Coal Play

• Contrary to CVC guidelines, MMTC had differential earnest deposit money clauses which allowed the “larger” Adani group to deposit less
• A clause in the tender which earlier asked the coal to be delivered to any west coast port in India was modified to a west coast port in India in Gujarat. Adani runs the Mundra port in Gujarat.
• Contrary to tender norms, the head of another bidding company was also an additional director with AEL

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Importing coal to boost power generation has been a regular practice in India. So there was nothing unusual when MMTC Ltd, a government trading organisation under the commerce ministry, floated a tender on May 19 this year to import 12.5 million metric tonnes (MMT) of coal for the National Thermal Power Corporation (NTPC). But now it seems MMTC overtly and blatantly structured the tender in such a way as to give commodity trading major Adani Enterprises Ltd (AEL) a competitive edge over three other bidders in the Rs 6,000-crore contract. Now, following complaints, MMTC may have to reissue the controversial tender.

Rewrite job: The modified clause (highlighted in yellow) in the tender

The matter came to light when the Delhi-based coal trader Knowledge Infrastructure Systems Pvt Ltd (KISPL)—who were disqualified as bidders for submitting ‘improper’ documents—lodged a complaint with the Central Vigilance Commission (CVC) about AEL being given preferential treatment. MMTC did not create a level playing field from the start, according to KISPL representatives. For one, it decided to have differential earnest money deposits (EMD)—this is the money bidders have to submit to express their desire for sincere participation in the project. In clear violation of a CVC guideline that enjoins that the EMD “be incorporated as a fixed and reasonable amount”, MMTC divided the EMD into three categories: bidders having an experience of importing between 2 and 6 MMT a year had to deposit 8 per cent of the total contract value; those between 6 and 10 MMT, 4 per cent; and those who logged over 10 MMT, just 2 per cent. Adani fell in the third category.

Differential EMD meant that smaller players had to deposit a larger sum of money to bid for the project. Just one per cent of the contract would be Rs 60 crore. “Clearly, a bidder asked to submit a Rs 120 crore EMD will have a financial edge over one who has to put in Rs 600 crore,” says a KISPL representative.

When approached by Outlook, MMTC GM Alok Srivastava rubbished the CVC guideline on EMD as a “piece of paper”. “It’s a contract of a difficult nature as there’s a lot of volatility in the market. NTPC expects me to perform. In case of failure, there is a liability of Rs 600 crore. MMTC would be completely exposed,” he says. “So it’s natural to go back to people who have performed as there is lesser risk with bigger and experienced players.” He then went on to praise Adani as one such group.

But it wasn’t just EMDs. A clause in the original tender document was later modified, a move that can be seen as tantamount to whittling down competition. MMTC had first asked that the coal be delivered to any west coast port in India but it later changed that clause to “any west coast port in India in the state of Gujarat” (sic). The other bidders allege that this gives a competitive edge to the Adani group as it owns and operates the Mundra port in Gujarat that specialises in the import of coal.

Srivastava countered this by saying that the change was made only because the Gujarat coast is the closest to NTPC’s Dadri plant near Ghaziabad. However, the tender had not specified that the coal was meant just for NTPC’s Dadri plant or for its other plants in the north; it was for the entire country. NTPC operates 18 coal-based plants across the country.

In fact, NTPC’s very move to get MMTC to issue a tender for it is being viewed with suspicion. “Why should NTPC outsource the tendering process for importing coal, its principal raw material, on the pretext that it doesn’t have the requisite expertise when it can procure HIV diagnostic kits for NACO,” asks a Mumbai-based coal importer. The CVC had earlier made its displeasure public about some organisations using PSUs as “a conduit for getting costly inputs or for improper purchases”. Srivastava, however, says that NTPC awarded MMTC the tender contract after competitive bids from Coal India Ltd and the State Trading Corporation (STC). He admitted the NTPC had paid service costs to MMTC but declined to specify how much. “Perhaps the NTPC too would have incurred the same costs had they issued the tender,” adds MMTC director H.S. Mann. “You shouldn’t be playing the CVC,” he told this correspondent. MMTC chief GM, corporate communications, Preeti Kaur, also sent a fax to Outlook asking it not to go ahead with the story.

But the hole only gets deeper. Tender norms also prohibit bidding through proxies or by companies related to another bidder. In this case, Yoshiro Miwa, is the head of Kowa Co Ltd, one of the four bidders (in partnership with Agarwal Coal Corporation Pvt Ltd) for this tender. But Miwa, ostensibly a competitor, also happens to be an additional director of AEL. This, critics say, may be an attempt to corner the entire 12.5 MMT tender that has been divided into two consignments (7.5 and 5 MMT) to be supplied by the two lowest bidders. Srivastava denied any knowledge of Miwa’s affiliations with AEL. Dubai-based Coal and Oil is the fourth bidder.

AEL has repeatedly won coal supply contracts from MMTC and STC, another trading entity under the commerce ministry. In a November 2008 response to an RTI petition, STC revealed that Adani had won three contracts (in 2005, 2006 and 2008) to supply 15.15 MMT of coal to NTPC as it was the single bidder. The Karnataka High Court had in early July quashed a decision of the Karnataka Power Corporation Limited to procure an additional four lakh tonnes of coal from MMTC without a tender and asked it to pay KISPL Rs 25,000 as damages.

Following KISPL’s complaint, the CVC on June 16 asked the chief vigilance officer at MMTC for an “investigation”. The CVC’s report is still awaited but there are indications that the controversial tender may be scrapped and reissued. MMTC CMD Sanjiv Batra was quoted by a news agency in London on July 14 as saying that his organisation is contemplating annulling the tender. Outlook later received a fax from Preeti Kaur confirming this, a complete turnaround from her earlier position that the tender merited no inquiry.

MMTC is now awaiting word from the commerce ministry after which it may reissue the tender. Hopefully, it will be a more honest exercise this time.