BackJSPL cornered 6% of coal reserves doled out
In all the uproar over alleged crony capitalism after the CAG report, Jindal’s name has figured prominently
Premium(Bloomberg)
New Delhi: Businessman Naveen Jindal, a lawmaker who belongs to the Congress, is not new to controversy or even taking a stance independent of his party. So much so that he attended a media conclave in New Delhi a few years ago at the risk of angering the Congress leadership, which had boycotted the event, in an assertion of individuality.
The youngest scion of the $12 billion OP Jindal Group, who is also among the highest paid chief executives in India, finds himself in a somewhat similar situation today. His Jindal Steel and Power Ltd (JSPL) says it has won all its coal blocks purely on merit and lobbying with the government had nothing to do with it, separating Jindal the businessman from Jindal the politician.
Between 1996 and 2009, JSPL and its unit Jindal Power Ltd (JPL) were allotted nine coal fields in the mineral-rich states of Orissa, Chhattisgarh, Madhya Pradesh and Jharkhand, translating into reserves of 2.59 billion tonnes, or 5.97% of the 43.35 billion tonnes doled out by the Centre. Since 1993, 195 coal leases were handed to 289 companies (several in consortium).
The coal blocks allocated to JSPL on its own and as part of a partnership were Gare Palma IV/1 (1996), Gare Palma IV/2 (1998), Gare Palma IV/3 (1998), Gare Palma IV/6 (2006) in Chhattisgarh, Utkal B-I (2003), Ramchandi Promotional (2009), Urtan North (2009) in Orissa, and Jitpur (2007) and Amarkonda Murgadangal (2008) in Jharkhand.
The Central Bureau of Investigation (CBI) is probing alleged irregularities in the allocation and utilization of coal fields after the Comptroller and Auditor General (CAG) of India alleged in a report last month that irregularities in the allocation of coal leases caused a notional loss of ₹ 1.86 trillion to the exchequer.
Separately, an inter-ministerial group is looking into the allocations and whether they should be cancelled.
In all the uproar over alleged crony capitalism that has followed the release of the CAG report, two-time Congress member of Parliament (MP) Naveen Jindal’s name has figured prominently.
JSPL’s non-producing blocks Jitpur and Amarkonda Murgadangal in Jharkhand, Gare Palma IV/6 in Chhattisgarh and the coal-to-liquid block Ramchandi Promotional in Orissa have been named by the CAG. And the coal ministry has also issued the company a show-cause notice to explain why the Jitpur block allotment shouldn’t be cancelled because of the delays in mining it.
A questionnaire sent to Jindal’s email address did not elicit a personal response from him. The company’s spokesperson sent a reply.
The Jindal empire rests on three pillars—steel, power and mining. While other steelmakers such as JSW Steel Ltd, Essar Steel and other smaller producers struggled with raw material supplies, JSPL started with a focus on raw material security, enabling it to become one of the lowest cost steel producers in the country.
Analysts say that while coal from its captive blocks has been used in producing steel and power, the meddlings and washery rejects have fired its power plants, enabling low-cost power generation for the group’s own consumption and for merchant power sales.
In 2009, the government allotted coal fields to Jindal Synfuels Ltd (JSFL), a unit of JSPL, for converting the mineral to liquid fuels, despite Rajya Sabha member Abani Roy having expressed concerns the previous year to Prime Minister Manmohan Singh about such allocations being made without competitive bidding.
The project entails an investment of at least $6 billion (around ₹ 33,300 crore today). Jindal, chairman and managing director of JSPL, lobbied for the allocation of three coal fields in Orissa to three applicants for coal-to-liquid projects rather than assigning them to any one company.
He had also lobbied for allocation of the Urtan block, as seen in a copy of a letter he wrote in 2008 to the Prime Minister’s Office. To be sure, these letters were written in his private capacity.
JSPL denied any wrongdoing.
“You would have noticed that the first four blocks as mentioned...were allocated when he (Naveen Jindal) was not in politics and not even a member of the Parliament...Based on our performance we were subsequently given four more blocks," a JSPL spokesperson wrote in an emailed response to questions from Mint.
“Projects were given to the companies based on their ability to make investments and develop mines. Hence it’s not right to say that there was inequitable distribution of natural resources...He’s an industrialist before he became a member of Parliament. Being a Parliamentarian elected from Kurukshetra (Haryana), he has responsibilities towards his constituency. Similarly, (he has) responsibilities in running a business and at all points of time, efforts are made to avoid conflict of interests."
Jindal, 42, usually dressed in an immaculate suit, studied at Delhi Public School (Mathura Road) and Hansraj College in Delhi University, from where he graduated with a degree in commerce, according to his website. He completed an MBA degree from the University of Texas at Dallas in 1992, it says.
He fought the election from Kurukshetra in 2004 as a Congress candidate and won, a feat he repeated in 2009.
As chairman and managing director of JSPL, “Naveen’s hard work and business acumen demands applause, for he has transformed the once moderately performing enterprise to the organization that today operates as the world’s largest coal-based sponge iron manufacturing plant in Raigarh, Chhattisgarh, in addition to plants in Jharkhand and Odisha," says his website www.naveenjindal.com.
The availability of coal has helped in that transformation.
“For any ore-based manufacturing company, its raw material is mineral," said Anil Razdan, former power secretary and a retired Haryana cadre Indian administrative service (IAS) officer. “Its future depends on the availability of mineral. Any such company would like to have to be present across the value chain. This may not be peculiar in the case of JSPL."
With three coal mines—Gare Palma IV/1, Gare Palma IV/2 and Gare Palma IV/3—under production, JSPL has managed to keep costs down and has remained a low-debt company. According to a presentation on its website, JSPL posted a compounded annual growth of 40% in revenue from 2003 to 2012. Net profit grew at a compounded annual growth rate of 45% in the same period.
In FY12, JSPL made a net profit of ₹ 4,002 crore, up from ₹ 3,804 crore a year ago. Net turnover was at ₹ 18,209 crore, up from ₹ 13,112 crore in the previous year.
“JSPL is one of the lowest cost steel producers in India. Other than the fact that they have captive natural resources, the company is innovative in deploying new technology for both processing cost and high-end products such as wide-width plates and rails," said Chirag Shah, director of research at Barclays Capital.
JSPL produced 4.7 million tonnes (mt) of finished and semi steel products in 2011-12, up from the previous year’s 3.85 mt. As for power, the company produced 4,634 million kilowatt hour (kWh) in 2011-12 as against 3,420 million kWh a year earlier.
“Resource ownership is a key competitive advantage for businesses now since raw materials occupy significant proportion of costs in the energy and metals manufacturing value chain. Given this, the rush to capture resource assets is an obvious conclusion. The trend, however, is more prominent in India and China," said Dipesh Dipu, partner at Jenissi Management Consultants, a Hyderabad-based energy and resources-focused consulting firm.
Naveen Jindal has done better than his brother Sajjan Jindal when it comes to finding resources.
The siblings are not new to controversy. JSW Steel, promoted by Sajjan Jindal, was named by the Karnataka anti-corruption ombudsman Lokayukta in July 2011 for their involvement in illegally mined iron ore controversy in the southern state.
JPL was in the news when the environment ministry asked the Chhattisgarh state government to take action against the company for starting construction of a 2,400 megawatts (MW) plant—comprising four units of 600MW each—at a site that had received environmental clearance for only a 1,000MW project. It later allowed JPL to go ahead with preliminary studies for environmental clearance.
JSPL also featured in the controversy surrounding India’s first so-called ultra-mega power project, the 4,000MW plant at Sasan, Madhya Pradesh. The power project was initially won by a combine of Hyderabad-based Lanco Group and Globeleq Singapore Pte Ltd, a subsidiary of Houston based Globeleq.
The controversy began when Globeleq Singapore’s stake in the Sasan project was acquired by Lanco by teaming up with JSPL. The contract was scrapped later by the government.
“Naveen is being unnecessarily targeted," a senior JSPL executive said on condition of anonymity. “Even if he lobbied for coal blocks which every businessman does, why were those blocks awarded?"
JSPL has also ventured overseas to secure natural resources.
It acquired Canadian miner CIC Energy Corp. for $115 million (around ₹ 644 crore) last week in a transaction that will give it access to 6 billion tonnes of coal reserves in Botswana. This is in addition to JSPL’s mines in South Africa, Indonesia and Mozambique.
But overseas mining comes with its own particular problems. The gestation period is long and managing the nuances of local regulations and governance can be difficult.
The CIC Energy deal followed the termination of a $2.1 billion Bolivian mining and steel venture in July because of the “non-investor-friendly attitude" of the local government. According to a report by news wire agency PTI, “two employees of JSPL were arrested and later released in Bolivia." The report said the company’s property and equipment in Porto Suarez, where the project was supposed to come up, was confiscated and a criminal case filed against company employees.
JSPL has also diversified into oil and gas sector and internationally with operations in Africa, Bolivia, Oman, Australia, Mongolia, Indonesia and Georgia.
But Jindal’s current troubles are tied to coal. So are those of other coal block allottees such as Essar Power Ltd, Adani Power Ltd, JSW Steel, Monnet Ispat and Energy Ltd, Tata Steel Ltd, Cesc Ltd, GVK Power and Infrastructure Ltd, ArcelorMittal India Ltd, GMR Energy Ltd and Lanco Group.
Between June 2004 and 31 March 2011, the coal ministry allocated 194 coal blocks on a nomination basis to various firms for captive use.
To be sure, lobbying by itself is no crime.
“Lobbying is okay as long as he (Naveen Jindal) is not in any parliamentary committee that relates to business and economy," said Shriram Subramanian, founder and managing director of InGovern Research Services, a consultancy and research firm on corporate governance.
In Parliament, Jindal is a member of committee of privileges (Lok Sabha), standing committee on home affairs, consultative committee of ministry of defence and a special invitee in consultative committee of ministry of civil aviation.
The three states where his projects are located— Jharkhand, Chhattisgarh and Orissa—are known for one other thing besides their mineral wealth: Maoist unrest. That’s something the home ministry is grappling with.
Liz Mathew in New Delhi, Shamsheer Yousaf in Bangalore and Bhuma Srivastava in Mumbai contributed to this story.
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