The story so far: In a recent report, the Financial Times stated that the Adani Group appeared to have imported billions of dollars of coal at prices above their market value. The reportage was based on an examination of 30 shipments of the commodity from Indonesia to India, over 32 months between 2019 and 2021. It stated that the data affirmed long-standing allegations (against the company) of making consumers and businesses overpay for electricity. The Adani Group has denied the allegations.
What did the report say?
The allegations concern the group’s Integrated Resource Management (IRM) business. A credit report in March this year held it as the country’s largest importer of thermal coal catering to the requirements of its clients in both private and public sector undertakings (PSUs).
According to FT, the observed prices mentioned in the import records, of the examined shipments, were far higher than those in corresponding export declarations. For example, bulk carrier DL Acacia transported 74,820 tonnes of coal in January 2019. Export records mention the price of the commodity as $1.9 million plus $42,000 for shipping and insurance. However, upon arrival at India’s Mundra port in Gujarat (run by the conglomerate) the declared import value was escalated to $4.3 million. Separately, as per Indonesian declarations, the 30 sailings are said to have transported 3.1 million tonnes of coal during the mentioned period valued at $139 million, excluding another $3.1 million in shipping and insurance costs (thus, totalling about $142 million). However, the price declared to custom officers in India was $215 million. This amounted to a $73 million profit, which, as per FT, was “far in excess of plausible shipping costs”.
Coal trading largely follows a “high volume competitive business with profit margins in the low single digits” paradigm. Additionally, considering the essential nature of the commodity, stringent government regulations too become necessary. Hence, it becomes imperative that miners consider these factors when pricing their product to make it worthwhile for the traders to derive something. In a related context, an expert in Indonesian trade told the publication that anything more than a couple of dollars above the market price raises eyebrows.
How was this alleged process run?
The investigative trail centres around three “middlemen”, or offshore entities, that supplied the group with coal and are said to have made “more substantial amounts”. These include Hi Lingos in Taipei, Taurus Commodities General Trading in Dubai and Pan Asian Tradelink in Singapore. Import data since July 2021 indicated that the conglomerate paid a total of $4.8 billion to the entities for the coal sourced – a substantial premium to market prices. For further perspective, 73 million tonnes of coal were imported by Adani Enterprises (in 2,000 shipments) between September 2021 and July 2023. Of the 73 million imported, 42.2 million tonnes were supplied by its own operations at an average (declared) price of $130 per tonne, while the average price for the three middlemen stood at $155 per tonne. Separately, imports from Hi Lingos were declared at $149 per tonne, Taurus at $154.43 and Pan Asia at $168.58.
FT observed Hi Lingos was owned by Taiwanese businessman, Chang Chung-Ling. He is believed to have been secretly one of the largest shareholders in three-listed Adani companies between 2013 to at least early 2017. Pan Asia Tradelink, with the highest premium, was observed to not have any other Indian customer, except for Adani Power.
What have been the reactions?
The Adani group’s rebuttal focuses on two points. The first of it is about the publication basing its story on the Directorate of Revenue Intelligence’s March 2016 circular. For perspective, the notice spoke of “certain importers of Indonesian Coal were artificially inflating its import value as compared to the actual value”. While the circular also names 40 private power generators including Reliance Infra, JSW Steels and Essar among others, the Adani group has been singled out, it argues. The conglomerate argued that the show-cause notice to one of the 40 importers mentioned in the circular had been quashed by the Customs Excise and Service Tax Appellate Tribunal (CESTAT). “Further, the DRI’s appeal was dismissed as withdrawn by the Hon’ble Supreme Court of India on 24 January 2023 with the observation that ‘we appreciate the stand taken by the Government in not entering into futile litigation’,” it noted.
Secondly, the conglomerate alleged the reportage ignored that coal procurement in India was done on long-term supply basis through an “open, transparent, global bidding process thereby eliminating any possibility of price manipulation”. It explained that tariffs are fixed by the Central Electricity Regulatory Commission after “evaluating all variables and in consultations with power generator, distributor and retail consumers”. Thus, introducing multiple opportunities for determining aspects related to tariffs, such as the import value of coal. To this effect, the group contends, “the question of over invoicing or price manipulation does not arise.”
