[The 466-page report, by a former Indian Supreme Court justice who is now a public ombudsman, contends public officials and companies cheated the government of Karnataka state out of billions of dollars in royalty, tax and other payments from a lucrative domestic and foreign trade in iron ore. The ore is an important raw material for steel that has been in great demand in fast growing China and India.]
By Vikas Bajaj
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| A miner collecting shards of iron ore outside of Bellary in southern India. |
As a result of a government investigative report issued late last week, several stocks have lost value — including shares of Adani Enterprises, the biggest piece of a mining, port and power plant empire built by the billionaire Gautam S. Adani, India’s sixth-wealthiest person.
Adani Enterprises has denied wrongdoing. But it and several other big Indian companies are facing tough questions from investors and policy makers.
The 466-page report, by a former Indian Supreme Court justice who is now a public ombudsman, contends public officials and companies cheated the government of Karnataka state out of billions of dollars in royalty, tax and other payments from a lucrative domestic and foreign trade in iron ore. The ore is an important raw material for steel that has been in great demand in fast growing China and India.
“Huge bribes were paid,” said the report, written by Santosh Hegde, the former justice. “Mafia type operations were the routine practices of the day.”
Analysts say Mr. Hegde’s findings provide evidence of corruption in important parts of the Indian economy, including land and natural resources, that are still tightly controlled by politicians and corporate executives — even as other sectors, including consumer goods, banking and information technology, have become more competitive and open.
Procedurally, it is unclear what will happen next. Mr. Hegde does not have the power to prosecute the companies and individuals he accuses in his report. That is up to Karnataka’s government, which has previously played down concerns about mining, or to the judicial system.
India’s Supreme Court on Friday temporarily suspended all iron ore mining in Bellary, the region that was the main focus of the inquiry. The court in recent years has often led the charge to prosecute officials accused of corruption, and anticorruption advocates hope that it will do so in this case.
The scandal forced the chief minister of Karnataka state to resign on Sunday, although he has denied wrongdoing.
Shares of Adani Enterprises were down nearly 23 percent on Thursday and Friday, but they regained almost 9 percent on Monday.
The stock of another company implicated in the report, JSW Steel, fell more than 10 percent late last week. JSW’s shares dropped by an additional 10.3 percent on Monday, after Citigroup downgraded the stock and put a sell rating on it.
A big break in the investigation occurred early last year. Anticorruption agents raided the offices of Adani Enterprises, which operated an iron ore terminal at the Indian port of Belekeri, on the Arabian Sea, and discovered a document that appeared to be an illicit payroll.
A computer file from 2008 listed payoffs that Adani Enterprises was suspected of making to government officials. The port director, for instance, was paid 50,000 rupees ($1,100) per ship that set sail from the port, the file said. A customs official got 100,000 rupees every three months and 0.50 rupee per ton of iron ore shipped, it said. Police inspectors received 14,000 rupees every month, and local politicians were paid “once in a while,” the file said. The report was issued as Indians increasingly questioned the growing wealth and power amassed by a small elite group. In a separate corruption scandal, government auditors estimated that officials may have cost the federal government $40 billion by giving telecommunications licenses to favored companies rather than auctioning them.
The mining scandal in Karnataka state, which is also home to the technology hub Bangalore, has been brewing for several years. In 2008, Mr. Hegde, who is the state’s lokayukta or ombudsman, produced a report on problems of illegal mining in the state’s Bellary region.
In his latest report Mr. Hegde said the situation had only worsened since then, as the companies had sought to avoid paying royalties to the state and export duties to the federal government, and as companies had mined in forests that were supposed to be protected under conservation laws.
But the government in Karnataka state, which is controlled by the Bhartiya Janata Party, did little to control the mining, much of which was in the hands of three businessmen brothers, the Reddys, who are powerful members of the party.
In 2009 the chief minister, B. S. Yeddyurappa, backed down on his proposal to impose a $21 fee on each truckload of iron ore, after the Reddys threatened to withdraw their support of his government.
Even now, while national Bhartiya Janata Party leaders have forced Mr. Yeddyurappa to step down, the party has not pushed out Janardhana Reddy, a mining magnate and the state’s minister of tourism, and his two brothers, Somashekhar and Karunakar. Mr. Hegde’s report accuses them of many violations, including using front companies to evade taxes and royalties and threatening his investigators.
The Reddys say they have done nothing wrong.
In the case of Adani Enterprises, Mr. Hegde’s report says the company helped mining concerns export illicitly obtained iron ore to China and other countries from the port, while engaging in a systematic bribery campaign that covered virtually every level of government. He recommended that the company be “barred from participating in any future contract, grant or lease, etc. by the government.”
In a written statement, Adani Enterprises Ltd. strongly rebutted the accusations and said it had been involved only in handling iron ore shipments and had never mined or owned the commodity itself.
“Any alleged illegal gratification or payoffs cannot be attributed to AEL given that AEL has been a mere port operator and the cargo interest always was with either miners or other parties,” the statement said, referring to the company by its initials. “Such gratifications if at all having been made, cannot be attributed to AEL.”
JSW Steel, one of India’s largest producers of iron ore, is accused of making a 100 million rupee ($2.3 million) donation to an educational trust run by Mr. Yeddyurappa’s sons. The company and its affiliate, according to the report, also spent 200 million rupees to buy an acre of industrial land outside Bangalore from the Yeddyurappa family. Mr. Hegde charges that similar land sold in the area at the time for as little as 12.4 million rupees an acre.
In a statement, JSW Steel said “all the transactions have been done in a legally compliant manner.”
PAKISTAN USES PATROLS TO CALM KARACHI
[More than 300 people were killed in political and ethnic violence in July, making the month among the worst on record, local news media reported. The government sent a paramilitary force to quell the violence in the Orangi neighborhood, but the attacks have spilled into other parts of the city.]
By Salman Masood
The government of President Asif Ali Zardari offered rewards for people willing to provide photographs and videos that show those involved in the killings.
Karachi, the nation’s commercial and financial hub, has a population of 17 million to 20 million. A city of immigrants, it has become a caldron of ethnic, political and religious strife.
A brutal war over turf and patronage has developed in recent years involving the governing Pakistan Peoples Party, the Awami National Party and the Muttahida Qaumi Movement.
The Muttahida Qaumi Movement, a party that has represented immigrants from India, had long dominated Karachi’s politics, but it has been challenged by the Awami National Party, which is generally supported by Pashtuns.
Activists from both parties have conducted drive-by shootings, government officials and political analysts say. The violence, which has generally been confined to poor neighborhoods, has also assumed an ethnic dimension, with tensions increasing between Pashtuns and Urdu-speaking immigrants.
More than 300 people were killed in political and ethnic violence in July, making the month among the worst on record, local news media reported. The government sent a paramilitary force to quell the violence in the Orangi neighborhood, but the attacks have spilled into other parts of the city.
Armed groups carried out several attacks in another neighborhood, Surjani, a stronghold of criminal gangs.
Interior Minister Rehman Malik said in Karachi that the government was preparing a stern response to the shootings, arson and property damage. “I want to warn that you have tested the patience of the government enough,” Mr. Malik said of the perpetrators. “I won’t say anything else. You will see the action yourself.”
The Human Rights Commission of Pakistan, an independent rights group, on Monday urged a political solution.
“While gangs of land-grabbers and mafias have tried to exploit the breakdown of law and order,” the organization said in a statement, “they do not appear to be the main directors of the horrible game of death and destruction; that distinction belongs to more powerful political groups, and it is they who hold the key to peace.”
