EXCLUSIVE: How Gujarat Government Helped Adani’s Port Company

The Public Accounts Committee (PAC) of the Gujarat legislative Assembly recently prepared a report to follow up audit observations that had been submitted in 2014 by the Comptroller and Auditor General (CAG) of India to the Gujarat government sharply criticising it for bestowing “undue” favours on a company in the Adani group that operates India’s largest private port.

Gautam Adani heads the Adani group of companies. He is the country’s second richest man, according to one estimate. The industrialist is perceived to be close to Prime Minister Narendra Modi.

The PAC has the power and the responsibility to scrutinise CAG reports and make recommendations to the state government. The committee of the Gujarat legislative Assembly, which is traditionally headed by an MLA belonging to the Opposition and includes legislators belong to the ruling party as well.

The head of the PAC in 2018-19 in the Gujarat assembly was Punjabhai Vansh, a Congress MLA who has been elected from the Una constituency. In the committee, there were eight members from the ruling Bharatiya Janata Party (BJP) and seven from the Congress. However, Congress MLAs Alpesh Thakor and Kunvarji Bavaliya resigned from the PAC after they switched their allegiance to the BJP.

This particular report has been approved by all the members of the PAC, as there are no notes of dissent.

In its report, the PAC rebuked the Gujarat government for giving “undue” favours to India’s largest private port operator Gujarat Adani Port Limited, which is now known as the Adani Ports and Special Economic Zone Limited. The company owns and manages the operations of a number of ports, including in states such as Gujarat, Kerala, Tamil Nadu and Odisha.

According to the website of the Gujarat Assembly, the PAC report was scheduled to be presented on December 9. However, that did not happen. A copy of the report in Gujarati has been made available to the writers of this article.

The PAC report has not been written about in the news media, barring an article in the Times of India dated December 18 by Kapil Dave. The article titled “Gujarat Maritime Board benefiting private ports at the cost of its own: PAC” mentions in its last sentence that the committee reported that “undue benefits passed (on) to Gujarat Adani Port Ltd by (the) GMB (Gujarat Maritime Board) as well as the GMB’s irregularities in not charging waterfront and other charges from private players.”

The PAC report states that a lengthy exercise spanning around four years had been carried out by the committee of MLAs. The members of the PAC met no less than 159 times between April 17, 2015 and March 6, 2018. Several documents were examined and statements of government officials recorded.

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The PAC report stated: “It seems that the government is keen to develop only private ports and the capacity of government ports remains under-utilised. Connection of government ports with railways and good infrastructure like roads is not being done. The committee recommends the development of good infrastructure for government-run ports.”

The worst instance of a government-operated port whose capacity was grossly under-utilised was that of Veraval port––only 2.58% of its installed capacity. The capacity utilisation levels of other government ports were Bhavnagar at 27.32%, Porbandar at 30.28%, Okha at 36.97% and Mandvi at 40.63%.

Gujarat Maritime Board’s Actions Helped Adani

The 2012-13 report of the CAG report had noted that Gujarat Adani Port Limited (GAPL) had received benefits from the Gujarat Maritime Board (GMB), a state government undertaking, while constructing the largest private port in the country in Mundra, Gujarat. The CAG had found defects in the lease and possession agreement (LPA) signed between GMB and GAPL.

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

On September 28, 2000, the GMB signed a lease and possession agreement (LPA) with GAPL entailing a payment of Rs 4.76 crore for 3,403.37 acres of land in Mundra. An annual rent of Rs 23.80 lakh was fixed. In the contract, it was mentioned that the rent had to be increased by more than 20% every three years. However, the LPA did not mention anything about recovering the additional lease rent from GAPL after the final rate had been fixed by the SLVC.

In December 2013, the Gujarat government told the CAG that had the SLVC or the Collector instructed the GMB to take action, the board could have reviewed the LPA. The CAG was not satisfied with the response, and had noted: “The reply was not acceptable as no separate instruction in this regard was required because as GMB was to pay the increased valuation, as and when decided by SLVC, a suitable clause should have been inserted in the LPA by GMB to protect its own interest. In the absence of the same, GMB will not be able to recover the differential lease rental at five per cent of revised (enhanced) valuation.”

Interestingly, during its investigation, the PAC had asked the GMB representative to complete all procedures for the determination of land value before March 31, 2017. However, no information was subsequently provided to the committee.

The PAC also reprimanded the GMB for not safeguarding its own interests in the LAP. Because of these lapses, the PAC recommended that “appropriate action” be taken against the “guilty individuals” to ensure that such “serious negligence” does not occur in the future.

Questions About How Mundra Port Expanded

According to the Detailed Project Report (DPR) approved for Phase 1 of the development of Mundra port, it had to be developed in two sub-phases. In the first sub-phase, a multi-purpose end-station along with a site to anchor four ships of a length of 815 metre had to be built. In the subsequent sub-phase, a container end-station with a capacity to handle a 1,100 metre long ship and an end-station for crude oil had to be developed along with an SBM (single buoy mooring)––or a buoy which is used offshore to help tankers to load or unload natural gas or oil––for Hindustan Petroleum Corporation Limited (HPCL), a government of India undertaking, within three years of obtaining an environment clearance.

The Gujarat government had approved the original plan of the port in January 1998 and GAPL built the multipurpose end-station before the concession agreement was signed in February 2001. GAPL approached the state government on January 13, 2000, for an extension in the port limit to build the SBM for HPCL in the second sub-phase and build three new SBMs in Phase 2 of the development of the port.

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

1. GAPL would pay full waterfront royalty on the cargo to be handled on the SBMs to be constructed in Phase 2.

2. The concessional waterfront royalty availed by GAPL under the concession agreement for set-off would be adjusted from the depreciated value or depreciated historical cost as applicable at the time of the transfer of the port to the Gujarat government.

3. GAPL would give a written consent of acceptance to the above two conditions and the necessary changes in this regard would be made to the concession agreement.

Interestingly, on May 24, 2002, the state government increased the boundaries of Mundra port without waiting for the signature of the supplementary concession contract.

More than two and a half years later, on January 28, 2005, the Gujarat government formed the Maritime Development Committee (MDC) consisting of the Chief Secretary to the state, the Secretaries to the Departments of Finance, Industries and Mines, among others, to look into the issue.

In a written response to the PAC in August 2015, the MDC pointed out that the GMB was doing its best to resolve the pending “concerns” and put in place a sub-concession agreement. Further, it was stated that the GMB would consult the Gujarat government on waterfront royalty rights.

The MDC was supposed to call a meeting at the earliest for the resolve the outstanding “concerns.” More than a year later, on December 27, 2016, the MDC pointed out to the PAC that its members had only met twice since its inception in January 2005.

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Gujarat Govt Suffers Rs 20 Crore Loss to Benefit Adani

In December 2008, the GMB accorded in-principle approval for the construction of three SBMs under Phase 2 for HPCL at an estimated cost of Rs 3,700 crore. Since the SBMs were approved for construction outside the original Mundra port limits, the approval was dependent upon the recovery of full waterfront royalty and the signing of a supplementary agreement.

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

However, before GAPL got the board’s approval for the project on June 30, 2011, it had begun construction of the SBMs in violation of the Gujarat Maritime Board Act, 1981.

HPCL began handling crude oil at the SBM from August 2011. It had handled 5.41 million metric tonnes of crude oil by March 2013. The board collected waterfront royalties of Rs 19.48 crore at the rate of Rs 36 per tonne. However, as noted during the CAG audit, the royalty rate of Rs 36 per tonne was at the base rate of the 2003 Schedule of Port Charges (SoPC). Towards the end of March 2013, the total rate for waterfront royalties was Rs 74.65 per tonne, increasing by 20% every three years. Thus, the CAG calculated that from August 2011 till March 2013, there had been a loss of recovery of Rs 20.91 crore of dues by the GMB.

The CAG report noted: “The (Gujarat) Government stated (in December 2013) that the matter was under consideration regarding the correct applicability of rate in the HMPL SBM. The fact remains that a reference was not warranted as the terms of the agreement were clear. The amount of Rs 20.91 crore may be recovered with interest at the earliest.”

A representative of the Gujarat government stated in a disclosure sent to the PAC in August 2015 and in a meeting of the committee on December 27, 2016, that several meetings had been held on the issue of recovery of GMB’s dues at the level of the Chief Secretary and in the Finance Department. The issue was still said to be “under discussion” with the state government. The GBM would collect any outstanding balance from the developer, with interest, when the final decision is made, the government representative stated.

Based on this response, the PAC felt that it would not be “reasonable” for the GMB to recover its dues from the developer since the construction had been done without approval. If in Phase 2, new rates were decided for other companies after the price hike, why was a particular company in the Adani group given “undue” benefit when it had started construction without approval, the committee wondered.

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

PAC Slams Gujarat Govt

The PAC also came down heavily on the Gujarat government on other counts as well, which included:

1. Important assurances made in the port policy (of the government) were not implemented due to faulty planning even after 15 years, since no time limit had been specified and the principles of the Build-Own-Operate-Transfer (BOOT) policy not put in place.

2. Delayed and unequal changes were made in tariffs.

3. The classification of new goods did not apply to existing private ports and the recovery of some rates that were announced in the SoPC took place under “suspicious” circumstances.

4. There was no system of timely scrutiny of construction costs and for monitoring the activity of private developers. The penalties for violation of rules were “ineffective” and internal exploration and surveillance 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 board’s stake in the port management. 

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

3. A system for timely scrutiny of construction costs was required and the activities of the developers of private ports should be monitored. 

4. The state government should ensure compliance with various contractual provisions failing which penalties should be imposed. 

5. The systems for internal exploration, audit and surveillance should be improved and made more effective.

When the CAG had pointed out irregularities that had benefited the Adani group in its report tabled in the Gujarat Assembly on July 7, 2014, the Modi government had been in power for barely a month and a half. It is now more than five and a half years since the CAG’s findings became known, but the state government seems to have done absolutely nothing to recover the losses incurred by the public exchequer on account of the “undue” benefits given to a private port operated by the Adani group.

This is not the first time that the Gujarat government has been pulled up by the CAG for favouring the Adani group. In a CAG report presented earlier in 2011, the Constitutional authority which is meant to oversee public finances had pointed out that between 2006 and 2009, Adani Energy Limited had been supplied natural gas by the Gujarat State Petroleum Corporation at a low price thereby causing a loss of around Rs 70 crore to the government.

Yet another CAG report tabled in the Gujarat Assembly in 2015 found that incorrect classification of forest lands resulted in an “undue” benefit of around Rs 59 crore to Adani port in 2008-09.

In less than a decade, the Gujarat government has been hauled up by the CAG on three occasions for benefiting companies in the Adani group, during the period Modi was first the Chief Minister of Gujarat and then, the most powerful man in India.

On the afternoon of Monday February 3, a detailed questionnaire was emailed to Gautam Adani and an executive in the group’s corporate communications department seeking answers and clarifications to the observations in the PAC report. Till the time of publication, no response had been received. This article will be updated as and when a response comes.

The writers are independent journalists.

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