Most of the turnover is from trading activity, but Adani is not exactly an Indian sogo sosha. Detractors say the bulk of the group's turnover growth can be traced to an aggressive import drive launched by Adani to take advantage of the controversial duty-exemption entitlement certificate (DEEC) scheme, especially its value-based advance licensing scheme (Vabal).Customs sources suspect that a lot of the Adani turnover growth has to do with the fact that the group used three non-computerised ports in Gujarat - Kandla, Porbandar and Okha - to import duty-free goods against exports, often at prices that were substantiallydifferent from official international rates. These low-cost imports, in particular polymers, were then sold in the domestic markets at huge premia.

Other sources, however, say that Adani's real clout lay in the way he roped in a couple of state government agencies to lend him a helping hand - among them, the Gujarat Small Industries Corporation (GSIC) and the Gujarat State Export Corporation.

Under an agreement entered into between GSIC and Adani Associates, a group company, in April 1996, Adani Associates got itself the right to import various raw materials such as plastics and chemicals through GSIC. Adani was given a letter of authority by the corporation to this effect. In addition, he was allowed to arrange for imports of `various materials' even without a letter of authority on a `draft payment' (DP) basis, but for these he was required to `obtain prior clearance'.

GSIC empowered Adani to obtain indents for the materials imported, arrange for the opening of L/Cs and make payments for the c.i.fvalue of imports and customs duty - all in the name of GSIC. In return for this name-lending exercise, GSIC was given a net commission of 0.75 per cent on the c.i.f value of imports for every transaction.

GSIC covered itself for any possible liabilities that Adani might incur in its name by inserting a protective clause in its agreement with Adani. The clause read: "In the event of any loss/profit in the transaction, the same will be made good by Adani Associates and the amount will be adjusted by debit/credit notes." The corporation agreed to maintain a separate account for the transactions effected by Adani Associates. Under the arrangement, while the corporation retained the right to sell a part or the whole of the imports thus effected, sources said that this clause was never invoked as the general responsibility of marketing imported goods remained with Adani Associates.

The contract spoke of the responsibility to be shouldered by Adani in case any future demands for import duty, sales tax, octroiwere made on GSIC, but legal experts say this clause would not let GSIC off the hook since imports were made in its name. Under customs law, duty claims against fraudulent imports or under-invoiced cargoes can be claimed against those who filed the bills of entry, that is, GSIC. Why a state government undertaking would want to compromise its independence by such an agreement is difficult to understand, but a close look at the whole arrangement can perhaps throw some light. Sources say that the Adani group's basic plan involved collecting orders from prospective buyers of polymers in small quantities. These orders were received in the name of GSIC and orders placed on the overseas manufacturer - but not directly. The orders were routed through firms like GA International, Dubai, and Sunflower General Trading Co, UAE.

GA International, a Jebel Ali-based firm in Dubai, is believed to be a company controlled by the Adanis: brothers Gautam and Girish Adani both have the same initials of GA. Similarly, the Ajman(UAE)-based Sunflower General Trading Co is also reported to be have Adani connections though others said that the firm is controlled by a powerful Gujarat politician (now deceased). Sources in customs intelligence believe that Sunflower is a front for routing various export-import transactions.

Some of the deals entered into with these firms raised eyebrows, especially in view of their long-term nature. According to a sales confirmation contract of January 3, 1996, between GA International and Adani Exports Ltd, the former agreed to supply 5,000 tonnes of HDPE of Indonesian origin at the rate of $650 per tonne, c.i.f. Madras, by November 1996 - much lower than the rates quoted by several agencies tracking polymer prices (see FE, April 15, 1998, for details of similar transactions).

That's a 11-month lead-time in a commodity whose international prices fluctuate heavily. No manufacturer can afford to quote prices that are lower by $100-200 than market prices and that too several months in advance withoutknowing whether they will be in a position to effect supplies on time. The day on which the sales confirmation was signed by the authorised signatory of GA International and RS Adani, a brother of Gautam Adani of Adani Exports Ltd, the official (customs) rates for January, 1996, ranged between $690-735 a tonne. By November, 1996, when the delivery was scheduled to have been routed through GA International and effected through Madras port, the official rates ranged between $800-845. Now why would GA International want to sell HDPE at a huge discount to market prices? Was it because the consignments were under-invoiced and the difference in prices paid in some other way? Customs rules call on the importer to provide country-of-origin certificates for imports whenever such supplies are routed through third countries. This is to enable them to check on the actual c.i.f. value of imports in the exporting country. However, sources in Kandla alleged that instead of filing these certificates, the Adanis sometimesfiled certificates issued by GA International and Sunflower General Trading Co. In one case, a 5,400-tonne consignment of polypropylene of Mexican origin imported in the names of Adani Exports, GSIC and Intercontinenal (India), the certificate was issued by Sunflower.

Similarly, Adani Exports had signed a contract (No. AEL/11/12/LLDPE/96) in December, 1996, for the purchase of 2,000 tonnes of Korean linear low-density polyethylene (LLDPE) worth $1.4 million at $700 per tonne. The supply was to be effected to any Indian port from a Korean port in break-bulk form. In May, 1997, Sunflower General raised commercial invoices for the supply of 2,000 tonnes of LLDPE, 1,600 tonnes of PVC resin, and 4,400 tonnes of HDPE on Adani Exports. These shipments were routed from Yeochon, South Korea, and offloaded at Visakhapatnam. While HDPE was supplied to Adani at the rate $710 per tonne, LLDPE and PVC were sold at the uniform rate of $700. The official c.i.f. price for HDPE was $860, while for LLDPE it was $760 and forPVC $800 on the relevant day.

The Adani group also had arrangements with the Gujarat State Export Corporation, a state government export-house set up in 1965. This undertaking is a nodal agency for trading in various products and a part of its designated role is to canalise imports of certain commodities.

The marketing division of the agency used to deal in about 130-135 items and has had export-import relations with over75 countries. When the agency was set up by the state government, the main objective was to promote exports without necessarily seeking short-term profits. But GSEC did a cosy deal with the Adanis and a good chunk of the former's export-import deals in polymers was routed through the group. For this, the Adanis paid service charges of 1.5-3 per cent on deals. The deals with GSEC and GSIC allowed the Adanis to import polymers, mostly duty-free against exports, and sell the same in the domestic markets at huge premia. The revenue intelligence agencies are investigating the Adanis to seewhether the group was into games like under-invoicing of imports and over-invoicing of exports as part of large-scale money-laundering operations.