Adani suspected of fraud by selling low-grade coal as high-value fuel to Indian state firm

Adani Group passed off low-quality coal as far more expensive cleaner fuel in transactions with an Indian state power utility, according to evidence seen by the Financial Times that throws fresh light on allegations of a long-running coal scam.

The documents, secured by the Organized Crime and Corruption Reporting Project (OCCRP) and reviewed by the FT, add a potential environmental dimension to accusations of corruption associated with the Indian conglomerate. They suggest that Adani may have fraudulently obtained bumper profits at the expense of air quality since using low-grade coal for power means burning more of the fuel.

Invoices show that in January 2014 Adani purchased an Indonesian shipment of coal said to contain 3,500 calories per kilogramme. The same shipment was sold to the Tamil Nadu Generation and Distribution company (Tangedco) as 6,000-calorie coal, one of the most valuable grades. Adani appears to have more than doubled its money in the process, after transport costs.

The FT has also matched documentation for a further 22 shipments in 2014 involving the same parties that indicate a pattern of grade inflation in the supply of 1.5 million tonnes of coal.

Adani sourced the coal in Indonesia from a mining group known for its low-calorie output, at prices consistent with low-grade fuel. It delivered the coal to India's southernmost state for power generation, fulfilling a contract that specified expensive high-quality fuel.

More than 2 million people are killed in India each year by outdoor air pollution, according to a 2022 study in The Lancet, while other studies found significant increases in child mortality for hundreds of miles around coal-fired power plants.

Another study a decade ago found that coal-fired power plants, which supply about three-quarters of India's electricity, accounted for roughly 15 percent of the country's man-made emissions of fine particulate matter, 30 percent of nitrogen oxide and 50 percent of sulphur dioxide.

"Public health has definitely taken a back seat in India against the interest of the power sector," said Sunil Dahiya, a New Delhi-based analyst at the Centre for Research on Energy and Clean Air, according to the FT article.

Opposition politicians last year called for an investigation into Adani after the FT reported that between 2021 and 2023 the group paid more than $5 billion to middlemen for coal imported to India far in excess of market prices.

The latest revelations come as Adani seeks to rebrand itself into a big renewable energy player, including by building one of the world's largest wind and solar parks in Khavda, near the Pakistan border. The group, which denies wrongdoing, remains one of India's biggest importers of coal.

The findings are also likely to add to an intensifying political debate in India about the power and influence enjoyed by billionaires, including Gautam Adani, whose names and vast wealth have surfaced during the current election campaign in which Narendra Modi is seeking a third term as prime minister.

India's Directorate of Revenue Intelligence (DRI), the finance ministry's investigative unit that polices economic crime, opened a probe into coal prices in 2016. The prosecution of a businessman related to $68 million worth of alleged coal price inflation is one of the few tangible outcomes of that ongoing probe.

New documents obtained by the OCCRP and shared with the FT show how in December 2013 the MV Kalliopi L ship left Indonesia carrying coal with a listed price of $28 a tonne. When it arrived in India in the new year, Adani sold the coal to Tangedco for $92 a tonne. The coal came from the Indonesian mining group PT Jhonlin's operations in South Kalimantan, where the ship was loaded.

An export declaration by PT Jhonlin stated the end buyer was Tangedco, and listed Adani's details as an intermediary. However, Jhonlin's invoice went to the British Virgin Islands-based Supreme Union Investors, which was charged $28 per tonne.

A week later Supreme Union Investors invoiced Adani in Singapore for the shipment at $34 per tonne, stating that the coal contained 3,500 calories per kg. On Adani's subsequent invoice to Tangedco the quality jumped to 6,000 calories — as did the price, to $92 per tonne.

Other documents suggested the discrepancy was not isolated. A 2014 purchase order lists 32 deliveries of 6,000-calorie coal to Tangedco by Adani, totalling 2.1 million tonnes at $91 per tonne. The order was released under Indian freedom of information laws following a request by OCCRP.

Adani denies allegations of fraud. A spokesperson for the group said the quality of the coal was independently tested at the point of loading and discharge, as well as by customs authorities and Tangedco scientists.

"With the supplied coal having passed such an elaborate quality check process by multiple agencies at multiple points, clearly the allegation of supply of low-quality coal is not only baseless and unfair but completely absurd."

Tangedco, Jhonlin, Supreme Union Investors and the DRI did not respond to FT's requests for comments.

"Given the market power of coal suppliers, [utilities] often don't have a choice but to accept grade slippage," said Rohit Chandra, assistant professor of public policy at IIT Delhi. "Third-party testing has done very little to address these concerns."

The transactions fit a pattern of endemic fraudulent price inflation alleged by the Indian authorities in 2016, in a notice that listed five Adani companies and five importers supplied by the group among 40 entities under investigation.

The DRI notice alleged that offshore intermediaries were used to inflate the price of coal supplied to utilities, and that "in a significant number of cases" two sets of test reports were discovered for consignments: "one showing lower gross calorific value (GCV) and the other higher GCV".

Arappor Iyakkam, a non-governmental organisation based in Tamil Nadu's capital, Chennai, in 2018 alleged a "coal invoicing scam" in a complaint to the state's Directorate of Vigilance and Anti-Corruption. The NGO, which focuses on transparency issues, said Tangedco paid above market prices for coal and that the calorific value of coal mentioned on tenders and purchase orders did not match what was received.

"Tangedco has been suffering heavy losses of [billions of rupees] every year over the past decade," the NGO said in its complaint. "We must understand that this translates directly into higher power tariff for the common man and is affecting the common man greatly."

The NGO estimated that a total of Rs60 billion ($720 million) was wasted in Tangedco's procurement of coal between 2012 and 2016. "Out of this, given that Adani supplied about half of it, the loss caused by Adani alone would be Rs3,000 crores ($360 million)," Jayaram Venkatesan, the NGO's convener, told the FT.

Adani's spokesperson said the NGO had "rehashed the DRI allegations".

India is the world's largest consumer and producer of coal after China. But strong demand and bottlenecks on its railways mean that it needs to import too, with Indonesia its biggest supplier of thermal coal.

In a 2017 report, India's Comptroller and Auditor General raised questions about whether Tangedco's tender process for imported coal favoured large groups such as Adani. It highlighted inadequate time for submission of bids and a high turnover requirement for bidders.

The DRI's probe is ongoing, delayed by legal proceedings related to international document requests. Adani said it was vindicated by the DRI's decision last year to withdraw an appeal to the Supreme Court in a case against one of the 40 importers named in 2016.

Industry analysts say the testing of calorific value of coal — including stringent requirements for random sampling of coal racks — is rigorous and conducted by third-party agencies in India. But because it is all done with human intervention, there is scope for abuse, they note.

The cost of testing is typically split between the supplier and end-user at the loading end, and borne by the end-user at the unloading end. "A large variation" between the amount of a shipment's declared calorific value and its actual value "can only happen with the connivance of the people at the unloading end", said a senior power sector employee.

Tangedco documents include multiple certifications by its own scientists and third-party testing companies that coal supplied by Adani under the 2014 purchase order met specifications.

A person working in the Indian power grid said the primary focus was the continuity of coal supply and balancing generation to match demand, meaning any question of coal quality was a "post-hoc exercise".

A spokesperson for Adani said: "By no stretch of imagination can [Adani's Singapore subsidiary], with a total supply of less than 2 percent of the coal burnt by Tangedco in the relevant period, be held responsible for either air pollution or the losses" of India's state-owned power distribution companies."