The Platinum Touch of Nikhil Merchant
The Wire
BY ON
While
other corporate players dominate the news, it is the promoter of a little known
firm, Swan Energy, who is truly experiencing ‘Achche Din’ as public sector
firms line up to do business with him.
One of the most
influential businessmen in Modi’s India is someone you’ve never heard of.
Search for Nikhil V. Merchant on the internet and you would be hard pressed to
find a single photograph or profile or interview or even a quote of the
50-something entrepreneur whose proximity to Narendra Modi is an open secret in
the upper echelons of the Bharatiya Janata Party and its government in Delhi.
So crucial is this
anonymity to Merchant – and those he works with – that The Wire‘s attempts to write about his dealings with energy
PSUs triggered a flurry of ‘friendly’ calls and messages from top politicians
and captains of industry suggesting he wasn’t worth the effort. Yet their
efforts only seemed to confirm his importance and influence in the current
scheme of things..
In early 2014, during
the last days of the Congress-led Manmohan Singh government, the Income Tax
department carried out two probes that raised eyebrows in political circles.
Gujarat based billionaire Gautam Adani, a man widely seen as a close supporter
of Narendra Modi – then the chief minister of Gujarat but also the BJP’s
nominee for prime minister – was one of the targets.
The other raid was on
Swan Energy, a little known firm that despite its name was largely involved in
the textile and property business. Swan is headed by Nikhil
Merchant and his father-in-law, Navinbhai Dave, who acquired it from the Goenka
group in 1991.
The Adani probe
hogged all the media attention, largely because of the Congress’s campaign
pitch that claimed Modi, if elected, would run a government for “Adani and
Ambani” since the two groups were seen as supportive of Modi’s prime
ministerial bid. The raid on Swan Energy, curiously, received no media
attention at all, though its relationship with the Modi government had been the subject of a PIL in the Gujarat high
court a few years earlier.
Within a month of
coming to power in May 2014, the new government transferred the
then revenue secretary, Rajiv Takru, to a bureaucratic backwater – the DONER
(Development of the North East Region) ministry. From there, he was quickly
moved to an even more marginal redoubt, the minority affairs ministry. Takru, a
Gujarat cadre officer who apparently never got on with Modi, had been revenue
secretary for barely three months. Though his
transfer was officially described as “routine”, the word on Raisina Hill was
that he had been held responsible for the income tax raids, which the new
government assumed had been done at the behest of Congress leaders.
So who exactly is
Nikhil Vasantlal Merchant and why is he so important that senior ministers and
bureaucrats speak of him as a man who can get things done?
Information with the
Registrar of Companies shows Merchant is a director in 18 firms. Most of these
firms transact little or no business, have no employees and no tangible assets.
They are incorporated in Maharashtra, West Bengal and Gujarat. When Modi was
chief minister of Gujarat, Merchant had accompanied him on at least one overseas trip as part of
a business delegation that included Sudhir Mehta, chairman, Torrent Group,
Pranav Adani, MD, Adani Wilmar Group, Nitin Shukla, CEO, Shell, Hazira, Hari
Bharatiya of Jubilant and Jayesh Buch, executive director of the Essar Group.
Swan Energy has also been a donor to the BJP –
making small payments of Rs 2 lakh and Rs 50,000 in 2012-13 – though Merchant
now denies this. “I have never ever given any political funding to the BJP,” he told The Wire in
an interview.
When the CVC drops in for a chat
While businessmen
continue to accompany Modi on his prime ministerial trips – the list is secret so their names are not
known – a small measure of Nikhil Merchant’s clout is provided by
the fact that he is arguably the only individual outside or inside of
government, and certainly the only businessman, to whose office the central
vigilance commissioner (CVC) comes calling.
The Central Vigilance
Commission which the CVC heads is a statutory body tasked with probing
allegations of corruption by officials. By tradition, the heads of statutory
and constitutional bodies do not go visiting the offices of businessmen or
others.
The Wire has learned that in 2017, the current
CVC, K.V. Chowdary visited Merchant’s Ballard Estate office in Mumbai. Asked
about the visit, Chowdary described Merchant as a social acquaintance to whom
he had merely paid a “customary courtesy call.” He declined to take further
questions, saying he was going in for an angioplasty. On his part,
Merchant said Chaudhary was an “acquaintance”. “I have met him a few times at
social gatherings. If I remember
it right he visited to enquire about my wellbeing after I underwent a
surgery.”
Chowdary was in the
Central Board of Direct Taxes when the offices of Swan had been raided but
Merchant said he did not know him then: “No, I never knew who K.V. Chowdary was
when I was raided.”
A sweet deal turns bitter
Merchant’s flagship
firm, Swan Energy, a listed entity, is primarily into textiles. Its annual
report for 2016-17 reveals the firm posted a profit of Rs 1.68 crore on
sales of over Rs 300 crore. A look at Swan Energy’s financials shows the firm
posted modest to negligible profits in the past three years. In 2014-15, it
posted Rs 4.7 crore as profit, which fell to Rs 58 lakhs in 2015-16. Most of
its income is from the textile business. The company is also into real estate.
In the last financial
year, Swan Energy got a slew of working capital loans from a clutch of public
sector banks— Rs 48 crore from the Union Bank of India and Oriental Bank of
Commerce, and Rs 5.8 crore from Dena Bank. It also got Rs 4.1 crore from a
Gujarat-based cooperative bank, the Mehsana Urban Cooperative Bank, and Rs 2.2
crore from Maharashtra government’s Sicom.
The only time Swan
has courted controversy was when the
Gujarat government under Narendra Modi in March 2009 decided to transfer a 49% stake in
the Gujarat State Petroleum Corporation’s Pipavav Power Company Ltd (GPPL) to
Swan Energy for Rs 381 crore.
The state government
had not invited competitive bids for the sale and the move had kicked up a
political storm. “Through an investment of mere Rs. 381 crore, Swan
Energy will take away Rs 14,296 crore,” the oppostion Congress alleged at the time. This figure
included carbon credits too, which would devolve to Swan.
In a press note, Shaktisingh
Gohil, erstwhile leader of the Congress in Gujarat, also raised
questions about Swan Energy’s financial credentials since it appeared to have
been conducting no appreciable business in the years before it was chosen by
the Gujarat government for the GPPL deal:
“A look at the annual results of Swan Energy
available in the public domain shows that it has suffered operating losses from
2005 to 2008; has no material consumption in 2008 and 2007 and has material
consumption of less than an average of Rs 1 crore (Rs 10 million) in 2005, 2006
and 2007; reports no payment of salaries and wages in the years 2005, 2006 and
2007 and 2008; has a modest outgo of Rs 12 lakh (Rs 1.2 million) in 2009; and
has not paid any excise duties from 2005 onwards but has huge ‘other
expenses’.”
The deal ground to a
halt after the opposition went to the Gujarat High Court, forcing the then
chief minister, Narendra Modi, on the backfoot. In February 2012, Mint reported that Swan was likely to exit the project.
In an email reply to
a query from The Wire, Merchant says the
investment was called off “in 2010” itself due to a delay in share allotment.
He described Swan’s proposal to the Gujarat government of converting coal based
power plants to gas as “unique.” “Due to this unique proposal Swan was offered
equity in the first of its kind Greenfield Gas Based Power Plant at Pipavav,”
says Merchant. However, Swan “had no option but to withdraw from the
project in 2010. This investment which was made through internal accruals
adversely affected Swan’s financials,” he says.
Merchant dismissed
talk of his being one of the most influential persons in India today given his
proximity to Modi and the BJP leadership. “Being a businessman since the last
40 years, I meet many business people and political leaders, but that does not
mean that I have proximity to a political party or any party leaders,” he said.
He also says he has not gained from his “cordial relationship” with “eminent
personalities.”
Swan now flies from textiles to LNG
In August 2016,
India’s largest public sector oil companies, ONGC, IOC and HPCL threw their
weight behind Merchant’s pet project – a proposed LNG terminal at the Jafrabad
port in Gujarat.
The three firms booked 60% of the capacity of the
terminal – a floating storage regasification unit, or FSRU. Another Gujarat
government company, GSPC, is reported
to have booked 1.5 MT of the terminal’s capacity at Swan’s
proposed terminal.
Thanks to these
offtake agreements, the LNG venture has now become virtually risk-free for
Nikhil Merchant. According to PTI:
“As much as 90% of the 5 MT capacity of the
terminal has been booked for usage by state-owned firms… Booking capacity means
these companies will pay Swan a pre-decided fee to use the terminal to import
their own liquefied natural gas (LNG). Swan will not be exposed to the risk of
LNG import business and would operate the terminal as a tolling facility.”
Swan first proposed its project in 2013, after
which the Gujarat Maritime Board invited comparative bids.
Last year two Gujarat
government PSUs, Gujarat Maritime Board and Gujarat State Petronet Limited picked up a 26% stake in the project for
around Rs 208 crore. In January 2017, Tata Realty and Infrastructure announced its decision to buy a 10%
stake in the project but later backed out. Last October, it was announced that
Mitsui Shipping had bought an 11% share in the venture
for approximately Rs 83 crore.
The Gujarat
government has not explained why its state-owned entities are investing in
private sector projects when GSPC is developing its own LNG terminal in
Gujarat.
Dismissing
allegations of what he calls “unfounded rumours of favoritism,” Merchant says
Swan had first mooted the idea of setting up an LNG terminal in Gujarat way
back in 2009.
An “LNG terminal is a
specialised LNG import facility and is a highly capital incentive project. LNG
import infrastructure cannot be used for any other purposes. Therefore,
viability of project investment is fully dependent on its future utilisation
through capacity reservation by users. Therefore, capacity booking is part of
the normal business,” says Merchant.
“It took us over three years
– in actual [fact], over six years as talks were initiated since our
application for environment clearance in 2010 – to have the off-take agreements
signed in the year 2016, which is contrary to the belief of some unfounded
rumours of favouritism,” he said.
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