To
Shri G C Murmu
C&AG
Dear Shri Murmu,
The AP State government sold its 10.4% equity share in Gangavaram Port to the Adani Group in mid-2021 for Rs 120 per share, at a total value of Rs 644 Crores, without going through any competitive bidding procedure, as required by the Centre’s disinvestment guidelines, thus deliberately allowing the transaction to be non-transparent, apparently to benefit the Adani Group.
The Gangavaram Port is a minor port set up over an extent of over 1,800 acres of land originally acquired by the State government for RINL’s Visakhapatnam Steel Plant, the market value of which would exceed Rs 10 crores per acre. Such a highly valuable stretch of land was allotted to Gangavaram Port, promoted by private developers, at a nominal value. The port has the strategic advantage of being the gateway for the steel plant, readily acquiring a captive market without any effort. In other words, the State government’s equity share in Gangavaram has a special value in terms of the location of the port adjacent to the steel plant.
Initially, the Adani Group acquired Warburg Pincus’s equity share of 31.5% and the promoter’s equity share of 58.1%, apparently at Rs 120 per share, though those transactions remained wholly non-transparent, especially in view of the Adani Ports SEZ offering equity shares in itself to both Warburg Pincus and the promoters of Gangavaram Port.
Keeping these developments in view, the State government ought to have retained its own equity share in the port, in view of its strategic location. Perhaps under extraneous pressure, it rushed into selling its own equity share of 10.4% to the Adani Group at the same price, without even attempting to go through a competitive bid process and without making an independent assessment of the true value of Gangavaram Port, its location and its assets.
There have been reports that suggest the value of Gangavaram Port to be far higher than the value reflected by a share value of Rs 120 at which all the three original shareholders, namely, Warburg Pincus, the Raju family that promoted the port and the government sold their respective shares.
The State government ought to have appointed an expert agency to value the port, even if it had a convincing argument to part with its control over the port. There were reports that provided a rough indication of the potential value of the report, which the State government, for reasons best known to it, had chosen to ignore.
For example, In 2017, Warburg Pincus was reported to have engaged an investment bank to find a potential buyer for its equity share in Gangavaram and the latter valued Gangavaram Port at $1-1.4 billion (https://www.livemint.com/Companies/fWICp45t968Chc1Zdmrv7I/Warburg-Pincus-in-talks-with-DP-World-to-sell-stake-in-Ganga.html). The value of the port would have increased since then, over the next four years, as a result of the addition to its assets, its increased throughput and the increased market value of the 1,800 acres of land in its possession.
A subsequent report of 2021 (https://thecapitalquest.com/2021/03/04/warburg-pincus-to-score-12-fold-return-from-long-standing-india bet/#:~:text=Private%20equity%20giant%20Warburg%20Pincus,country’s%20deepest%20all%2Dweather%20port.) suggested the value of Gangavaram Port to be $2 billion at that time, which works out to more than Rs 15,000 crores at the exchange rates prevailing at that time.
Had the AP govt appointed an independent expert agency to value Gangavaram Port at that time, the true value of the port assets would have been discovered. If a premium is added to it to reflect the strategic value of the government’s equity, it would have been valued at more than 2.6 times the amount that accrued to the public exchequer. It is not clear whether the State government had actually received even an amount of Rs 645 Crores in the first instance.
Apparently, the low price at which the State government sold its equity share in the port to the Adani Group has resulted in a huge loss to the public exchequer, in addition to the government losing its strategic control over the port.
May I request the office of the CAG to conduct an independent audit of this transaction so as to be able to determine the extent of loss to the public exchequer and place the matter before the legislature?
Regards,
Yours sincerely,
E A S Sarma
Former Secretary to Government of India
Visakhapatnam
