Yeh Dosti… Is Adani the Government’s Biggest Beneficiary?

Money Matters

Yeh Dosti… Is Adani the Government’s Biggest Beneficiary?

Illustration: Robin Chakraborty

The authenticity of a democracy lies in the ability of common people to hold sway over their government, even when the lustre of an election fades. By this metric, it is safe to say Indian democracy is showing all the authenticity of a birth certificate in the Pakistan cricket team.

We can argue to some extent that our governments are certainly of the people and by the people, but whether they are for the people remains a dubious claim. While farm loan waivers and ₹6,000 handouts do suggest the government is looking out for the little guy, these are merely the sprinkles on a chocolate cake that is ultimately carved out to feed a select few into a sugar coma.

It is no secret that success stories in corporate India are riddled with the kind of favours that would make even our best friends stop and say, “Dude, we’re not that close.” Whether it was the government-sanctioned monopolies of the Licence Raj, or the rap-on-the-knuckle-pat-on-the-back approach to managing corporate fraud (where is Subrata Roy these days, anyway?), wealthy individuals have always known that the powers-that-be were going to have their backs when things got too rough.

But what if someone really doesn’t want to pay and is really good friends with the government?

Following the crash of 2008, economists have been keeping their ears to the ground to assess the next big threat. While there’s plenty to be worried about even without the cancellation of the Indo-Pak World Cup match (oh yes… also… war), mounting corporate debt has featured as one of the main issues. That companies have been allowed to borrow tens of thousands of crores with no concrete payback plan makes the three calls I receive each month reminding me about my EMI almost laughable.

Still, it brings some solace to the common man to learn that many of these companies – around 2,500 across India – have been pushed into insolvency proceedings and that the RBI has placed the recovery of non-performing assets on the highest priority.

But what if someone really doesn’t want to pay and is really good friends with the government?

Reports have surfaced recently on how the Gujarat government rescued the Adani Power Project from the brink of bankruptcy. It’s the kind of bromance story that Ranveer Singh and Arjun Kapoor would kill to play. It is also rife with more question marks than the end of a Christopher Nolan film… starring Ranveer Singh and Arjun Kapoor.

In a nutshell – the Adani Power Project had bid and won a contract for supplying power to the state of Gujarat. Somewhere along the way, they decided that the price they were getting was too low (because of the high cost of imported coal they were using, from an Indonesian entity owned by Adani, to generate power), and demanded a higher rate for each unit of electricity they were selling. When this was refused, they took the matter all the way to the Supreme Court, where they were ultimately turned down. In the midst of all this, it became apparent that the project was neck deep in debt and was headed down the giddy slopes of bankruptcy. At one point, Adani Power even offered a 51 per cent stake in the company for as little as 1 rupee! This sounds like the kind of bargains Snapdeal used to offer, until you read the fine print and realise the company came with ₹27,000 crore of debt. Unsurprisingly, there were no takers.

Eventually, Adani Power did what any toddler adept in the art of manipulation does when it doesn’t get its way – they refused to supply power. Sensing that buying power from outside Gujarat would allegedly be more expensive than meeting Adani’s demands, the state capitulated, and the rates were revised.

The end result of all this is higher power tariffs in the state. It’s telling when you understand that the common man is paying more to keep the lights on in his house, just so Adani can continue to hold on to a power plant that should have rightfully been taken away.

For many years, there have been murmurings that Gautam Adani is the “next big thing”. He’s Dhirubhai with a moustache, I was told. He is also known to be close to the government and unlike us regular folk who can only vote, his contribution to democracy probably comes with a gift hamper. Had Adani Power gone under, it would have been the first time any of his companies saw this fate.

Against the backdrop of his camaraderie with the government, the Adani Power saga starts yielding some interesting points for debate.

Adani’s case points to how large companies can easily win projects by bidding low and then use their clout to revise the terms, once they are deemed too big to fail.

For starters, why only Adani? Where more that 34 other power projects across the country are facing similar issues of unmanageable debt, it seems only Adani (and by extension, TATA and Essar, who also have projects in Gujarat) have been given this golden rope ladder to climb out of the murky swamp of insolvency.

It is also telling that the Gujarat government sidestepped the Supreme Court ruling and took matters into their own hands. It is also perfectly plausible that Adani knew that withholding power from Gujarat – a state where uninterrupted power is one of the key mandates of the government – was a most credible threat. After all, power plants cannot be erected overnight and with around 40 per cent of the installed private power capacity in the state, Adani was in a good position to dictate terms. As such, one might even be tempted to argue that this was not so much a case of plain favouritism as a private-public dynamic played out in a manner that left the state with no option but to succumb. Favouritism only assured that the result would be as Adani wanted.

Across the spectrum of government-allotted projects, it appears there is no pie in which Adani does not have a finger. Whether it is the Vizhinjam and Mundra Ports, where Adani appears to be the sole beneficiary for projects, despite technical shortcomings, or the fact that Adani is soon to be handed over control of six airports, nothing seems out of their reach. This strange obsession with ports notwithstanding, Adani appears to have figured out how to get exactly what it wants from the government. Shockingly, in the case of the airports, Adani was awarded a contract despite bidding against a company backed by the Kerala government, who have in turn cried foul, but to no apparent avail.

It’s a lot like that teenager who promises to get good grades in return for a reward, but then gets poor grades, throws a tantrum, and gets the reward anyway.

However, the bigger question has less to do with Adani and more with the way projects are allotted. There has been an increasing worry – and the insolvency data supports this – that companies quote below cost prices to win tenders. This is apparently true across the infrastructure industry, where stiff competition has led to a bid-now-cost-later philosophy. The idea drips with the kind of logic that eCommerce companies have become so comfortable with. However, the result is that many projects, once implemented are revealed to be unsustainable. While tendering works by inviting bidders to quote as low as possible, rarely does the government seem to demand a concrete plan as to how the prices are going to be achieved and maintained over the long term.

Adani’s case points to how large companies can easily win projects by bidding low and then use their clout to revise the terms, once they are deemed too big to fail. It appears to be a strategy that works well – provided you are one out of 2,500 companies that know they can always get what they want.