The FT report speaks of how Gautam Adani is described as ‘Modi’s Rockefeller’, referring to his sharply rising fortunes in the past ten years, when his 10 listed companies have “thrived” and he has emerged as “India’s biggest private thermal power company and biggest private port operator.”

Also read: Because of Repealed Provisions, SEBI Hit ‘Opaque Structure’ Wall While Investigating Adani: SC Panel

Adani has denied the charges, both those levelled by Hindenburg and then of coal import over-pricing by the Financial Times and said it has been vindicated by the Directorate of Revenue Intelligence (DRI’s) decision this year to withdraw an appeal to the Supreme Court in a case against one of the 40 importers named in 2016. It said, “the issue of overvaluation in the import of coal was conclusively settled by India’s highest court of law.”

FT cites the “unresolved nature of the DRI investigation and the apparent continuation of the alleged practices” raising “fresh questions about the relationship between Adani and the administration of Prime Minister Narendra Modi.”

The most recent scandal to hit Adani were allegations that the chairman of SEBI at that time was “now an independent director of Adani-owned NDTV.”

Financial Times has raised three key points in its investigation, after looking at 30 shipments of coal from Indonesia to India by an Adani company over 32 months between 2019 and 2021.

The Adani Group has rejected charges of wrongdoing. Adani has termed the investigation as being based on an “old, baseless allegation”, and is “a clever recycling and selective misrepresentation of publicly available facts and information.”

The inflation in imported coal that FT alleges Adani has been doing may have sometimes, per the report, allowed it to make 52% profit margins in an industry where profit margins are otherwise considered low.

In all cases that FT examined, it says “prices in import records were far higher than those in corresponding export declarations.”

During the journeys, from where they were imported back to a port in India, usually owned by Adani, “the value of the combined shipments unaccountably increased by over $70 million.”

Among the specific instances the London-based financial daily has found, it says that in January 2019, coal meant for Adani, departed “the Indonesian port of Kaliorang in East Kalimantan carrying 74,820 tonnes of thermal coal destined for the fires of an Indian power station. During the voyage, something extraordinary occurred: the value of its cargo doubled.”

While “in export records the price was $1.9mn, plus $42,000 for shipping and insurance. On arrival at India’s largest commercial port, Mundra in Gujarat run by Adani, the declared import value was $4.3mn.”

The inflation in imported coal that FT alleges Adani has been doing may have sometimes, per the report, allowed it to make 52% profit margins in an industry where profit margins are otherwise considered low. File image of the Adani Mundra port in Gujarat’s Kutch. Photo: Emperor Genius at English Wikipedia, CC BY-SA 3.0

This allowed for “52% profit margins” as a result of over-invoicing, and leading to unusual profits.

FT says “annual profits at Adani Enterprises quadrupled over the past five years, to earnings before interest, tax, depreciation and amortisation of $1.2bn in the most recent financial year.”

Little-known middlemen companies used to import paid higher

 FT says that Adani Enterprises, the group’s oldest and most valuable company, generates the lion’s share of its sales and profits from its coal trading division called Integrated Resources Management (IRM).

This division, “boasts of its expertise in logistics and commodity trading” based in four global offices and 19 Indian locations.

In its most recent financial year, which ended in March, IRM reported trading 88 million tonnes of coal, says the news report. Its results for the final quarter of that year, the first set of accounts published after Hindenburg’s report, covered a three-month period when the market price of coal had halved.”

Yet, notes FT, “IRM thrived, delivering a 24% rise in earnings before tax and interest to Rs 8.3 billion ($101 million), on a 6% rise in sales to Rs 186 billion ($2.3 billion)”

But IRM did not make extraordinary profits. Three “middlemen” companies it used to buy coal from, that supplied the Adani group with coal, appear to have made more substantial amounts”. FT identifies them as Hi Lingos in Taipei, Taurus Commodities General Trading in Dubai, and Pan Asia Tradelink in Singapore.

For 42 million tonnes of coal supplied by its own operations in that time, the Adani group declared an average price of $130 per tonne. But for the 31 million tonnes of coal supplied by its three middlemen, the average price declared per tonne was $155, per tonne. This was at a “20% premium worth almost $800 million.”

FT identifies Hi Lingos as being owned by Chang Chung-Ling, a Taiwanese businessman previously “identified by the FT as a potentially controversial owner of Adani stock.”

The second middleman company Taurus, it says, is run from Dubai and whose ownership it was unable to conclusively establish.

The third company, Pan Asia Coal Trading, which “primarily supplied Adani Power and did not have other Indian customers for coal in the records reviewed by the FT.”

Senior industry traders FT spoke to, “questioned the use of little-known trading houses, as large buyers of coal generally prefer to partner with big trading houses that have strong credit ratings and a reliable record for commodity deals involving the exchange of hundreds of millions of dollars.”

FT does not rule out the possibility of higher quality coal in some cases leading to a marginally higher price, yet, it notes that Adani also appears to have supplied itself with “unusually expensive coal. For the 508 shipments with a calorific value where Adani companies were listed as both supplier and importer, most — 87% — were priced higher than the closest Argus benchmark, at a median premium of 24%.”

Argus is an independent provider of market intelligence to the global energy and commodity markets, and is treated as a provider of price benchmarks globally.

For 42 million tonnes of coal supplied by its own operations in that time, the Adani group declared an average price of $130 per tonne. But for the 31 million tonnes of coal supplied by its three middlemen, the average price declared per tonne was $155, per tonne. This was at a “20% premium worth almost $800 million.” Credit: PTI

Also read: Adani’s Acquisitions: Why India Needs to Keep Track of the Costs

Public pays higher prices for power?

The other important implication of the allegedly overpriced coal, that the FT investigation draws attention to, is the charge that these high costs translated directly into higher prices paid by consumers, especially in Gujarat where the opposition Congress party has already flagged the issue.

In August this year, opposition politicians in Gujarat accused the state government of making almost $500 million in excess payments to Adani Power over five years under a power purchase agreement linked to the price of coal.

The opposition claimed a letter from the state power utility GUVNL showed it had paid the sums to Adani for coal procured at premium prices, and that “Adani had not provided paperwork.”

“GUVNL paid Rs 13,802 crore ($2 billion) as energy charges to the company. But if coal rates as per Argus index is taken into consideration, then only Rs 9,902 crore ($1.5 billion) should have been paid,” the opposition leader is quoted as saying.

The government then, notes FT, said that the payments were interim and “subject to adjustment,” while Adani called the allegations “baseless” and said the contract had been quoted out of context.

A spokesperson for the Adani group told FT that “coal procurement on long-term supply basis in India is done through an open, transparent, global bidding process thereby eliminating any possibility of price manipulation.”

Gautam Adani and business practices of his companies have been under scrutiny ever since Hindenburg’s report became public. You can read the Hindenburg report here and Adani’s response here.