know the price at which the state government gave a mine to a private company.

The government’s next step was even more remarkable. And it came to help the Adani Group.

The government inserted a provision in the law allowing state governments, which were freshly allotted mines, to continue the MDO contracts that the previous owner of their mines had before the court cancelled them. The states would not have to conduct a new round of auctions to find which private player is willing to charge the least to mine the coal. The MDO contracts that had been annulled due to the Supreme Court orders could now be reinstated with the same company even if the coal blocks changed hands between state government-owned firms.

Reinstating Adani Group

This exceptional provision came in handy for a BJP-ruled state government to reinstate Adani Group companies as MDOs for two mines. In fact, one of them was the first-ever coal MDO contract signed in the country.

 

INTERACTIVE_ADANI_TIMELINE_FEB28_2023

In 2007, Parsa East & Kente Basan, a coal mine with more than 450 million tonnes of coal, was allocated to Rajasthan Rajya Vidyut Utpadan Nigam Limited (RRVUNL), a Rajasthan state-owned power company.

More than a year before it was allocated the block, the Rajasthan public sector company picked Adani Group as the partner for its joint venture — Parsa Kente Collieries Limited. Adani Group owned 74 percent of the shares of the joint venture while the state-owned firm held 26 percent.

In July 2008, this joint venture signed an MDO contract for the Parsa East & Kente Basan coal mine in Chhattisgarh’s Hasdeo Arand forests. When the MDO deal was signed, the BJP was in power in both Rajasthan, with Vasundhara Raje as Chief Minister, and in Chhattisgarh, with a Raman Singh-led government. By 2013, coal production had begun at the mine. A year later, in 2014, the Supreme Court quashed the Rajasthan state-owned firm’s mining rights for the block along with 203 other blocks nationwide.

On March 26, 2015, the block was reallocated to RRVUNL to fuel two of its thermal power stations. Under the clause in the new coal law that allowed old MDO contracts to be reinstated, the Rajasthan state-owned firm continued its coal-scam-era agreement with its Adani Group-led joint venture. Adani Enterprises, in its annual report for the financial year 2015, noted, “Pursuant to re-allotment, RRVUNL has decided to continue existing contract with PKCL [the joint venture] for development and operation of the coal block.”

The 2020 scrutiny

Government think tank NITI Aayog, on an undisclosed date, shared a secret report on mines, minerals and the coal sector with the cabinet secretary — the country’s senior-most bureaucrat who reports to the prime minister directly.

The contents of the report have never been made public, and the government has blocked access to it even under the Right to Information Act. But TRC got access to other correspondence around this report made by different arms of the government.

The report triggered an intense review of the entire MDO contracting business by the cabinet secretary and the Prime Minister’s Office (PMO).

Documents accessed by TRC for Al Jazeera using the Right To Information applications show that in March 2020, the PMO and other government departments were discussing how flawed the MDO model is.

“The practice of MDO appointment” lacks “consistency and transparency” for which it will “continue to be questioned in public domain,” then deputy secretary and current private secretary at the PMO Hardik Shah wrote to the CEO of NITI Aayog on March 4, 2020.

As private secretary, Shah, a Gujarat cadre bureaucrat, is among the five highest-ranking bureaucrats in the prime minister’s coterie of officials.

Shah quoted the cabinet secretary in the letter that “appointment of MDOs before the allotment of mineral blocks appears inappropriate and this may not be allowed in future.”

Simply put, the PMO was referring to the practice of continuing deals the Supreme Court had found illegal. It wanted the practice discontinued.

Adani PMO letter
In its March 2020 letter, the Prime Minister’s Office flagged issues in appointments of MDOs and asked NITI Aayog to frame guidelines [Courtesy: The Reporters’ Collective]

The NITI Aayog and the ministries of coal, finance, mines and steel agreed with the PMO and decided that no such contracts would be allowed in the future.

Officials from these ministries met twice in 2020 — on August 25 and October 7 — to come up with recommendations the PMO had asked for.

On “appointments of MDO before allotment of block”, the mandarins said the practice “takes cue” from the provision of the new coal law which allowed reinstating old MDO contracts. The officials pointed out that at the time there was just one such case in which the coal-scam-era MDO contract had continued — the Adani Group agreement with Rajasthan’s power generation company to mine the Parsa East & Kente Basan coal block.

 

A government document shows that it allowed a mine that was allotted to the Adani Group to continue with it.
Excerpts from the minutes of the inter-ministerial meetings held in August and October 2020 [Courtesy: The Reporters’ Collective]

 

Adani image 4: Excerpts from the minutes of the inter-ministerial meetings held in August and October 2020
Excerpts from the minutes of the inter-ministerial meetings held in August and October 2020 [Courtesy: The Reporters’ Collective]

They, however, recommended that the clause in the Modi government’s 2015 coal law, which helped the Adani Group, should not be changed. Instead, they decided that a clause to bar the revival of old MDO contracts should be added in future agreements that state government-owned firms would sign when they are reallotted the mines. This would ensure that the Adani Group’s coal-scam-era MDO deals remained untouched.

They gave no reason for not recommending an amendment to the clause that allowed reinstating old MDO contracts.

Meanwhile, to address the PMO’s concern over a ‘lack of transparency’, the officials came up with a rather cosmetic solution. The officials recommended that the word “transparent” should be inserted before the sentence “competitive bidding process” in the Coal Block Allocation Rules of 2017, which state that “selection of new MDOs will be through competitive bidding process”.

The Adani Group was given exceptional leeway.

In response to a detailed questionnaire sent by TRC and Al Jazeera, an Adani Group spokesperson said that all contracts were awarded through a transparent and competitive bidding process in accordance with all applicable laws and that any concerns about the process should be directed to the relevant authorities. The full response of the Adani Group can be accessed here. The coal ministry, the PMO and NITI Aayog did not respond to our queries.

Another exception

TRC filed a Right to Information request with the Ministry of Coal asking which companies had got the blocks under this special provision. The ministry did not list another block the Rajasthan state government had handed over to the Adani Group — Parsa. It did not need to because the Vasundhara Raje-led BJP government in Rajasthan had used yet another technical excuse to give the block to the group.

The Parsa block, adjacent to Parsa East & Kente Basan — and with more than 200 million tonnes of mineable coal — was originally allotted on August 2, 2006, to Chhattisgarh State Power Generation Company Limited. This firm is owned by the government of Chhattisgarh, which at the time was governed by the BJP. In 2010, this state-owned firm formed a joint venture with the Adani Group. The joint venture would serve as an MDO for the block.

In 2014, the Supreme Court quashed this allocation of the Parsa block along with the 203 other mines and a year later, the Parsa block was up for grabs. Adani Enterprises recommended to the Rajasthan power supply firm that it apply for the allocation of the block.

It was “on the basis of this recommendation” and Rajasthan’s “coal requirement” for its “various thermal power plants” that the state government-owned company applied for allocation of the Parsa block, according to details in the MDO contract.

A government document shows the allocation of the Parsa coal mine.
Adani Enterprises recommended to the Rajasthan power supply firm that it apply for the allocation of the coal block as per the MDO contract [Courtesy: The Reporters’ Collective]

By March 2015, the Rajasthan government-owned firm had bagged the block. This time around too, the BJP was in power in both Rajasthan and Chhattisgarh.

Without a new auction — contrary to what the PMO itself had said — it appointed its Adani Group-led joint venture as the MDO for the block. With this, the group continued as MDO for the coal block even as the block itself changed hands from one state-run firm to another.

Aftermath

Until March 2021, the Adani Group remained the sole beneficiary of the exceptional clause. The top bureaucrats in the Modi government allowed it despite admitting it was “inappropriate”.

Though the bureaucrats had decided in October 2020 that no other old MDO contracts would be revived, except for the one already allowed for the Adani Group, the decision was undone five months later by another BJP-ruled state. In March 2021, the Karnataka government revived another coal-scam-period MDO contract for a mine reallocated to its power generation company Karnataka Power Corporation in favour of the Kolkata-based private firm EMTA.

In this case though, the federal government had washed its hands of any responsibility and allowed the state to take the call. This was despite the ongoing internal review of MDO deals in the country. “Ministry of Coal has no role to play in the novation of prior contracts … It’s the sole decision to be taken by the state government/KPCL,” the ministry had written to the Karnataka government in June 2020, eight months before the decision to revive the EMTA MDO. EMTA did not respond to a detailed questionnaire sent by TRC and Al Jazeera.

Shreegireesh Jalihal and Kumar Sambhav are members of The Reporters’ Collective.





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