Exclusive: How Gujarat government helped Adani’s port company

Paranjoy Guha Thakurta, Dilip Patel, News Click | 24 Feb 2020

An all-party committee of MLAs has strongly criticized the Gujarat government for unfairly favoring an Adani Group company that operates India’s largest private port at Mundra. The Public Accounts Committee of the Legislative Assembly has rapped the state government for not taking action on the reports submitted earlier by the Comptroller and Auditor General of India. That CAG report documents how the company has been benefited by the Gujarat government choosing not to recover its dues.

The Public Accounts Committee (PAC) of the Gujarat Assembly has recently prepared a report to examine the audit observations that were submitted to the Gujarat government by the Comptroller and Auditor General of India (CAG) in 2014. That report sharply criticized the Gujarat government for providing “undue” support to an Adani Group company that operates India’s largest private port.

Gautam Adani is the head of these Adani group companies. According to an estimate, he is the second richest man in the country. He is considered close to Prime Minister Narendra Modi.

The PAC has the power and responsibility to examine CAG reports and make recommendations to the state government. This committee of the Gujarat Assembly is traditionally chaired by an MLA belonging to the opposition and MLAs from the ruling party also participate in this committee.

The head of this PAC in the Gujarat Assembly in 2018-19 was Punjabhai Vansh, who is a Congress MLA from Una constituency. The committee had eight members from the ruling Bharatiya Janata Party (BJP) and seven from the Congress. However, Congress MLAs Alpesh Thakor and Kunwarji Bavaliya had resigned from the PAC, showing their loyalty to the BJP. This special report has been approved by all members of the PAC, as there are no dissenting voices.

In its report, the PAC has slammed the Gujarat government for giving “undue” favor to India’s largest private port operator – Gujarat Adani Port Limited, now known as Adani Ports and Special Economic Zone Limited. The company owns and manages the operations of several ports in states such as Gujarat, Kerala, Tamil Nadu and Odisha.

According to the Gujarat Assembly website, this PAC report was scheduled to be presented on December 9. However, this could not happen. A copy of this report in Gujarati language has been provided to the authors of this article.

Apart from an article in The Times of India written by Kapil Dave on 18 December, this PAC report has not been written about in the media. The last sentence of the article titled “Gujarat Maritime Board benefiting private ports at its own expense: PAC” mentions that the committee states that “Gujarat Adani Port Limited has been approved by GMB (Gujarat Maritime Board) “Irregularities have also been found on the part of GMB in providing undue favors to private companies as well as in not charging port and other fees from private companies”.

In this report of PAC, it has been said that this committee of MLAs had conducted a long exercise for almost four years. At least 159 meetings took place between PAC members between April 17, 2015, and March 6, 2018. During these meetings many documents were examined and statements of many government officials were recorded.

The PAC report said: “The government appears to be interested in developing only private ports and the capacity of government ports is very underutilized. Good infrastructure facilities like connectivity of government ports with railways and roads are not being implemented. “This committee recommends development of good infrastructure for government-run ports.”

The worst example of a government-run port is Veraval Port, which has been underutilized, with only 2.58% of its installed capacity. The capacity utilization level of other government ports was 27.32% at Bhavnagar, 30.28% at Porbandar, 36.97% at Okha and 40.63% at Mandvi.

Gujarat Maritime Board’s work helped Adani

The CAG’s 2012-13 report said Gujarat Adani Port Limited (GAPL) was given favors by state-run Gujarat Maritime Board (GMB) in building the country’s largest private port at Mundra in Gujarat. The CAG had found irregularities in the lease and occupation agreement (LPA) signed between GMB and GAPL.

2000, 4,518 acres of land was given to GMB at the prevailing market rate for allotment to GAPL on January 11, 2000. On March 23, 2000, the value of that land was estimated at Rs 5.66 crore by the District Land Valuation Committee. However, since the price of the land was more than Rs 50 lakh, the State Land Valuation Committee (SLVC) had to finalize the value of the land.

On September 28, 2000, GMB signed a Lease and Possession Agreement (LPA) with GAPL, paying Rs 4.76 crore for 3,403.37 acres of land in Mundra. The annual rent was fixed at Rs 23.80 lakh. It was mentioned in the contract that this rent would be increased by more than 20% every three years.

K is to be increased. However, the LPA has not mentioned anything regarding recovery of additional lease rent from GAPL after the final rate has been determined by SLV.

In December 2013, the Gujarat government told the CAG that where the SLVC or the Collector had directed the GMB to take action, the Board could review that LPA. But the CAG was not satisfied with that response, commenting on it: “This was not acceptable, as there was no need for any separate direction in this regard, as GMB was required to pay the increased price, which The timing was fixed by SLVC, so at the same time an appropriate clause should have been inserted in the LPA by GMB to protect its own interest. However, in the event of this not happening, GMB will not be able to recover the difference of five per cent fare of the revised pricing.”

Interestingly, during its investigation, the PAC had asked the GMB representative to complete all the processes for determination of land value before March 31, 2017. However, later no information was given to the committee in that regard. The PAC also slammed the GMB for failing to protect its own interests at the LAC. Due to these lapses, the PAC recommended that “appropriate action” be taken against the “culpable persons” to ensure that such “gross negligence” does not happen in future.

Question regarding expansion of Mundra Port

As per the approved Detailed Project Report (DPR) of the first phase of development of Mundra Port, it was to be developed in two sub-phases. In that first sub-phase, a multi-purpose end-station was to be constructed along with a berthing site for four vessels of length 815 metres. The subsequent sub-phases include an SBM (single buoy mooring) or a barge mooring site, which can be used for offshore natural gas or gas exploration for Hindustan Petroleum Corporation Limited (HPCL), a Government of India undertaking, within three years of obtaining environmental clearance. A container end-station with the capacity to handle ships up to 1,100 meters long and an end-station for crude oil were to be developed to assist tankers in loading and unloading oil.

The Government of Gujarat approved the basic plan of the port in January 1998 and GAPL constructed the multipurpose end-station before the concession agreement was signed in February 2001. GAPL had approached the State Government on 13 January 2000 regarding extension of port limits for construction of SBM for HPCL in the second sub-phase and construction of three new SBMs in the second phase of port development.

On May 21, 2002, these requests were accepted with the following conditions:

GAPL will pay full waterfront royalty on the cargo handled on the SBM to be built in Phase II.

The concessional waterfront royalty received under the concession agreement for coordination by GAPL will be adjusted by the value applicable at the time of transfer of the port to the Government of Gujarat or depreciated historical cost. GAPL will give a written consent to accept both the above conditions and necessary changes will be made to the concession agreement in this regard.

Interestingly, on 24 May 2002, the State Government extended the limits of Mundra Port without waiting for the signing of the supplementary concession agreement.

After more than two and a half years, the Government of Gujarat constituted the Marine Development Committee (MDC) on January 28, 2005, comprising the state Chief Secretary, Secretaries of Finance, Industries and Mines departments, among others, to monitor the issue.

In a written response to the PAC in August 2015, MDC reported that GMB was doing its best to resolve outstanding “concerns” and execute a sub-concession agreement. Furthermore, it was also said that GMB will consult the Gujarat government on waterfront royalty rights.

The MDC should have called a meeting as soon as possible to address those urgent “concerns”. More than a year later, on December 27, 2016, the MDC told the PAC that its members had met only twice since its establishment in January 2005.

Gujarat government had to suffer a loss of Rs 20 crore to benefit Adani.

In December 2008 the GMB gave in-principle approval for the construction of three SBMs under HPCL’s Phase II at an estimated cost of Rs 3,700 crore. Since the SBM was approved for construction outside the original Mundra port limits, the approval was dependent on recovery of full waterfront royalty and signing of a supplementary agreement.

Before construction could begin, GMB permission had to be obtained. GAPL sought Board approval in November 2009 for construction and implementation of the SBM through a supplementary concession agreement. It had submitted a project report in March 2010 with a request to include the name of the joint venture, HPCL Mittal Pipeline Limited (HMPL), in the supplementary concession agreement.

However, on June 30, 2011, GAPL started construction of the SBM in violation of the Gujarat Maritime Board Act, 1981, before getting Board approval for the project.

HPCL started handling crude oil in SBM from August 2011. As of March 2013, it handled 5.41 million metric tons of crude oil. Board at the rate of Rs 36.4 per tonne

Waterfront royalty of Rs 19.48 crore collected. However, as pointed out during the CAG audit, the royalty rate was Rs 36 per tonne on the base rate of the 2003 Schedule of Port Charges (SoPC). The total rate of waterfront royalty stood at Rs 74.65 per tonne as of the end of March 2013, with a 20% increase every three years. Thus, the CAG assessed that from August 2011 to March 2013, there was a loss of recovery of dues of Rs 20.91 crore by GMB.

That CAG report noted: “Government (Gujarat) had stated (in December 2013) that the matter regarding correct workability of the rate in HMPL SBM is under consideration. The question still remains that this reference was not justified because the terms of the agreement were clear. “The amount of Rs 20.91 crore can be recovered along with interest as soon as possible.”

A representative of the Gujarat government, in a disclosure sent to the PAC in August 2015 and in a committee meeting on December 27, 2016, had said that several meetings were held at the level of the Chief Secretary and in the Finance Department on the issue of recovery of GMB dues. Had gone. The issue was still said to be “under consideration” with the state government. The government representative said that once the final decision is taken, GBM will collect any outstanding amount along with interest from the developer. Based on this response, the PAC felt that it would not be “fair” for GMB to recover its dues from the developer as the construction was carried out without approval. If new rates were decided for other companies after the price hike in the second phase, then why was an “undue” benefit given to a particular Adani Group company even though it had started construction work without approval, the committee asked. Expressed surprise at this.

The PAC has asked why the outstanding amount has not been recovered yet despite holding several meetings at the level of the Chief Secretary and the Finance Department.

Strong criticism of Gujarat government by PAC

The PAC had also raised serious questions on the Gujarat government in other matters, which are given below:

1. Important assurances given in the port policy (by the government) have not been implemented even after 15 years due to faulty planning, as no timelines were set and the principles of Build-on-Operate-Transfer (BOOT) policy were not implemented. was also not implemented.

2. Delayed and discriminatory changes in tariffs were made.

3. The new cargo classification did not apply to existing private ports and some of the rates announced in the SOPC were “suspicious”.

4. There was no system for timely checking of construction costs and monitoring the activity of private developers.

5. Penalties for violations of rules were “ineffective” and internal investigation and monitoring systems were “flawed”.

The PAC made the following suggestions to the Gujarat government and the GMB:

1. There should be adequate planning to increase the share of the Board in port management.

2. There should be proper and timely revision of tariff.

3. There was a need for a system for timely checking of construction costs and the activities of private port developers should be monitored.

4. The State Government should ensure compliance with various contractual provisions, failing which penalties should be imposed.

Systems for internal investigation, audit and monitoring should be improved and made more effective.

When the CAG in its report in the Gujarat Assembly on July 7, 2014, pointed out irregularities benefiting the Adani Group, the Modi government had barely been in power for a month and a half. More than five and a half years have passed since the CAG report came out, but the state government has done nothing to compensate for the loss caused to the exchequer due to the “undue” benefits given to a private port run by the Adani Group. not done.

This is not the first time that the Gujarat government has been pulled up by the CAG for favoring the Adani Group. The constitutional body CAG, which oversees public finances, had earlier reported in its report submitted in 2011 that between 2006 and 2009, natural gas was supplied to Adani Energy Ltd by Gujarat State Petroleum Corporation at a lower price. , which caused a loss of approximately Rs 70 crore to the government.

Another CAG report tabled in the Gujarat Assembly in 2015 found that Adani Port earned “undue” profits of about Rs 59 crore in 2008-09 as a result of misclassification of forest land.

The Gujarat government has been pulled up by the CAG on three occasions over favoritism to Adani group companies in less than a decade, during which Modi was chief minister of Gujarat and now remains India’s most powerful man. Are.

On the afternoon of Monday, February 3, an email containing a detailed questionnaire was sent to Gautam Adani and an executive of his group’s corporate communications department, seeking answers and clarification on the comments made in the PAC report. No response had been received at the time of publishing this article. When any reply comes in this regard, this article will be updated.

The author is an independent journalist.