“False and baseless”: Adani counters allegations of artificially inflating coal prices

In markets like India, where Adani supplies significant quantities, its prices continue to balance cost efficiency with the high quality of its coal, maintaining parity with these major global coal producers.

In a recent report, the Financial Times stated that the Adani Group appeared to have allegedly imported billions of dollars of coal at prices above their market value. The report is based on an examination of 30 shipments of the commodity from Indonesia to India, over 32 months between 2019 and 2021.

For the uninitiated, these allegations against Adani Enterprises suggest that the company misrepresented low-quality Indonesian coal as high-grade to Indian buyers, including state-run power companies.

FT said it accessed evidence collected by the Organized Crime and Corruption Reporting Project (OCCRP), that supported its allegations of the Adani group artificially inflating coal prices. According to this report, invoices reveal that in January 2014, Adani Bought Indonesian coal rated at 3,500 calories per kilogramme, and went on to sell that shipment to the Tamil Nadu Generation and Distribution Company (Tangedco) as 6,000-calorie coal, one of the most valuable grades. 

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It further adds that 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 Adani Group has denied the allegations implying potential manipulation and overpricing as “false and baseless”. A spokesperson wrote in an email to OCCRP: “The suggestion that Adani Global Pte Ltd supplied to TANGEDCO inferior coal, as compared to the quality standards laid down in the tender and PO [purchase order], is incorrect.

While it is difficult for us to comment on individual cases due to the sheer volume of data and the elapsed time, not to add the contractual and legal obligations, it is important to note that the coal supplied, irrespective of the declaration by the supplier, is tested for quality at the receiving plant.”

These claims centre around the accusation that Adani declared inflated calorific values for its coal imports, leading to higher pricing and, subsequently, increased costs for end consumers and utilities. However, it is essential to critically evaluate these allegations within the broader context of coal quality assessment and regulatory oversight.

The calorific value, which measures the energy content of coal, is a critical determinant of its grade and price. Regulatory bodies typically conduct stringent checks to ensure compliance with declared specifications. Coal pricing is intrinsically linked to its quality, which is determined by factors such as calorific value, ash content, sulphur content, and moisture levels. Higher-quality coal, characterized by higher calorific value and lower impurities, commands a premium price in the market due to its efficiency and lower environmental impact.

For example, Adani’s Australian coal, known for its high calorific value and relatively low ash content, is priced accordingly. The Newcastle thermal coal price index, a global benchmark for high-quality coal from Australia, often reflects these quality differentials. Adani’s pricing strategy aligns with this benchmark, ensuring that its coal is competitively priced relative to its quality. Suggesting overpricing without acknowledging these quality parameters paints an incomplete picture.

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Further, coal pricing is also influenced by a myriad of market dynamics, including supply-demand fluctuations, geopolitical developments, and regulatory changes. The past few years have seen significant volatility in global coal markets. Factors such as supply chain disruptions due to the COVID-19 pandemic, increased demand from rapidly industrializing countries, and regulatory pressures for cleaner energy have all impacted coal prices.

To any expert, Adani’s coal pricing strategy would reflect these broader market conditions. For instance, during periods of high demand and constrained supply, coal prices naturally increase. It is reductive to attribute such price movements solely to company practices without considering these external factors.

Furthermore, Adani operates within a competitive international market, where pricing is largely dictated by market forces rather than individual company policies.

Adani’s coal operations would therefore have to adhere to regulatory frameworks, both domestically and internationally. The company is subject to rigorous oversight regarding pricing, quality control, and environmental standards. Any deviation from these norms could result in significant legal and financial repercussions, deterring any intentional manipulation of coal prices.

Moreover, the global coal market is highly competitive, with numerous players vying for market share. Adani’s ability to remain competitive hinges on maintaining reasonable and market-aligned pricing strategies. Overpricing would undermine their competitiveness, leading to the potential loss of contracts and market share to other coal producers.

For example, Adani has secured long-term supply agreements with various international buyers, including power plants in India. These contracts often include price adjustment clauses tied to global benchmarks and quality standards. Such mechanisms ensure that pricing remains fair and reflective of prevailing market conditions, rather than arbitrary or inflated.

So Adani’s coal prices, particularly from its Carmichael mine in Australia, are competitive with key industry rivals such as Glencore, Peabody Energy, and BHP. As of early 2024, the Newcastle thermal coal price index, a benchmark for high-quality Australian coal, averaged around $130 per metric ton. Adani’s coal, known for its high calorific value and lower impurities, is typically priced within a similar range, reflecting its quality.

For instance, Adani’s Carmichael coal is reported to be sold at approximately $125-$135 per metric ton, depending on market conditions. Compared to Glencore and Peabody, whose coal prices also hover around $120-$140 per metric ton depending on specific coal quality and market demand, Adani’s pricing remains competitive.

In markets like India, where Adani supplies significant quantities, its prices continue to balance cost efficiency with the high quality of its coal, maintaining parity with these major global coal producers.

Adani’s Indonesian coal prices in India are strategically positioned to remain competitive within the market, reflecting both quality and regional pricing dynamics. In 2023, Indonesian coal imports to India were typically priced between $90 and $110 per metric ton, depending on the grade and specific calorific value. Adani, sourcing significant quantities from its Indonesian mines, would have aligned its pricing with these market trends.

Image: Different varieties of coal (Source: zmescience.com)

Adani’s spokesperson told OCCRP that if the coal delivered was of a lower quality than what was stipulated in the contract, which allowed for a range of between 5,800 and 6,700 kcal/kg, the payment would have been reduced accordingly. FT journalists too found the final payment price varied between US$87 and US$91 per metric ton, indicating small adjustments that were made.

For instance, the company’s Indonesian coal is often priced around $95-$105 per metric ton, offering a blend of affordability and efficiency that appeals to Indian buyers. This pricing strategy would not only allow Adani to remain competitive against other Indonesian coal exporters but also ensure that Indian industries reliant on imported coal benefit from stable and cost-effective energy resources.

Rahul Gandhi, as usual, was quick to blame this alleged scam on the BJP government under Prime Minister Narendra Modi. Little did he know that the DRI, an agency under the Ministry of Finance, had opened an investigation nearly a decade ago (2009) into whether Adani Group and other companies had used offshore intermediaries to inflate the price of coal supplied to utilities.

Adani won a case in the Bombay High Court that blocked the DRI from seeking details about shipments. The DRI then appealed to India’s Supreme Court, where the case awaits a hearing that is scheduled for August 6, 2024.

If one looks at the growth trajectory of Adani Group, it has been notable under both Congress and BJP-led governments.

During the Congress-led UPA government (2004-2014), the Adani Group experienced significant expansion, particularly in the power and infrastructure sectors. Adani Enterprises’ revenue grew from approximately $1 billion in 2004 to around $6.5 billion by 2014, demonstrating a robust compound annual growth rate (CAGR) of about 18%.

From 2014 onwards, when the BJP came to power with Modi at the helm, Adani Enterprises’ revenue surged from approximately $6.5 billion in 2014 to over $20 billion by 2024, indicating a CAGR of around 12%. Moreover, the market capitalization of Adani Group’s listed companies has grown from around $8 billion in 2014 to over $200 billion by 2024, particularly in the power and infrastructure sectors.

(Source: The Indian Express)

Nevertheless, this considerable market growth extends beyond Adani alone, encompassing numerous prominent businesses in India. Under the Modi government, from 2014 to 2024, Reliance Industries saw its market capitalization increase from approximately $55 billion to over $220 billion; Tata Consultancy Services (TCS) from around $78 billion to over $150 billion; HDFC Bank from $46 billion to more than $120 billion; Infosys from about $31 billion to over $80 billion; Hindustan Unilever Limited (HUL) from $17 billion to approximately $75 billion; and Bajaj Finance from $6 billion to nearly $50 billion.

Experts believe this growth has been driven by significant investments in diverse sectors such as renewable energy, logistics, and airports, aligning with the Modi government’s focus on infrastructure and development.

As of now, these accusations have not been definitively proven, and they underscore the need for enhanced scrutiny, transparency and rigorous monitoring in coal trade practices to protect consumer interests and maintain market integrity. While such scrutiny is essential, it is far more crucial to contextualize these allegations within the broader dynamics of coal quality and pricing mechanisms in the global market.

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