Ahmedabad/New Delhi: Hyderabad-based power producer and project developer KSK Energy Ventures Ltd, founded in 2001 by entrepreneurs K.A. Sastry , S. Kishore and Kiran Vadlamani, has come under renewed government scrutiny with the allocation of coalfields to the company being reviewed for possible cancellation.
KSK Energy, according to media reports, also allegedly bought a stake in a power company promoted by S. Jagathrakshakan, a Dravida Munnetra Kazhagam (DMK) leader and minister of state for information and broadcasting in the Congress-led United Progressive Alliance (UPA) government.
An inter-ministerial group (IMG), which has been formed to examine alleged irregularities in the allocation of coalfields, is also reviewing the allotment of Morga-II block in Chhattisgarh to Gujarat Mineral Development Corp. Ltd (GMDC) and Naini block in Orissa jointly to Pondicherry Industrial Promotion Development and Investment Corp. Ltd (PIPDICL) and GMDC, according to documents reviewed by Mint.
While KSK’s 1,800 megawatts (MW) coal-based power plant at Wardha, Chhattisgarh, was to be fuelled by production from the Chhattisgarh field, it bought a 51% stake in Jagathrakshakan’s JR Power Gen Pvt. Ltd, which had a joint venture with PIPDICL, the Hindustan Times reported on 7 September. The DMK is a partner in the UPA government.
A KSK spokesperson, in an emailed responsse to questions from Mint, denied any association with politicians and bureaucrats. In answer to a question about KSK buying a controlling stake from JR Power, the spokesperson said, “We have not purchased any stake from any of existing holders in JR Power. There has been no transfer of any shares from the existing holders. We have brought in only fresh subscription.”
These developers had earlier been issued show-cause notices by the coal ministry, warning them that the coalfields allocated to them may be cancelled. The ministry also asked them to explain inordinate delays in the development of the blocks. A show-cause notice is not an indictment, but requires the firms named to present their side of the story within a stipulated time frame.
IMG is reviewing the allocation of 58 coalfields to companies that have been issued show-cause notices to explain delays in developing the blocks and why the allotments shouldn’t be cancelled. The group submitted a report on Thursday, leading to cancellation of four blocks.
The review follows a Comptroller and Auditor General of India (CAG) report last month that alleged irregularities in the allocation of coalfields that, it said, had resulted in notional losses of Rs.1.86 trillion to the treasury. The CAG report brought corruption back to the political centre stage, with the opposition Bharatiya Janata Party demanding cancellation of the coal blocks and an independent inquiry, besides the resignation of Prime Minister Manmohan Singh.
The suspicion is that some allottees had intended to profit from the sale of stakes in the coalfields and had no intention of mining them.
“PIPDICL continues to own and mine the coal while JR Power is under an obligation to supply power at predetermined rates in return for coal supplies from the coal block,” KSK said in a media statement on 8 September.
“KSK or JR Power have no proprietary rights over the Naini block, and the arrangement for supply of coal from the said block by the government company is attendant with the obligation to supply power on predetermined tariffs,” it said.
“Due to KSK’s proven power project development expertise, technical and financial capabilities, the company was roped in as the project partner for JR Power. KSK has infused capital into JR Power at par. KSK had not bought a single share from the erstwhile promoters of JR Power and all investments by KSK are by nature of fresh subscription,” the statement added.
KSK Energy Ventures has as its non-executive chairman T.L. Sankar, who was earlier energy secretary in the Andhra Pradesh government. He also headed the state electricity board and was awarded the Padma Bhushan, the third highest civilian award given by the Indian government, in 2004, according to the company’s official website. Mint couldn’t contact Sankar.
Jagathrakshakan wasn’t available for comment. His office referred Mint to a previous statement released by the minister. In that statement, the minister sought to clarify that he had resigned from the post of director and stakeholder of JR Power even before he filed his nomination for the Lok Sabha election in 2009, The Hindu newspaper reported on 8 September. He said the shares of the company had not been sold to anyone, the report said.
KSK is not new to controversy. The company introduced a new and significant “risk factor” in its final offer document a week before its initial public offering (IPO), which stated that GMDC had informed the firm that “the coal supply and investment agreement is subject to government approval and that the relevant documents have been submitted to the government for its approval”, Mint had reported on 18 June 2008.
KSK Energy Ventures was to supply 1,100MW of electricity to Gujarat from its 1,800MW coal-based thermal power plant at Wardha, being set up by a subsidiary Wardha Power Co. Pvt. Ltd, by 2010. This was the biggest power project of the company at that time. It was expected that GMDC would supply coal and pick up a 26% stake in Wardha Power in keeping with an agreement.
The Gujarat government later backed out and the project failed to take off. Later, the Morga-II block was identified to be in a so-called no-go zone where mining is not permitted. Torrent Power Ltd and Adani Power Ltd were also to be supplied coal from the Morga-II block. In 2009, the Gujarat government decided to divide the Naini block into two and supply fuel to these projects.
“They (KSK) have been facing difficulties after the Gujarat plans didn’t work out,” said a Hyderabad-based industry expert, requesting anonymity.
A GMDC official, requesting anonymity, said the Morga-II block was cancelled by the Centre and they were yet to get a new one. For the Naini block, he said GMDC wanted to ship the coal to Gujarat, where Adani Power and Torrent Power will use it to produce 1,000MW each.
“While there may have been some opposition by the Orissa government on this, the Centre is yet to take a final call on the matter,” the official said.
KSK has attracted investments from Macquarie Bank Ltd, GE Capital International, Mauritius, Singapore’s Tree Line Asia Master Fund Pte Ltd, the UK’s Universities Superannuation Scheme Ltd, Infrastructure Development Finance Co. Ltd, the former Lehman Brothers Holdings Inc. and Morgan Stanley.
The company’s parent, KSK Power Ventur Plc, is an Isle of Man-incorporated entity listed on the London Stock Exchange’s Alternative Investment Market.
A KSK spokesperson, in an email response to questions from Mint, said the original promoters of the company remain on board.
The promoters, chartered accountants by profession, were earlier the auditors for the Andhra Pradesh State Electricity Board. They started on their own by setting up small hydropower projects in the state. Vadlamani sold his stake to GE and is now based in Singapore.
The company also has Anil Kumar Kutty, a former Indian Administrative Service officer, as a non-executive director. He was the first head of the Andhra Pradesh Transmission Commission and a joint secretary in the power ministry.
Kutty and Vadlamani couldn’t be reached for comment. The company’s office refused to give contact details of the promoters. A spokesperson for the company said on phone that the promoters and directors were currently not available for comment.
The KSK promoters “entered a different league when they got a line of finance from Morgan Stanley in 2003 for around $150 million (Rs.830 crore today)”, said a Delhi-based power sector analyst, requesting anonymity. “They then sort of became private equity investors and started picking up smaller stakes in other projects.” Mint couldn’t independently verify this. An email sent to Morgan Stanley elicited no response.
KSK said it has a track record of having commissioned and operating about 1,000MW of power capacity. It is constructing a 3,600MW power project in Chhattisgarh that is scheduled for commissioning, unit-wise, starting in early 2013.
Aman Malik in New Delhi, and P.R. Sanjai and Ravi Krishnan in Mumbai contributed to this story.