'DNA' exclusive: Emta’s clout spans Left, Right & Centre

This is the second in three-part series.

Left, Right, or Centre — when it came to Ujjal Upadhyay, there were no ideological differences.

DNA investigations suggest that Upadhyay’s company, Eastern Minerals and Trading Agency (Emta), enjoyed the patronage of politicians across party lines.

How else could a small-time contractor for Coal India and SAIL, mainly dealing in sand mining, springboard into riches — Upadhyay’s known assets are worth more than Rs1,500 crore — in less than two decades?

Emta’s fortunes changed almost overnight when West Bengal energy minister Shankar Sen nominated it for a mining joint venture (JV) with West Bengal Power Development Corporation in 1994-95.

Mining industry veterans told DNA nobody dared question the nomination of such a small company for such a massive project at that time due to Upadhyay’s proximity to Chandan Basu, son of former West Bengal chief minister Jyoti Basu.

“The talk in business quarters and parties at that time was that Chandan Basu had business interests in the closely held partnership firm,” said the managing director of a prominent coal mining and trading company.

To be sure, the senior Basu was one of India’s most powerful leaders in the mid-90s and was even a candidate for the Prime Minister’s office around the time that Bengal Emta became the first public-private coal mining JV in the power sector.

Upadhyay sure made good of that break.

Emta went on to replicate the same business model with Punjab Power Generation in 1997 when Parkash Singh Badal’s Shiromani Akali Dal was ruling the state with BJP as the coalition partner; with Karnataka Power Corporation in 2002 when S M Krishna-led Congress was in power; with Jharkhand in 2003 when Arjun Munda-led BJP was in power; and with Himachal Pradesh in 2007 when Prem Kumar Dhumal-led BJP was in power.

Strangely, Hansraj Ahir, Member of Parliament from Chandrapur, a whistleblower in the Coalgate scam, is clueless on Emta’s business model and balance sheet chicanery.

Emta’s Baranj-I, II, III, IV, Kiloni and Manora Deep coal mines are in Ahir’s constituency.

But the Parliamentarian, who has surprised one and all with the nitty-gritty of coal mines located in far-flung areas of Orissa, Jharkhand and West Bengal, wasn’t aware of the production numbers, profit or other details of the JV company operating right under his nose. “As far as I know, Emta is doing government contract under a legally permissible model,” he said.

Mysterious indeed are the ways of this operator, Emta.

More mysteriously, the pattern in all the JVs is the same — Emta holds 74% stake, and the state utility a minority 26%.

Bikash Mukherjee, executive director of Emta, reasoned that the JVs were formed under section 3(3)(a)(iii) of the Coal Mines (Nationalisation) Act, which mandates that the state utilities should hold at least 26% equity in the JV.

“But how come all the state utilities chose to pick up just 26% when they could have bargained for a majority stake?” an industry watcher asked. “Section 3(3)(a)(iii) does not restrict them from holding a majority stake. Besides, these mines were allotted to them and not to Emta.”

It is certainly not the case that private enterprise is more efficient than public, as Emta’s Karnataka JV proves.

DNA analysed the cost sheet of Western Coalfields’ (WCL’s) New Majri and Navin Konada open cast mines in the Majri area, which are in the vicinity of the Bhadravati mines, operated by the Karnataka Emta JV.

Both sets of mines produce and sell coal in the 4,600-4,900 and 4,900-5,200 gross calorific value (GCV) bands. Besides, Navin Konada mine and Karnataka Emta mines have similar running stripping ratio of 1:3.5 — for extracting one tonne of coal, 3.5 tonne of overburden needs to be removed.

In 2010-11, WCL’s New Majri and Navin Konada open cast mines in the Majri area had incurred total production cost per tonne of Rs1,087 and Rs862 and sold the coal at Rs1,219 per tonne and Rs1,325 per tonne, making a profit of Rs132 per tonne and Rs463 per tonne, respectively.

The salary and administrative expenses for the two mines were Rs588 and Rs351 per tonne, respectively, i.e. 54% and 40% of the total mining costs.

For the company as a whole, the average mining cost at WCL open cast mines in March this year was Rs1,146 per tonne, of which the salary and administrative component accounted for Rs429 per tonne, or 37% of the production cost.

Yet, the Coal India subsidiary registered a topline of Rs8,357 crore and pretax profit of Rs1,294.80 cr in 2011-12 (i.e 15.4%) while the topline and pretax profit of WCL for 2010-11 was Rs6,737 crore and Rs1,068 crore respectively, i.e. 15.8% of the topline.

DNA could not access Karnataka Emta’s 2011-12 balance sheet. But as per its 2010-11 balance sheet, the JV’s production cost was Rs823 per tonne.

Of this, only Rs59 per tonne, or just 7%, went towards salary and administrative functions, the total outgo under this head amounting to Rs16.78 crore for the year.

Yet, the JV logged a paltry Rs3.13 crore (Rs11.17 per tonne) profit for 2010-11 on revenues of Rs290.87 crore, selling 2.8 million tonne (mt) of coal.

What gives?

“It is possible that mining profits are being booked on some other company’s balance sheet and highly inflated costs are booked on the JV company’s balance sheet,” said a person close to the company.

The managing director of a company which has had business relationship with Karnataka Emta concurred.

Karnata Emta’s numbers sure give credence to such allegations. Of the Rs290.87 crore expenditure, the JV booked Rs198 crore as ‘other manufacturing service cost’ — it did not elaborate on the ‘other’.

It seems the JV outsourced the mining work to Emta, said industry sources.

“But on what basis? Did the JV company call a global tender?” a mining consultant asked.

Efforts to elicit a response from Karnataka Emta drew a blank. KPCL managing director, M R Kamble, refused to come on phone on this issue.

Emta officials, on the other hand, directed DNA to KPCL saying the coal block belonged to the state utility and that Emta was just a mining contractor.

“Don’t tell us verbally. You first send us the information given by KPCL and we will respond,” said Mukherjee.

Emta’s other JVs also appear to have clammed up.

A detailed questionnaire sent two months ago to S K Puri, officer on special duty, coal managenment, Punjab State Power Corporation, remained unanswered despite several requests over telephone.

Krishna Gupta, managing director, West Bengal Power Development Corporation, refused to give any figures related to the Bengal Emta JV. “I will not give you any information even if you ask under Right to Information Act as these figures are commercially sensitive and our competitors can use it against us,” he said.

When this reporter persisted, Gupta said the JV was formed 16-17 years back while “I became MD of WBPDC just two years ago”.