The Rise Of Gautam Adani

wealthymattersIn September 2003, about a year after Gujarat was ravaged by communal riots under Modi’s watch, the chief minister was seeking approval from the business community. Thus was born the ‘Vibrant Gujarat Summit’, the investment jamboree that Modi has made a biennial political statement since. Back then, though, it was a tentative idea, rising from the ashes of a polarised state and a leader seeking validation.

Some leaders of the Confederation of Indian Industry (CII), the country’s main industry grouping, had criticised Modi for the riots and told him that it would be hard for the state to pull in investments. He needed to prove them wrong,Companies were called to announce large investments in the state. While everyone expected the Ruias and Reliance to make large announcements, Adani surprised everyone by announcing a 15,000 crore investment.

Any reference—good or bad—to Gautam Adani’s sprawling business empire is rarely unaccompanied by his alleged proximity to Narendra Modi, the man who could be prime minister in 2014.There are parallels between the two. Both have their roots in Gujarat. Both have bloomed in their respective spheres in the past decade. Both have created a deep imprint at the state level and are restless for a national footprint. That is the ‘now’.

There is also a ‘then’. A dissection of the shape and character of the swift rise of Gautam Adani—group turnover has increased from 3,300 crore in 2000 to 47,000 crore in 2013—lead to parallels being drawn with another Gujarati, the man who redefined entrepreneurship in a semi-open, state-controlled economy: Dhirubhai Ambani. Adani is called the other ‘Big A’,

Like Ambani, Adani is a school dropout and a first-generation entrepreneur. Like Ambani, Adani started in the import-export business, before moving on to things more industrial. Like Ambani, Adani built one industrial business, and then integrated, both backward and forward, around it. Like Ambani, Adani seeks scale and is outstanding at execution. Like Ambani, Adani has interests in businesses where deep government connections matter, and has managed to navigate the political economy of those spaces with purpose and élan, while drawing a fair share of critique. In just 25 years, Adani has built one of post-liberalisation India’s biggest infrastructure companies.

Today, Adani Enterprises, the company he set up in 1988 to import plastic granules, is India’s largest coal importer, its largest private port operator and its largest thermal power producer, among other things. But if Ambani nurtured—and fed off—the equity cult, and balanced it with discipline and smarts, Adani has relied on debt to fund capital spending.

Adani’s rise started from Gandhidham. A six-hour drive from Ahmedabad, it services Kandla, India’s largest port till three months ago, before Adani’s adjoining port, Mundra, unseated it. In 1981, his elder brother called 19-year-old Adani back from Mumbai to help manage a plastic-film manufacturing business he had just acquired. The business was struggling. It needed 20 tonnes of PVC (polyvinyl chloride) a month, but IPCL, the sole producer in India at the time, couldn’t supply more than two tonnes. Seeing an opportunity, in 1988, Adani began importing plastic granules into Kandla. It was a time with a lot of fluctuation in granule prices. Every time prices went up, traders would renege on existing commitments and sell their shipments elsewhere. Adani  was different. People trusted him. He had a soft-spoken nature and kept his word.

Adani was also collecting LoAs (letters of authorisation) from small plastic makers and ordering in bulk. He also tied up with the Gujarat State Export Corporation, the state PSU tasked with supplying inputs to small companies. Adani would consolidate requests and then place an order under GSEC’s name. As a government entity, GSEC did not need LoAs. He would import, give GSEC what it needed, and trade the rest. As his volumes grew, he obtained a government licence that let him import goods worth 12 crore without LoAs. Adani’s business grew at a blistering pace. Between 1988 and 1992 , the size of his orders grew from 100 MTs (metric tonnes) to entire 40,000 MT shiploads. He began importing chemicals and petroleum products. He also moved into exports and became a star trading house, which reduced the need for bank guarantees, among other things. By the early-90s, the young entrepreneur started being noticed, including by politicians. By the early-nineties Adani had come close to state politicians like the late Chimanbhai Patel and Keshubhai Patel. Controversy followed. In 1999, the Directorate of Revenue Intelligence arrested brother Rajesh Adani for duty evasion. Any importer has three big fears—the customs, police and the income tax,An antidote to that fear was provided by the politicians.

By 1997-98, Adani decided to move beyond trading and into infrastructure like ports and power plants. Mundra port was his first project, which came up on land given for another use by the Chimanbhai Patel government in 1991-92. This 3,000 acres of coastal land, in Kutch, had been given to agribusiness group Cargill and Adani for salt production. That plan fell through as Cargill backed out after protests by George Fernandes and others. Adani stayed put. Tired of delays at Kandla and Mumbai ports, where the group was incurring a loss of 8-10 crore a year due to delays, he began thinking of converting Mundra into a private captive port.

Liberalisation had started. To capitalise, Gujarat decided to open more ports. To accelerate the process, it decided to allot ports to private companies in a joint venture with the state. An initial list of 10 ports was drawn up, one of which was Mundra. It was deeper than Kandla (14 metres versus 12 metres), which allowed large ships, of 200,000 MT (metric tonnes) and above, to berth. The first ship docked at Mundra in 1998.

This is where the parallels with Ambani come in. In 1958, Dhirubhai was working in Aden (Yemen),and then, he got into the import export business. Set up a (textile) mill. And that became the nucleus for his future expansion, taking him into power, petrochemicals, gas, etc.For Adani, Mundra was the nucleus.  In 1999, he ventured into coal trading, with the mineral landing at Mundra. From the port also came the special economic zone (SEZ) next door, in 2003-04, where companies set up shop and shipped via Mundra. With coal and industrial customers at the SEZ, Adani ventured into thermal power generation.

India’s infrastructure majors have followed two models. The first is the ‘scattered universe model’—a company goes wherever it sees an opportunity,for example  GMR. The second is the ‘landlord model’. The company drops anchor in a region, builds support for its business, and grows in concentric circles—moving into related geographies and businesses. DLF grew in real estate like that, in Gurgaon. Adani hit a sweet spot in infrastructure, in Gujarat. These are all very government-based businesses. The tariffs, clearances, etc, are mostly determined by the state government. So, for example, the port needed clearances from the Gujarat Maritime Board; the SEZ from the state besides the Centre. A core competence of the Adani Group is getting their projects cleared faster. Execution followed. Adani is said to be good at spotting good professionals in the private sector or the government, and does not skimp on expenditure. Between them, he created a capable port in Mundra. For the first three years, there was nothing special about Mundra’s growth, and Adani’s decision to set up a port was threatening to blow back.

In 2000, in one of the several self-defeating decisions taken by it in the last 15 years, Kandla rejected P&O Ports (Australia), one of the world’s largest port operators. P&O set up its container terminal at Mundra and infused equity into the company. Earlier this year, Mundra, in its 15th year of operations, overtook Kandla as India’s largest port by volumes handled. Mundra is the group’s main cash cow. For the last five years, Adani Ports and SEZ has averaged an operating margin of 71%.

Some years back, Shell-Total asked Citibank to find a company to set up and operate a non-LNG terminal at its Hazira port. Citibank chose Adani.  Hazira LNG awarded the tender in November 2009. Government approvals took six months. In May 2010, construction began. And the port began operations in May 2012. Shell and Total were amazed to see the progress.

Adani also thought big. He was always ambitious. He wanted to create the largest trading house possible.While setting up his first power plant at Mundra, he told his friends that he would set up a 5,000 MW plant. They  thought he was  making loose talk. After all, since independence, Gujarat had added just 8,000 MW. But he proved his friends wrong.It is like Dhirubhai Ambani, who set up large factories even when the Indian market was small. Adani had strong conceptual clarity about the business he wanted to create. And then, he used political linkages to get the assets and the terms he wanted.

Between 1995 and 2001, Gujarat politics in general and the state BJP in particular went through a period of great churn. With elections scheduled in Gujarat in 2002, LK Advani replaced Keshubhai Patel with Modi, a political novice then, choosing him over senior state leaders like Suresh Mehta and Kashiram Rana. Advani was planning to make a run for PM and Gujarat was a key state for the BJP. To make sure he controlled Gujarat, he wanted an outsider in charge at Gujarat who would be dependent on the party high command for his legitimacy. Modi took charge in Gujarat in 2001, knowing he would have to win the state elections. But also, he did not want to depend on Pramod Mahajan, who was managing the BJP’s finances. This is his personality. He doesn’t want to depend on anyone for anything.  Modi wanted his own source of funds, but this was not easy. Industry was suspicious of this RSS man who had taken charge of Gujarat. Modi was suspicious of industry. In his first year, Modi kept all businessmen at an arm’s length. He suspected they were taking undue advantage of the state economy. Modi distrusted Adani due to his rapid rise and thought he was too close to Keshubhai. It took Adani a year, from October 2001 to September 2002 to find his way into Modi’s inner circle. This was partly due to the 2002 elections. Two other factors contributed. After the Gujarat riots, when some CII leaders criticised Modi, a group of local businessmen—including Adani, Indravadan Modi of Cadila, Karsanbhai Patel of Nirma and Anil Bakeri of Bakeri Engineers—established a rival organisation called the Resurgent Group of Gujarat (RGG) and threatened to leave CII. And then came the Vibrant Gujarat Summit’, and the 15,000 crore commitment from Adani, who wanted to grow big in a state that had Reliance. He too wanted a break at that time.And this is how he angled for it.

Adani’s growth has exploded in the last 10 years, funded extensively by banks. In 2006-07, the group had revenues of 16,953 crore and debt of 4,353 crore. By 2012-13, revenues stood at 47,352 crore and debt at 61,762 crore. This extraordinary growth has given rise to persistent charges that the state has favoured his group. The national auditor flagged two instances where the Gujarat government extended undue benefits to the Adani group. First, between 2006 and 2009, Gujarat State Petroleum Corporation bought natural gas from the open market and sold it to Adani Energy at a price lower than the purchase price; the Comptroller and Auditor General (CAG) says the company received an undue benefit of 70.5 crore. Second, CAG observed that Gujarat Urja Vikas Nigam recovered a penalty of 79.8 crore from Adani Power for its failure to supply power between August 2009 and January 2012, against the auditor’s calculation, based on the power purchase agreement, of 240 crore.

As elections get costlier, politicians are turning to natural resources allotment. This has taken the form of rent-sharing to meet politicians’ need for cash while giving the company a competitive advantage. There are other charges. Ahmedabad High Court lawyer Anand Yagnik, a lawyer who is litigating against Adani, says: “The state government has denied environmental clearances to the Kandla SEZ under the CRZ (coastal regulation zone) notification while allowing the Mundra SEZ to go ahead even though it did not have environmental clearances.” Over the years, the company has tightly integrated state politicians, bureaucrats and the judiciary into its operations. It is widely believed that he works very closely with the Gujarat government, Most ex-IAS officials in the state join Adani, not Reliance. Last October, former home secretary GK Pillai joined the board of Adani Ports. In 2010, when Pillai was the home secretary, the ministry denied Adani Ports security clearance to bid for port projects in Kerala, Tamil Nadu and JNPT. Such intersections are also seen with the judiciary. On July 17, advocate-general (AG) for Gujarat, Kamal Trivedi, represented Rajesh Adani in a duty evasion case made by the Enforcement Directorate.Almost every senior advocate in the Ahmedabad HC has been empanelled by the Adanis. Over 20 lawyers who fought cases against the Adani Group are now on its retainership. There are just three or four lawyers who take up cases against him.

Adani is expanding beyond Gujarat—bidding for ports across India, mining coal in Chhattisgarh and power plants in Maharashtra. Even as is seen to be close to Modi, Adani has been cultivating political relationships, and is reportedly on good terms with Kamal Nath, Sharad Pawar and Praful Patel. Just like Ambani who was identified with the Congress, but could yet seem equidistant across parties. While Ambani’s place in history is secure, Adani’s moment of reckoning awaits him. His is a story well worth following.

About Keerthika Singaravel

One Response to The Rise Of Gautam Adani

  1. Pingback: The Modi Express Should Not Stop in Britain | one small window...

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