Rs.50,000 crores coal import scam

During the last four years, the Directorate of Revenue Intelligence, or DRI, has unearthed over-invoicing of imports of coal and electricity generation equipment against at least 40 of India’s biggest energy companies. The total scandal amount is Rs 50,000 crore (~$8bn). Of this Rs 30,000 crore is on account of the over-invoicing of coal imported mainly from Indonesia. The remaining Rs. 20,000 crore is due to over-invoicing of power machinery imported mostly from China. The higher costs were passed on to consumers, who paid more for electricity.

• NTPC and various state electricity boards are involved in the over-invoicing scam, along with private companies of Adani, Essar, Anil Ambani etc. 
• As claims of corruption and favouritism emerge involving corporate entities headed by politically influential tycoons and powerful technocrats, the finance ministry's pursuing these cases are being stymied and the prosecution process thwarted.
• The DRI investigation alleged that 40 major companies, including Knowledge Infrastructure Systems Private Limited (KISPL), had inflated the value of coal imported from Indonesia for power generation, resulting in illicit benefits of Rs 30,000 crore. This resulted in consumers having to pay more for electricity. 
• The DRI investigation further claimed that the illegal gains were then laundered through shell companies in tax havens outside India.
• The adjudicating authority of the DRI, has cleared two companies, both part of the Adani Group, of charges of over-invoicing imported power-plant equipment worth Rs 3,974 crore. The investigating agency, DRI, filed an appeal in which it argued that the order suffers from “total non-application of mind or recklessness.”   DRI further stated that the order was “erroneous, illegal and improper not only in law but also on facts.” 
• The adjudicating authority of the DRI has accepted allegations against KISPL regarding over-valuation of coal imports from Indonesia and imposed a penalty of Rs 17.50 crore on the company. It also imposed a penalty of Rs 1.25 crore on Rahul Bhandare, the managing director of the company, and another of Rs 25 lakh on Vipin Mahajan, a former employee of NTPC, who is currently a director of the company. In both cases identical modus operandi was deployed for the over-invoicing and laundering process.
• In the KISPL appeal, a series of procedural irregularities have raised doubts about the integrity of CJ Mathew, the technical member on the bench hearing the KISPL case. The agency claimed that Mathew’s conduct “has been far from fair and impartial.” 
• An adverse ruling by the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) in favor of KISPL, would set a precedent that could absolve the larger companies, both government-owned and those in the private sector, of the charges of fleecing the exchequer, and ultimately, the public. 
• The coal was shipped from Indonesian ports, whereas KISPL submitted invoices issued by firms such as Knowledge International Strategy Systems Pte, Singapore and Springs Trader Ltd, Hong Kong. KISPL supplied the imported coal to thermal power stations of the  Mahagenco. The DRI investigation claimed that the Singapore company was a “wholly owned subsidiary” of KISPL
• The Singapore company had created false documents to show that it had imported higher grades of coal. The amounts generated on account of the difference in prices were routed through a shell company based in Hong Kong. 
• The willingness of the finance ministry to fight the case against KISPL and similar cases relating to the over-invoicing of imported coal and power equipment will be tested in the future. It is worth repeating that huge sums of public money worth Rs 50,000 crore are involved.

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Eventhough Modi talked very high about corruption of Congress & UPA and his intent to fight out, during the 2013 campaign and on every public platform, the truth is that he himself is a worst corrupt politician, as reflected by CAG reports during his Gujarat CM tenure. But most Indians doesn't know his Gujarat CM episodes. His lifestyle as PM of India, doesn't make anyone believe that he is simple & honest. His spectacles are estimated to cost over Rs.2 lakhs and changes dress at least 5 times in a day. During his Prime Ministership of last 4 years, hardly any big-shot worthwhile had been booked for corrupt practices, save some hardcore political opponents. In the last year of his five year rule, he is saddled with overall under-performance and very poor financial performance, much can't be expected from him in this regard. Modi is likely to allow almost all ongoing cases disposed off relieving tainted personalities in exchange for election fund favors. Needless to say that BJP's election campaign expenses, during the last 5 years, are unimaginably higher in the country.

Rafale deal: Modi must explain his actions

 

• Days before the PM replaced the deal with one that would eventually exclude HAL, the Dassault CEO had said ‘contract finalisation and signature could come very soon.’ So what changed?
• The manner in which Prime Minister Narendra Modi bypassed a number of relevant institutional mechanisms to announce the purchase of 36 Rafale fighter jets during his official visit to France in April 2015, gives rise to lots of suspicions about corruption and nepotism.
• Reliance Defence Ltd.’s Chairman Anil Ambani accompanied Prime Minister Narendra Modi in his trip to France in April 2015, the company said he did because he is one of the members of the Indo-French CEO Forum. 
• Dassault Aviation selected Anil Ambani's Reliance Aerostructure Ltd (subsidiary of Reliance Defence Ltd) as its joint venture partner. Reliance Defence Ltd stated that the committed offset obligations of Rs. 30,000 crore are to be undertaken by Dassault Reliance Aerospace joint venture company and not by Reliance Defence Ltd.
• Why is the Modi government buying 36 Rafale aircraft at a highly inflated price compared to the originally negotiated base price by the previous government? Is it correct that the Modi government is buying 36 Rafale aircrafts without the transfer of technology for $8.7 billion while the previous government had negotiated 126 Rafale aircraft at a base price of $10.2 billion along with the transfer of technology?
• In August 2007 UPA government floated a tender for the purchase of 126 twin-engine “Medium Multi Role Combat Aircrafts” for the Indian Air Force (IAF). After months of hectic bidding by various foreign companies – Lockheed Martin’s F-16, Dasssault’s Rafale, Boeing’s F/A-18s, Russia’s MIG-35, Sweden’s Saab’s Gripen, Eurofighter Typhoon – Rafale won the contract. The agreement between Dassault and the Indian government was finalised in late 2012. The company settled to sell its aircrafts at a base price of $10.2 billion (approximately Rs 54,000 crore as per the 2012 conversion rate). It was decided that out of 126, 18 planes will be imported in a finished state or in a fly-away condition, and the rest of them (108) would be manufactured by HAL, to which the French company was obliged to transfer its technology and was also required to invest half of the total transaction amount in India, according to the agreement. The deal was seen as fair one in which both parties got into a long-term mutually beneficial association. The workshare agreement between HAL and Dassault Aviation was signed on March 13, 2014.
• During his recent Indian tour, Trappier tried to evade the Indian media's question on why Dassault had inflated the price of 36 Rafale. "You have to ask the [Indian] government this question," Trappier had replied.
• Former defence minister Manohar Parrikar was informed hurriedly only a few days before Modi’s France visit of the decision to acquire 36 jets, leaving him to publicly defend a decision that “he neither understood nor agreed with”.
• “In terms of Rafale, my understanding is that there are discussions underway between the French company, our Ministry of Defence, the HAL which is involved in this. These are ongoing discussions. These are very technical, detailed discussions. We do not mix up leadership level visits with deep details of ongoing defence contracts. That is on a different track. A leadership visit usually looks at big picture issues even in the security field.”  A day before the PM’s visit, foreign secretary S. Jaishankar said in a press briefing. 
• This shows that the foreign ministry’s senior-most bureaucrat was not aware of the impending announcement. In other words, the official stand appeared to be a continuation of the deal that the previous UPA-II government had laid down for a purchase of 126 aircraft from the French company that involved the government-owned Hindustan Aeronautics Limited (HAL) as the Indian manufacturing partner. Jaishankar’s statement also shows that until April 8, 2015, HAL was officially still very much a part of the deal. 
• The Government has set up a Defence Acquisition Council (DAC) headed by the Raksha Mantri for decision making in regard to approval of Capital Acquisitions in the long term perspective. The decision flowing from the Defence Acquisition Council are to be implemented by (1) Defence Procurement Board headed by the Defence Secretary (2) Defence Production Board headed by the Secretary (Defence Production) and (3) Defence Research & Development Board headed by the Secretary (Defence Research & Development). How can Modi, even as PM directly sign a highly technical defence procurement deal without prior clearance from DAC? Narendra Modi dispensation is having the worst record in recent years on utilisation of Defence Budget and compromising national security. Former Defence Minister AK Antony said that during UPA regime, several opposition leaders and top BJP brass like Yashwant Sinha and Jaswant Singh had opposed the purchase of the French fighter jets during the UPA regime, finding fault on different counts. 
• Even Dassault CEO and chairman Eric Trappier may not have been aware of Modi’s decision to cut the size of the deal to 36 aircraft, exclude HAL and remove the crucial transfer of technology clauses.
• An Agence France-Presse report (published on Indian Defense News on March 27, 2015) quotes Trappier as saying that the work on completing an Indian contract for the Rafale fighter jet is taking time, but the deal to purchase 126 Rafales is now “95% completed.”

The first two Indian Mirage 2000 delivered by Dassault Aviation

• See the above video available in YouTube, published by Dassault on March 25, 2015, two weeks before Modi’s France visit and the reduced order announcement. 
• In the video, Trappier proudly states that “Considering as well our conformity with the RFP,  in order to be in line with the rules of this competition, I strongly believe that contract finalisation and signature could come very soon.”
• Now, the first Rafale jets are to enter service with the Indian Air Force between 2019 and 2022 and Dassault has been negotiating with the government of India for a deal of 36 more jets which would form two more squadrons.

Political leaders with majority succumbing to temptations and
overriding institutional procedures in the garb of speed and efficiency
are betraying the sacrifices made by our freedom fighters and founding fathers
in establishing the sovereign republic of India ... Manmohan Singh

Those who had followed the things that happened 2007 onwards on Rafale matters would know that the inordinate delay was due to arriving at amicable agreement of transfer of technology to HAL by Dassault and can't blame MMS government alone for delay and with 95% work for signing agreement was completed which facilitated Modi's instant cancellation of RFS and signing a new costlier deal. No one was aware about the cancellation of UPA deal and hoisting of Modi's own deal in the name of emergency requirement of IAF, till it was announced by Modi. All the institutional mechanisms tor ensuring transparency and fairness were subverted for no justifiable reason. This is nothing but but blatant display of authoritarianism and nepotism by Modi. Anil Ambani's Reliance Defense Ltd has no prior experience in this field. Apart from deleting 'technology transfer clause', per unit cost escalation to $242mn (from $81mn) by 3 times inflicting loss of over Rs. 35,000 crores (Total deal value Rs. 56,500 crores) to exchequer is unjustifiable by any stretch of imagination. Ironically, Defense Minister Nirmala Sitharaman's explanation on Nov 16, 2017 that 'all procedures were followed' doesn't infuse any public confidence in this matter.

Reliance Communications is sinking

• Reliance Communications, 7th largest telecom service provider posted its yearly loss of Rs.1,283 crores.
• Its debt stood at Rs.45,733 crores, as on March 2017, prompted banks raise red flag.
• Rating agencies downgraded RCom over debt concerns.
• In seven days, RCom stock tanked 33%.
• The lenders has granted seven month standstill on the debt.
• By Dec 2017, it will have to conclude merger deals with Aircel and sale of 52% Reliance Infratel's equity to Brookfield infrastructure for Rs.25,000 crores to pare down its debt to Rs.20,000 crores.
• Debt pile up was due to its decision to switch from CDMA to GSM and purchase of 3G spectrum at Rs.8,585 crores.
• And then company landed in debt trap i.e. borrowing money to repay debt.
• Reliance Jio's aggressive marketing has impacted smaller companies like RCom losing its subscribers. While Airtel experienced severe contraction of profits all others viz. RCom, Idea, Vodafone etc slipped into losses.
• They expect reduction in market share resulting in pressure on margins.
• In last quarter RCom lost 29.5 million customers, whereas Airtel and Idea gained 22.41 and 14.4 million customers.
• The current issue is partly due to delay in shifting from CDMA to GSM that resulted in its low value subscriber base. Initial attempts to upgrade to GSM has not yielded any good results.
• Today it has 62,000 cell sites compared to Idea-Vodafone's 273,000 and Airtel's 185,000. 
• As investments slowed so are subscriber additions, as people chose operators with superior networks.
• RCom plans to sell of its Dhirubai Ambani Knowledge City's 135 acres in Navi Mumbai and 4 Acres property near Connaught place New Delhi to retire its remaining debt.
• RCom proposed to surrender part of spectrum to escape payment liabilities to DoT. 
• Merged entity AirCom of RCom-Aircel-MTS with its 10% market share, sub optimal quality subscribers, less spectrum and debt burden will find it hard to service with its prevailing EBITDA. 
• It is even more tricky to incur capex for modernisation given its financial health and inability to raise bank loans.
• Anil Ambani's elder brother, Mukesh Ambani, might not allow RCom to die because of its name "Relaince" attached to it.

My View:

While AirTel, Idea and Vodafone continuously invested in capex, spectrum and marketing to increase its presence and value, RCom did nothing of that sort and landed in trouble. Also banks are to be blamed which funded Reliance Jio to the tune of Rs.180,000 crores only to trouble the saturated telecom sector pulling down almost all telco's with combined exposure by banks to the extent of Rs.400,000 crores. SBI Chairman expressed concerns about telco's combined EBITDA dropping to levels where debt servicing becomes hard and their loans might get turned into NPA's. Needless to say like in any other case, here too promoter owners will walk off with riches, banks will get charge of worthless assets and will have to take huge haircut. And then PSU Banks will look at centre to recapitalize them. Same old story repeating.