Chennai: A bulk carrier’s two-week voyage in 2014 from Indonesia to Ennore Port is what it allegedly took for the price and quality of its haul — coal — to appreciate substantially, claimed an investigation by The Organized Crime and Corruption Reporting Project (OCCRP) published Wednesday.
It alleged the Adani Global Pte Ltd, India’s largest importer and private producer of coal, overcharged TANGEDCO, the Tamil Nadu government-owned power generation and distribution corporation, for 25 consignments of coal between January and October 2014.
Asked to comment on the OCCRP report, a spokesperson for Adani Global Pte. Ltd. told ThePrint: “Adani operates a robust corporate governance framework and is strongly committed to following all laws and regulations in all jurisdictions.”
On alleged discrepancies in the procurement of coal, a spokesperson for TANGEDCO dismissed the charges made in the OCCRP report and said the process has since changed, but refused to comment on the procurement process followed between 2012 and 2016.
According to OCCRP, TANGEDCO bought this coal at $91.91 per MT, as against its invoice value of $28 per MT at the time of shipping from its primary source, Indonesia. The investigation also alleged that coal supplied to TANGEDCO was of ‘lower’ quality.
Both of these issues were flagged by the Comptroller and Auditor General (CAG) in its report on PSUs for the year ended 31 March 2017. In its report, the CAG had flagged that, between October 2013 and February 2016, TANGEDCO accepted ‘lower grade coal’, failed to formulate an import policy, and opted for an ‘inappropriate’ price discovery mechanism. It also found that bidders (coal suppliers) were “forced to quote higher prices for TANGEDCO by loading additional cost”.
For this assessment, the CAG analysed 131 of 297 consignments of imported coal received by TANGEDCO under five tenders floated between October 2013 and February 2016 for a total of 21.6 million metric tonnes (MMT) valued at Rs 11,233 crore. The CAG report had identified Adani Global Pte Ltd as one of the three bidders (suppliers) of coal who shared “96 per cent of the total import value of Rs 8,884.44 crore in all the five tenders covered by the audit”.
A former TANGEDCO official told ThePrint that this procurement process had been the norm since 2012, when the PSU switched over to a global tender system to obtain competitive prices. “The whole process of tender and procurement of coal was in violation of existing procedures laid down by Tamil Nadu government, which nobody wanted to acknowledge in the department, despite flagging it multiple times,” said the former official.
Though a senior IAS officer from the state argued that TANGEDCO paid a higher price for imported coal on account of delay in payments to suppliers, Jayaraman, convenor of Arappor Iyakkam (non-violent war movement), questioned the logic behind quoting high prices at the time of issue of tender.
Tamil Nadu-based NGO Arappor Iyakkam has been relentlessly calling for accountability in the process for procurement of coal by public sector companies in the state.
In 2018, Jayaraman had filed a complaint with the state Directorate of Vigilance and Anti-Corruption seeking a probe into the alleged irregularities in procurement of coal under provisions of the Prevention of Corruption Act, 1988 and other relevant laws.
He claimed that the alleged irregularities resulted in the loss of an estimated Rs 6,066 crore to the exchequer between 2012 and 2016.
While no case has been filed as of yet, sources in the Directorate of Vigilance and Anti-Corruption confirmed to ThePrint that they forwarded Jayaraman’s complaint to the state public department in February 2023 to seek formal approval to probe the allegations.
Responding to claims that it supplied ‘lower’ grade coal to TANGEDCO as suggested by the CAG and OCCRP, the spokesperson for the Adani Global Pte Ltd told ThePrint in an email that it would be “incorrect” to say that the quality of coal supplied to TANGEDCO was inferior, compared to standards laid down in the tender and purchase order. The coal supplied was tested for the quality at the receiving plant, the spokesperson said.
The spokesperson added, “The allegations are based only on the difference in the FOB and CIF price of coal, extrapolating it to the supply of low GCV coal, and are baseless conjectures and surmises. Not only are the two prices not comparable, but the procurement price itself is not relevant because the order of supply was a fixed price contract, with both the upside and downside to be borne by the supplier.”
The testing, according to the CAG report, was carried out by a third party other than TANGEDCO and the supplier. The third party, said the auditor, was fixed by TANGEDCO.
On Arappor Iyakkam’s allegations, the Adani Global Pte Ltd spokesperson said TANGEDCO had responded to each allegation made by the NGO and the matter stands closed.
ThePrint also reached AIADMK MLA Natham R. Viswanathan, who was minister for power in the state from 2011 till 2016, but he was unavailable for comment. This report will be updated if and when a response is received.
TANGEDCO, as on 31 March 2017, had a total installed capacity of 7,144 MW of which 4,320 MW was coal-based, putting its annual requirement of coal at 21.5 MMT. Owing to shortage of coal, TANGEDCO started to procure imported coal in 2005.
But it was only in 2012 under the J. Jayalalithaa-led AIADMK government that it switched to the global tender system. Accordingly, it floated seven tenders between July 2012 and February 2016, procuring 24.4 MMT of coal valued at Rs 12,247 crore.
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Quality of imported coal procured by TANGEDCO
According to the CAG, TANGEDCO had in the period analysed by the auditor called for supply of coal with a Gross Calorific Value (GCV) of 6,000 Kcal/Kg, with an acceptable range of 5,800 Kcal/Kg and 6,700 Kcal/Kg. But it found that quality of 121 consignments of coal (8.29 MMT), of the 131 analysed by it, was below 4,000 Kcal/kg GCV.
Gross Calorific Value is a measure of quality of coking coal based on ash and moisture content, as also a measure of how much energy is produced when it is burned. Coal with a high GCV value will have less ash content.
The CAG concluded that TANGEDCO “accepted lower grade of coal which was revealed in customs test reports, but it made payment for coal having GCV as per the test results submitted by the supplier and made excess payment of Rs 813.68 crore” between October 2013 and February 2016. It underlined that to ensure quality of coal supplied, the supplier was required to engage an independent testing agency with the approval of TANGEDCO.
However, TANGEDCO “did not collect coal samples on its own but was solely dependent on third party testing”.
On this issue, the spokesperson for Adani Global Pte Ltd said, “The supplier under this tender (including PO 89) could supply coal having a gross calorific value (GCV) of 5,800 to 6,700 kcal/kg on air dried basis (ADB). A supplier could even supply coal having GCV lower than 5,800 kcal/kg (ADB), albeit with higher penalty to be adjusted from the payable amount. Thus, the payment to the supplier would vary from shipment-to-shipment basis the quality as determined by TANGEDCO at its plant location through an independent, transparent and stringent process.”
“As per TANGEDCO’s contract, samples of the consignment were tested by reputed independent inspection agencies at their plant location – one sample tested by the agency, one by the TANGEDCO laboratory and the third retained as a referee sample. If the results of the tests by the agency and the TANGEDCO lab were to differ by more than 100 points of GCV, the referee sample would be tested. In the case of PO 89, the difference in test results were within 100 GCV points and, therefore, considered admissible for payment. It is also important to understand that apart from the above test at the receiving plant location, quality of the coal is also tested at loading port, discharge port as well as by custom authorities,” the spokesperson said.
Adding, “The tests include Gross Calorific Value, moisture content, ash content. In fact, the tender document and purchase order very elaborately define the testing procedures and parameters, which are transparent and independent, to avoid the very discrepancies as alleged by you. Moreover, the payment is dependent on the quality of the coal supplied, which is determined through the testing process.”
Pricing method adopted by TANGEDCO
Further, the auditor found that contrary to a 2005 recommendation of the Central Electricity Regulatory Commission, TANGEDCO never switched to the variable price method, when the price of imported coal continuously declined from $92.06 per MT in October 2012 to $61.00 per MT in February 2016. Pricing under the variable price method, the CAG concluded, “would have resulted in overall reduction in payments to the extent of Rs 746.13 crore”.
Put simply, under the fixed pricing method, the supplier of coal determines a fixed price which would remain unchanged irrespective of the fluctuation in market prices, while under the variable pricing method, the supplier and buyer can negotiate and determine the price based on fluctuating market prices.
The auditor found that TANGEDCO also did not opt for the two other generally adopted methods of calling a tender, reverse auction and e-submission method. At the same time, it said that TANGEDCO deviated from a May 2007 order of the Tamil Nadu government directing all major state-owned infrastructure agencies to follow e-submission process for tenders for procurement exceeding Rs 10 lakh.
“We further noticed that sister PSUs viz., TNPL, NTECL and NTPL had adopted online reverse auction method and obtained lower quote compared to the initial quotations received by them through off-line. But, TANGEDCO did not practice the reverse auction method thereby lost an opportunity of getting lower price for their imported coal,” it said.
The CAG had also rejected TANGEDCO’s October 2017 submission that the FIRM (fixed) price method was found to be beneficial to it based on a long term analysis, saying that it found that the PSU “did not carry out any long term analysis of the benefits under FIRM pricing vis-à-vis variable pricing method in the preceding five years”.
However, the TANGEDCO spokesperson quoted earlier told ThePrint: “Now we don’t follow the fixed pricing norms. After the issue was flagged in 2018, the procurement policy was changed.”
The spokesperson for Adani Global Pte Ltd, meanwhile, said, “The PO 89 of TANGEDCO was a fixed price contract, won through an open, competitive, global bidding process, wherein Adani Global Pte Ltd was contractually obliged to supply coal to TANGEDCO at a pre-determined price. So, the supply price was market-determined and TANGEDCO had contractually insulated itself from any kind of supply risk, including on price. Any upside or downside due to price fluctuations was to be completely borne by the supplier, needless to say the risk of which was very high due to the volatility in coal prices.”
‘Country of Origin’: Indonesia
The CAG also found that 176 of the 297 consignments audited by it had originated from Indonesia, but the suppliers did not produce the Certificate of Country of Origin (COO) of all 176 consignments, calling into question the “genuineness of the source of import”.
In its report, the auditor said a COO was “mandatory” for securing concessional customs duty and ensuring the genuineness of the import, and that the tender condition stipulated that payments shall be made by TANGEDCO only upon furnishing of COO by the suppliers.
“Therefore, the genuineness of the source of import was not established in respect of 176 consignments. However, the payment of Rs 5767.31 crore was made to the supplier without obtaining the COO,” the CAG said.
This string was picked up by the OCCRP which alleged that the price and quality of coal imported by Adani Global Pte Ltd increased substantially between the time it left Indonesia and reached the Indian coast.
For its investigation, OCCRP said it relied on “multiple sources, including invoices and banking documents from several jurisdictions, details of investigations by India’s Directorate of Revenue Intelligence (DRI), leaked documents from a key Indonesian coal supplier for Adani, and a trove of documents obtained” from TANGEDCO.
In response to queries by ThePrint on the OCCRP investigation, the Adani Global Pte Ltd spokesperson said, “By no stretch of imagination can Adani Global Pte Ltd, with a total supply of less than 2 percent of the coal burnt by TANGEDCO in the relevant period, be held responsible for either air pollution or the losses of discoms.”
(Edited by Amrtansh Arora)
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