India: Modi’s Adani violates Indian financial regulations?

Finance Ministry and Niti Aayog had raised red flags before Adani’s clean sweep of six airports

This assumes significance given that on August 31 last year, the Adani Group signed another deal to acquire a controlling interest in the country’s second largest airport, in Mumbai — the Airports Authority of India cleared that takeover on January 12.

Written By Pranav Mukul, Anil Sasi - Courtesy: Indian Express 

Both The Finance Ministry and Niti Aayog had put on record objections regarding the 2019 airport bidding process, which were over-ruled, clearing the way for a clean sweep of six airports by the Ahmedabad-based Adani Group, records accessed by The Indian Express show.

This assumes significance given that on August 31 last year, the Adani Group signed another deal to acquire a controlling interest in the country’s second largest airport, in Mumbai — the Airports Authority of India cleared that takeover on January 12.

Aviation is one sector the Competition Commission of India has marked for review of market dominance. From running a private air-strip Finance, Niti Aayog raised red flags before Adani’s clean sweep of 6 airports at Mundra, the Adani Group is today the country’s largest private developer in terms of number of airports handled; and the second largest, in terms of passenger traffic, over a span of just 20 months.

The seven airports — Ahmedabad, Mangalore, Lucknow, Jaipur, Guwahati and Thiruvananthapuram, alongside Mumbai — together handled 7.90 crore passengers during the last fiscal (2019-20). This translates into nearly a fourth of the 34.10-crore domestic air passenger traffic.

In addition to this, the Mundra airport, to where commercial flights started in 2018 under the government’s regional connectivity scheme, has also been cleared to be converted into a full-fledged international commercial airport. Following the GVK deal, Adani also has a controlling stake in the upcoming Greenfield airport in Navi Mumbai.

Records show that before bids were invited for the privatisation of the airports at Ahmedabad, Lucknow, Mangalore, Jaipur, Guwahati and Thiruvananthapuram – the NDA government’s biggest privatisation programme so far — the Centre’s Public Private Partnership Appraisal Committee (PPPAC) discussed the Civil Aviation Ministry’s proposal for the process on December 11, 2018.

During the discussions, according to minutes of the meeting accessed by The Indian Express, a note from the Department of Economic Affairs said: “These six airports projects are highly capital-intensive projects, hence it is suggested to incorporate the clause that not more than two airports will be awarded to the same bidder duly factoring the high financial risk and performance issues. Awarding them to different companies would also facilitate yardstick competition.”

The DEA’s note, dated December 10, 2018, to the PPPAC was submitted by a director in the department’s PPP cell.

To buttress its argument, the DEA cited the precedent of the Delhi and Mumbai airports, where GMR, despite being the only qualified bidder originally, was not given both the airports.It also referred to the privatisation of Delhi’s power distribution. “In the case of Delhi Power Distribution privatisation, the city was carved out into three zones and given to two companies,” it said.

At the PPPAC meeting, according to the minutes, there was no discussion on this red flag raised by the DEA.

On the same day as the DEA note, the NITI Aayog also raised a separate concern regarding the airport bidding. Said a memo prepared by the PPP vertical of the government’s key policy think-tank: “A bidder lacking sufficient technical capacity can well jeopardise the project and compromise the quality of services that the government is committed to provide”.

In response to this, the PPPAC, chaired by the then DEA Secretary SC Garg — the first note of objection was, ironically, from his department — said that the EGoS (empowered group of secretaries) had already decided that “Prior airport experience may neither be made a prerequisite for bidding, nor a post-bid requirement. This will enlarge the competition for brownfield airports, which are already functional”.

Garg, who was transferred from the finance ministry to power ministry in July 2019 and is now an advisor to Andhra Pradesh Chief Minister YS Jagan Mohan Reddy, did not respond to queries on the issue.

A year after it won the bids for the six airports, the Adani Group signed concession agreements for Ahmedabad, Mangaluru and Lucknow airports in February 2020.

A month later, the Adani Group invoked a Covid19-linked force majeure to seek a delay until February 2021 in taking over the three airports from AAI, citing difficulties in the transitioning processes, particularly with regard to the airport staff. The AAI had asked the Group to take over the three airports by November 2020. Three of these six airports — Ahmedabad, Mangaluru and Lucknow — were consequently handed over to the Adani Group in November 2020. The concession agreement for the other three airports — Jaipur, Guwahati and Thiruvananthapuram — were signed between AAI and Adani Group in September.

Just under six months after it sought more time from AAI citing the Covid-19 pandemic, the Adani Group went on to acquire a controlling interest in the country’s second largest airport in Mumbai and the upcoming Greenfield airport in Navi Mumbai from the Hyderabad-based GVK Group.

During the bidding process for the six AAI-run airports, the Adani Group outbid its rivals, including experienced players such as GMR Group, Zurich Airport and Cochin International Airport Ltd in addition to other infrastructure players, by a big margin in each of the six bids, thereby winning the rights to operate all six airports for a period of 50 years.

This is a departure from the privatisation of Delhi and Mumbai airports, where the concession period was 30 years, in addition to the AAI holding 26% equity in both these airports.

Incidentally, the government’s first target to hand the airports over to Adani Group in November 2019 coincided with a clearance from the Competition Commission of India for the group’s acquisition of a minority stake in Mumbai airport from two South African companies Bidvest and Airports Company of South Africa (ACSA).

In its order, the CCI pointed out the nature of an airport’s “geographical monopoly” and said that the geographic market, in this case, “appears to be as narrow as each of the airport of the parties (i.e. Adani and MIAL), as for providing or availing any services at the airports, the service provider/consumer needs to have access to the facilities / premises of the concerned airport”.

Establishing this, the CCI said that presence of both the parties in the same line of business was not likely to raise any competition concerns “as presently no other airport wherein Adani group has stake operates within the vicinity of MIAL”.

Even as CCI cleared the minority stake purchase in Mumbai airport by the Adani Group, concerns flagged by the Department of Economic Affairs about a single company having a significant hold over several key infrastructure projects were reinforced.

The GVK Group, which had signed an agreement with investors including India’s sovereign fund NIIF in October 2019, trying to fend off Adani Group from getting into Mumbai airport, gave in and agreed to cooperate with the Ahmedabad-based conglomerate in August 2020.

On August 31, GVK Group signed an agreement to let Adani Enterprises acquire its stake in Mumbai airport and Navi Mumbai airport.

According to a notification by the CCI, the acquisition of MIAL by Adani Group was “deemed approved”, given that there was no overlap of businesses offered by either of the parties in the relevant geographic market. The CCI notification was uploaded in September 2020. The AAI, which holds 26 per cent in MIAL, has also approved Adani Group’s acquisition of the country’s second largest airport.

Incidentally, just a month before it decided to throw in the towel, GVK Group had to face the heat from multiple investigative agencies. On July 7, the Enforcement Directorate registered a complaint under Section 3 of the Prevention of Money Laundering Act (PMLA) against the GVK Group and its chairman GVK Reddy, his son GV Sanjay Reddy and a few others, based on an FIR filed by CBI against them on June 27. The CBI alleged irregularities of over Rs 705 crore in the development of Mumbai international airport.

E-mails sent to the Adani Group and the Ministry of Civil Aviation did not elicit a response. Sources at the Adani Group said the bidding was as per specified norms that followed “due process and due diligence.” Asked about the delay in taking over the three airports from AAI, they said that was on account of “difficulties anticipated in transitioning of airport staff and personnel in the middle of the pandemic”.

© The Indian Express (P) Ltd