Adani makes a self-serving move by declaring an Indian SEZ

Published by MAC on 2019-03-26
Source: Scroll.in, Sydney Criminal Lawers

New peoples march planned in Australia

In final days of Modi government, Adani project in Jharkhand becomes India's first power sector SEZ

The decision will save the company Rs 3.2 billion annually in clean energy cess alone.

Aruna Chandrasekhar

Scroll.in

25 March 2019

Twelve days before elections dates were announced, the Modi government on February 25 cleared the way for an Adani project in Jharkhand to become the first standalone power project in India to get the status and benefits of a Special Economic Zone. For this, the commerce ministry amended power-related guidelines for Special Economic Zones earlier this year.

Geared towards exports, Special Economic Zones get a host of duty-waivers, tax exemptions and faster clearances. The government decision to grant SEZ status to the Adani project will save the company billions of rupees in taxes – Rs 3.2 billion annually in clean energy cess alone.

In addition, with the amended guidelines mandating that all electricity generated in the SEZ be exported, Jharkhand could lose its share of electricity from the project.

The project that will be converted into an SEZ is a coal-fired power plant in Godda district of Jharkhand being built by Adani Power Limited, the power subsidiary of the Gautam Adani-led infrastructure conglomerate. Under a memorandum of understanding signed with Bangladesh in August 2015, the plant will mainly supply electricity to India’s neighbour.

However, Jharkhand’s energy policy requires all power projects to supply 25% of the electricity locally. As Scroll.in has previously reported, the Bharatiya Janata Party government in Jharkhand amended the energy policy in 2016 to allow Adani to charge a higher price for electricity from this project than other thermal plants bill the state. Now, by allowing Adani to convert its power plant into an SEZ, the BJP government at the Centre has made Jharkhand’s share of electricity uncertain.

To enable SEZ status for the Adani project, the Centre had to amend 2016 guidelines that prohibited the establishment of a standalone power project inside an SEZ. The commerce ministry moved the amendment on December 28, 2018, which the Board of Approval for SEZs cleared on January 9, 2019, after commerce minister Suresh Prabhu directed it to consider the matter, minutes of board meetings show.

A month and a half later, on February 25, the board approved Adani Power’s proposal for a sector-specific SEZ for power in Jharkhand. The same proposal had been rejected by the board in February 2018 because it was inconsistent with the guidelines and there was no recommendation from the state. It is unclear whether Jharkhand backed the Adani proposal the second time around, or whether its views were sought by the board. Questions sent to the state government went unanswered.

Scroll.in also sent questions to the commerce ministry and the board, asking whether the amendment of guidelines was prompted by the Adani proposal, or whether there was a larger rationale for the decision. No response has been received.

Questions emailed to Adani Power Limited about how the SEZ status will impact the economics of the project remained unanswered at the time of publishing. On March 5, in a clarification issued to Indian stock exchanges, the company said it was yet to receive the letter of approval for the SEZ from the government.

First private coal project to export electricity

As a power-deficient country, India has restricted electricity exports. But in December 2014, it signed a framework agreement for energy cooperation with other countries of the South Asian Association for Regional Cooperation to enable electricity to be exported to Bangladesh, Bhutan and Nepal. Until then, the only power projects geared to export electricity were being built by public sector companies like the National Thermal Power Corporation and regulated by the Power Trading Corporation.

In June 2015, Prime Minister Narendra Modi travelled to Dhaka to meet his Bangladeshi counterpart Sheikh Hasina and made a pitch for Indian power companies, both public and private. Two months later, on August 11, 2015, a memorandum of understanding was signed by Adani Power Limited and Bangladesh for the export of 1600 megawatts for electricity.

However, signalling that the export of electricity by private projects was still an exception, on December 5, 2016, the Ministry of Power released guidelines on the cross-border trade of electricity that said: “Any coal-based Indian thermal power projects other than Public Sector Undertakings shall be eligible for export of electricity to neighbouring countries only if surplus capacity is certified by the Designated Authority.”

Adani Power Limited presumably obtained such certification since it went on to ink an implementation agreement with Bangladesh Power Development Board in April 2017, followed by a power purchase agreement in early November 2017.

Does electricity export qualify as an SEZ?

Special Economic Zones were first created in 2000 by Atal Bihari Vajpayee-led BJP government under a policy to encourage exports. In essence, the idea was that to enable Indian companies to compete in global markets, industrial production for exports must be exempt from duties and taxes, both on inputs as well as the final output.

Since India did not export electricity until recently, the question of whether power projects should be considered SEZs did not arise. However, guidelines were framed to govern power stations set up inside SEZs to supply power to the industries operating there.

On February 16, 2016, the commerce ministry amended the guidelines to explicitly state: “No single stand-alone power plant will be permitted to be set up in an SEZ in which there would be no other units.” This effectively meant a standalone power project could not be considered an SEZ.

Adani bid to become SEZ

A proposal by Adani Power Limited, seeking in-principle approval for setting up a sector-specific SEZ for power in Godda district, came up for consideration for the first time in front of the Board of Approval for SEZs on February 5, 2018.

The Board noted the proposal was inconsistent with the power guidelines issued by the commerce ministry in February 2016. It also noted that there was no recommendation from the state government, and hence it decided not to approve the proposal.

Ten months later, on December 28, 2018, the commerce ministry moved a proposal before the Board of Approval of SEZs to amend the February 2016 guidelines. It pointed to guidelines issued by the power ministry some months after its own guidelines in December 2016, underlining a specific provision: “Indian Generating Stations supplying electricity exclusively to neighbouring countries may be allowed to build independent transmission system for connecting to the neighbouring country transmission system…”

The commerce ministry argued that “exclusive export of electricity from SEZs could not be envisaged” at the time it had drafted the February 2016 guidelines, and hence, they should be revised.

The next meeting of the Board of Approval of SEZs was held on January 9, 2019. The minutes of the meeting state: “The Board was informed that the Hon’ble Commerce and Industry Minister had directed that the matter be deliberated in the Board of Approval. The Board, after deliberations, approved the proposal.”

There was no mention of the state government’s views on the matter – or whether they were even sought.

On February 25, the board approved Adani Power’s proposal to set up “a sector specific Special Economic Zone for power” over an area of 425 hectares in Motia, Mali, Gaighat and adjacent villages in Godda district, Jharkhand. This is the existing site of Adani Power’s coal-fired thermal power plant.

What does Adani gain?

SEZs are deemed foreign territory for the purposes of trade, with the minimum possible taxation and regulations. “According to the SEZ legal framework, goods and equipment coming into the SEZ – otherwise deemed foreign territory – will not have import duties,” said Preeti Sampat, a faculty member at Ambedkar University who works on rights and resources in relation to infrastructure creation in India. “Domestic area taxes like income tax and so on are also exempt for income from economic activities and production in SEZs for an extended period of time, except the minimum alternate tax.”

Said Vibhuti Garg, Senior Energy Specialist with the International Institute for Sustainable Development: “Given the prices of renewable energy have reduced and coal-based power generation is finding it difficult to compete with low cost renewable power, government support to such imported coal-based plants by declaring it as an SEZ is reducing the level playing field.”

Here are some of the ways in which the Adani project stands to gain from SEZ status.

Equipment costs

Currently, imports of power equipment attract duties of 10% on the total basic price. In April 2018, Adani signed an Engineering, Procurement and Construction contract with SEPCO, a Chinese firm, to design, manufacture and install equipment, including a pulverised coal-fired supercritical steam generator.

The SEZ status will enable Adani to avoid paying these import duties on the equipment, reducing its capital costs.

Imported coal duties

Adani Power will also save on working costs.

The company has said it will import coal from Australia for the Godda project. Currently, power projects using imported steam coal pay 10% basic customs duty and 5% Integrated Goods and Services Tax, which are calculated on the base price. In addition, they pay 10% Social Welfare Surcharge on all duties, taxes and cesses which are levied and collected by the central government.

As an SEZ, Adani can skip all these duties, taxes and surcharges, which will bring down its working costs.

Clean energy cess

For every tonne of coal that is imported, power producers had to pay a clean energy cess of Rs 400 per tonne, which has since been converted to a GST compensation cess.

Adani Power Limited, in its environment clearance documents, states that the Godda plant will need between 7 million tonnes of coal to 9 million tonnes every year to generate 1496 MW of power. It furnished a commitment letter with an Indonesian firm PT Limas Tunggal for the supply of 9 million tonnes of coal per year. Taking an average of 8 million tonnes of coal per year, Adani will avoid paying GST compensation cess of Rs 320 crore every year. Over 25 years – the duration of Adani’s power purchase agreement with Bangladesh – that could go up to Rs 8,000 crores or Rs 80 billion.

Transport charges

Under the GST regime, coal importers have to pay 5% IGST on 10% of the sum of cost, insurance and freight by sea. The Adani project will no longer have to pay this.

The project will also be exempt from 5% GST levied on coal transported by rail. Coal shipped from Australia for the Adani project will be brought inland by railways.

Other taxes

The Adani SEZ would attract a full income tax exemption on export income for the first five years, 50% for the next five years and 50% on export profit for five years after that. It would be exempt from electricity duty payable to Jharkhand, besides other levies.

Faster clearances

One of the biggest hurdles to the project was opposition from residents of the villages where it was seeking to acquire land. As Scroll.in has reported previously , Jharkhand government had contentiously aided the transfer of farmland for the Adani project by declaring that the project served “public purpose” and overlooking the objections of local residents during the mandatory social impact assessment hearings.

Now, as an SEZ, the Adani project could bypass several environmental safeguards entirely.

The project includes not just the thermal power plant but also electricity transmission systems running up to the Bangladesh border. It also includes a 98-km pipeline to river Ganga at Sahibganj. While the initial water source for the plant was the Chir River, this allotment was cancelled on January 15, 2018 and was changed to the Ganga. Adani Power signed a water drawal agreement with the Jharkhand Government on March 9, 2018.

This change necessitated an amendment of the project’s environment clearance, for which the company submitted a proposal on December 10, 2018. In a meeting held on February 23, 2019, an expert panel at the environment ministry deferred taking a decision on this proposal. Two days later, the project was approved as an SEZ.

Units within an approved SEZ are not typically required to conduct public hearings to obtain environmental clearances.

“Why don’t they just make the power plant in Bangladesh? Why must they pollute our water and cut our trees?” said Sushil Hembrom, a Santhal Adivasi elder from the village of Gangta, where Adani Power seeks to acquire land.

No power to Jharkhand

Since the project took shape in 2015, opposition parties and civil society groups in Jharkhand have repeatedly questioned the BJP government for allowing Adani to set up a power project which aims to primarily supply electricity to Bangladesh. The state will provide land, infrastructure, water for the project, and shoulder the burden of pollution. Barring a share of 25% electricity, it is unclear what it gets in return, opposition leaders have pointed out.

Now, with SEZ status for the project, the state could even lose this. The commerce ministry’s proposal to amend the guidelines stated: “There will be no option for selling any surplus power in the DTA [domestic tariff area] as the entire power will have to be exported abroad or consumed within the SEZ to be treated as export in terms of Section 2 (m) (iii) of the SEZ Act, 2005.”

Legal experts say Jharkhand government could contest this, since it goes against the state energy policy as well as the memorandum of understanding between the state and Adani Power Limited on February 17, 2016. A senior official of the state government, who spoke on the condition of anonymity, however, indicated the state was unlikely to contest this. “It is no longer under the state’s purview,” the official said.

The state government did not respond to a questionnaire emailed by Scroll.in.

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The 'Stop the Adani' convoy

An interview with Bob Brown

by Paul Gregoire

Sydney Criminal Lawyers

22 March 2019

Adani announced last November that it plans to go ahead with a self-funded
and scaled-down version of the overwhelmingly opposed Carmichael thermal
coal mine in the central Queensland Galilee Basin.

This is following the Indian mining giant’s inability to secure any
private sector investment both here and overseas, after environmentalists
successfully pressured financial institutions into boycotting the Adani
project.

At present, the terminally-delayed mine still needs to receive two
environmental clearances. One relating to the endangered black-throated
finch from the state government. And the other is from the federal
government in regard to the groundwater impact the mine would have.

There’s the challenge from the Wangan and Jagalingou Traditional Owners
that’s set to go before the full bench of the Federal Court in May. They
claim that the Indigenous land use agreement (ILUA) that’s essential for
the mine to go ahead is void.

And now, the Bob Brown Foundation is about to launch the Stop the Adani
Convoy, which will depart from Hobart on 17 April and make its way through
Melbourne, Sydney and Brisbane, before it arrives in the Galilee area.

History repeats

As director of the Tasmanian Wilderness Society, Bob Brown led the
blockade to protest the damming of Tasmania’s Franklin River in
mid-December 1982. The renowned environmentalist believes the upcoming
convoy has the potential to outnumber that landmark demonstration.

Thousand’s took part in the three month blockade in Tasmania’s southwest,
which brought the cause front and centre of public debate as a federal
election loomed. And following its win in the March 1983 election, the new
Hawke Labor government intervened to stop the dam.

Mr Brown expects many Australians will join the Stop the Adani Convoy as
it makes its way across the country. And the founder and former leader of
the Australian Greens and his fellow protesters will hold a rally, after
the convoy rolls into Canberra in early May, right before the federal
election.

Driving the message home

Gautam Adani is the Indian billionaire at the head of the Adani Group. At
an April 2017 meeting in New Delhi, then Australian prime minister Malcolm
Turnbull told Adani not to worry about a recent Federal Court decision
that threatened the mine, as “the issue needs to be fixed and will be
fixed”.

And in June that year, the Liberal Nationals government passed what became
known as the “Adani Bill”, which amended the Native Title Act. The move
secured the passing of the disputed ILUA, clearing the way for the Indian
company to go ahead with the mine.

Currently, both major parties are supporting Carmichael. But, there are
vocal campaigns calling on Labor to shift its position. And the Bob Brown
Foundation’s convoy plans to drive this issue into the frontline of the
election debate.

Sydney Criminal Lawyers spoke to Bob Brown about the momentum the pending
protest is gaining, the impact that the thermal coal mine would have if it
went ahead, and what Australians should consider when voting in the coming
federal election.

SCL: Firstly, the Stop Adani Convoy is going to begin in Hobart n
mid-April. Mr Brown, what sort of support does the convoy have so far?

BB: The support is great. I’m currently in Queensland. And the biggest
support is coming from Queensland itself.

But, we’re right across the board getting people saying they want to come.
Some are doing a little bit. Some are doing a lot. People want to join in.

It’s a big commitment. It’s going to take quite a lot of time and some
money, because people have to look after their own accommodation and meals
and so on.

But, we’ve got 450 definitely signed up. And that’s growing every day.
Originally, we had 1,800 expressions of interest. Now, people are working
out where they’re going to stay. How they are going to get there.

The applications keep rolling in.

SCL: How much less of an impact would the newly proposed scaled-down
Carmichael mine have upon the environment compared to the original
full-scale model?

BB: If you’re concerned about the planet, zero. They are going to take
every ounce of coal out, but at a slower rate. And burn it and put the
greenhouse gases into the atmosphere. The exact same amount.

Secondly, they will put in the infrastructure to their mine, which opens
up the way for five or six other huge coal mines in the Galilee Basin.

So, the impact is enormous. The downscaling is not because Gautam Adani
has suddenly become a greenie. It’s for their own purposes.

The fact is at the end of this century, looking back, it won’t matter what
rate the coal was taken out. It is all going to be taken out, burnt and
heat the planet.

SCL: Opposition to the Adani mine has been growing. In your understanding,
how much opposition to the project is there amongst the public?

BB: Well, the polls show it is over 70 percent. And, as we saw just, there
was protest in the Western Australian parliament about the Adani mine.
It’s everywhere.

Everywhere I go, I am pulled up by people who say, “What are you going to
do about Adani? How do we stop Adani?”

It’s a litmus test for the growing fear, even terror, that people have
about the planet’s biosphere – which gives us life – being damage[d]
irreparably.

SCL: At this moment in time of rising climate change, as well as rising
awareness about it, what do you think about the two major parties still in
support of a huge thermal coal mine like Carmichael going ahead?

BB: Well, they’re captured, aren’t they? By the old polluting industry. As
far as jobs are concerned, Adani is committed to automating: getting rid
of as many jobs as possible.

And there are cogent studies to show that it actually will be a net loser
of jobs in the coal industry, because exporting its coal will reduce the
market for already operating coal mines elsewhere. But, the big job
creator is renewable energy.

And certainly, on the Barrier Reef, there are 60,000 people who work in
tourism, showing people the reef. And it’s half dead due to global
warming. Due to burning coal. Due to people like Gautam Adani.

SCL: The convoy is set to hit the region of the Galilee area mid-way
through its journey. For those on the convoy, what should they expect when
they arrive in the region of the mine site?

BB: Of course, you can’t go to the mine site itself, because they’ve got
security guards and so on. But, the traditional owners who are opposing
this mine have said they will welcome us into the area.

And recently, farmers in Queensland took a petition to state parliament
against the disruption of the Artesian Basin – the water – that this mine
is going to be involved with.

There is great support for a peaceful, lawful standing up to a very
destructive operation, which is going to impact on every Australian, their
children, and indeed, people right around the world, as it helps heat an
already overheated planet in the years ahead.

SCL: You were involved in the Franklin Dam Blockade, which resulted in the
newly elected Hawke government bringing a halt to the project. How would
you say that experience has informed you in organising the Stop Adani
Convoy?

BB: The first thing is that Bob Hawke had the leadership to say, “I will
stop the dam.” And even though he lost a couple of seats in Tasmania, he
won a whole line up of seats on the mainland.

Of course, we now know that one of the best things that ever happened to
Tasmania was instead of going into debt for another dam, we’ve got a
global icon attracting people and creating jobs in Tasmania.

Just recently, in the case I took to the High Court with fellow protester
Jessica Hoyt, it was ruled that peaceful protest is part of our democratic
rights.

So, the question is, will we all sit on our hands? Are we all going to be
part of the loss of liveability on the planet? And loss of beauty? And
loss of spiritual connection on the only planet that gives us life?

Or are we going to do something? And the convoy is about doing something.

And even people who can’t come can contribute, because it’s a very
expensive operation for a very small organisation, like our foundation.
We’re open to people helping us all along the way.

And it’s part of democratic protest. It’s immediately before the election
to remind people that they can do no better than decide their vote
according to which party, and which candidates, are going to stop this
mine and stand up against global warming.

SCL: And lastly, Mr Brown, your aim is to see the end of the Adani mine.
How do you foresee the convoy bringing this about? How do you hope this
plays out?

BB: As with the Franklin Blockade, it gave national attention to a
beautiful place about to be destroyed immediately before an election. And
hundreds of thousands of voters changed their vote to save it.

Here, we’ve got a massive project about to get underway to degrade the
whole planet. And voters have to work out, when they’re going up the
school path to the ballot box, whether they’re going to support that.

Australians have just got to make sure they do vote for their children,
and not just the immediate tax break, or whatever immediate, self-seeking
thing is offered by the candidates for parliament.

This is about the planet. It’s about our children. And our fellow species.
It’s about life on Earth. It’s a critical vote for Australians in May.

And the convoy is to make sure the environment, this time, is not taken
off the agenda in the last week or two before an election.