Adani Group faces fresh allegations, now on over-invoicing of coal imports

The data that has been unearthed supports allegations that have been made for several years against the Adani Group, which is India’s largest private importer of coal.

Adani used intermediary companies based in Taiwan, Dubai, and Singapore to import coal worth $5 billion over the past two years at inflated prices, sometimes even more than double the market price.

The three “middlemen” companies that supplied coal to the Adani group are Hi Lingos in Taipei (Taiwan), Taurus Commodities General Trading in Dubai, and Pan Asia Tradelink in Singapore.

The FT examined 2,000 shipments amounting to 73 mn tonnes of coal primarily imported by Adani Enterprises between September 2021 and July 2023 in the Export Genius database.

In total, 42 million tonnes were supplied by Adani’s own operations at an average price of $130 per tonne.

For the remaining 31 million tonnes supplied by its three middlemen, however, Adani’s declared price per tonne was $155. The company paid 20 per cent more to the intermediary companies, totalling almost $800 million.

The three intermediary companies

Hi Lingos is owned by Chang Chung-Ling, a Taiwanese businessman, and operates from a residential address in Taipei. He has earlier been identified by the FT as a potentially-controversial owner of Adani shares. He seems to have been one of the largest shareholders in the three Adani companies that were listed from 2013 to 2017, according to documents obtained by the Organised Crime and Corruption Project, a journalist network. Chang and an associate of his called Nasser Ali Shaban Ahli secretly controlled as much as 13.5 per cent of the free float of Adani Enterprises shares at the time, according to the investigation.

The second company is Taurus in Dubai, owned by Mohamed Ali Shaban Ahli. Its website has no information about the company personnel, and its corporate office address given on the website is a post office box. It does have an office in Dubai’s free trade zone with two receptionists.

The third company is the Singapore-based Pan Asia Tradelink, earlier called Pan Asia Coal Trading. It’s owned by a former Adani employee. The average price that Adani paid Pan Asia for the coal it supplied was $169 per tonne, 30 per cent more than the price at which Adani sourced itself. Pan Asia operates from a small office it shares with two other companies in an unpretentious building that houses several small businesses.

Coal traders who have been in the business for many years questioned the use of little-known trading houses by the Adani group, because companies that buy large amounts of coal typically prefer to buy from big trading houses with strong credit ratings and a dependable track record of commodity deals involving hundreds of millions of dollars.

It is true that the three intermediary companies supplied high-quality coal with higher calorific value that is usually priced higher than lower quality coal. However, it was priced much higher than the benchmark prices for coal of that quality.

Argus, a data provider, maintains a database of benchmark prices for Indonesian coal between 3,400 and 6,500 gross calorific value per kg.

The Indian import records that FT reviewed showed that these companies charged Adani 14 per cent premium or more than the closest Argus benchmark price.

Investigation by DRI in 2016

The Directorate of Revenue Intelligence, the investigative unit of India’s Finance Ministry, probed the Adani group in 2016 on allegations of inflating fuel costs. Five Adani companies were among 40 importers named by the DRI in a notice of an investigation that they were “artificially inflating” the value of Indonesian coal to siphon off money abroad and overcharge Indian power companies. The notice said comparisons of export and import records “suggest huge overvaluation to the extent of 50 per cent to 100 per cent”.

The notice also said that while coal travelled straight from Indonesia to India, “supplier’s invoices are routed through one or more intermediary invoicing agents based in a third country, for the sole purpose of creating layers (typical of Trade based Money Laundering) and artificially inflating its landed value”.

Opposition parties in Gujarat have accused the Adani group of overcharging for electricity since 2018, citing a letter from the state utility which said that Adani procured coal at prices “not reflecting the actual market value of Indonesian coal”.

The Adani group, however, points out that the DRI withdrew its appeal this year in the Supreme Court against one of the 40 importers named in its notice in 2016.

“Clearly, the issue of overvaluation in the import of coal was conclusively settled by India’s highest court of law,” it said.

In that case, the authenticity of some documents relied on by the DRI to make its case were found by a customs tribunal to be unproven, and the DRI was found to lack jurisdiction to enforce customs law.

In 2016, the DRI investigation suspected that the value obtained from illicit over-invoicing of coal was Rs 300 billion, then worth about $5 billion.

In August 2023, the opposition 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. They claimed a letter from the state 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,” said an opposition leader.

The government responded 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 group said 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.”

She said tariffs were set by the central regulator “after carefully evaluating all variables and in consultations with the power generator, distributor and retail consumers. So, clearly, the multiple stakeholders have multiple opportunities to look at all aspects determining the tariffs, including the import value of coal. Hence the question of either over invoicing or price manipulation does not arise.”

The DRI investigation into coal over-invoicing seems to have come to a halt.

The DRI did not respond to FT’s requests for comment.

Adani imports between 2019 and 2021

The FT also examined 30 shipments of coal from Indonesia to India by an Adani company between 2019 and 2021. In all the cases, prices in import records in India were substantially higher than those in corresponding export declarations in Indonesia.

The paper gives the example of the DL Acacia, a ship that departed the Indonesian port of Kaliorang in East Kalimantan in January 2019 carrying 74,820 tonnes of thermal coal with Mundra port in Gujarat as its destination. Something mysterious happened as it moved from Indonesia to India. The value of its cargo doubled. In export records in Indonesia, the price was $1.9 million, plus $42,000 for local costs. On arrival at Mundra, the declared import value was $4.3 million.

This was one of 30 shipments imported into India by Adani Enterprises. In each case, the vessel’s customs records in India were matched as closely as possible with those filed in Indonesia. According to the Indonesian declarations, these 30 cargoes, totalling 3.1 mn tonnes, cost $139 million, plus $3.1 million in shipping and insurance costs. The values declared to customs officers in India came to $215 million, suggesting the voyages made up to $73 million in profits.

According to analysts in the industry, coal trading is typically a high-volume competitive business with profit margins in the low single digits. One of the experts said that “anything more than a couple of dollars above the market rate raises an eyebrow”.

The FT discussed its findings with three experts in coal trading, who said both the disparity in prices between the loaded and unloaded prices and also their divergence from coal benchmarks seemed highly questionable.

Henning Gloystein, an analyst at the Eurasia Group, says that while he had no direct knowledge of Adani’s dealings, “if there is a series of cargoes exchanged between counterparties priced over global or regional benchmarks, that looks odd”.

The Adani Group denies any wrongdoing. It said the FT story is based on an “old, baseless allegation”, and is “a clever recycling and selective misrepresentation of publicly available facts and information”.

Similarity with 2014

In 2014, the BJP and Narendra Modi came to power on the back of an anti-corruption movement that was based on CAG findings alleging corruption in the award of telecommunication contracts and coal mining licences by the UPA government.

Addressing a crowd in Gujarat in 2012, Modi said, “The coal scam has darkened the face of the entire nation.”

The question is whether the chickens have come home to roost.