The Platinum Touch of Nikhil Merchant

While the media, and the political class, focuses on other players, it is Nikhil Merchant who is truly experiencing 'Achche Din' as public sector firms line up to do business with him.

New Delhi: 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.

Nikhil Merchant. Credit: Swan Energy Annual report

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

File photo of central vigilance commissioner K.V. Chowdary. Credit: PTI

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.”

Nikhil Merchant (centre), managing director of Swan Energy. Seen here with an official from Mitsui Shipping (left). Credit: ANI

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.

Also Read: Nikhil Merchant—It is Normal Business Conduct That You Happen to Meet Eminent Personalities

In October 2017, Gujarat’s deputy chief minister Nitin Patel approved a concession agreement with Swan Energy, just months before the state went to polls. The term of the agreement is 30 years from the date operations commence, extendable by another 20 years. “Swan submitted [its] concession agreement for approval in April 2015, which was approved by the government in October 2017 for execution,” says Merchant. “Various departments of the state government have taken more than 2.5 years for approval of the same.”

Asked about the status of Tata’s proposal to pick up equity, Merchant told The Wire: “After the announcement, Tata Realty completed the due diligence of the LNG terminal project. Swan LNG terminal project is basically a port infrastructure project, which is not the primary objective of the Tata Realty group. Therefore, no deal materialised and no financial transactions took place between the two companies.”

Crucial role of PSUs in backstopping project

Merchant says state-owned companies investing in his project are not responsible for the Rs 750 crore debt he will be raising for the LNG project. However, documents reviewed by The Wire reveal the PSUs will take responsibility for a portion of loans undertaken by Swan LNG in case of a default. An internal note of the government says that in case of default by Swan LNG Private Limited, its own share of the contingent debt liability would be Rs 477.15 crore.

Excerpt from page 6 of a Gujarat government note on the Gujarat Maritime Board’s proposed investment in Swan’s LNG terminal project.

A senior executive from SBI who retired recently told The Wire that while Merchant may be technically correct in asserting that “Swan as lead promoter is solely responsible for arranging project debt requirement”, his success in lining up major oil PSUs as assured customers despite any major experience in the sector will open the gates to bank credit. “If cash rich oil PSUs are projected as your captive customers accounting for the bulk of your sales, it acts as a huge comfort factor for the banks lending to such a project. Whenever banks give term loans, projected revenues for several years ahead is a very important metric. And if PSUs assure a large part of the projected revenue, the project becomes very creditworthy.”

No one talks about Merchant

Almost everyone The Wire contacted chose not to speak about Merchant or Swan Energy. Union petroleum and natural gas minister Dharmendra Pradhan first agreed to respond to a questionnaire by The Wire on the dealings of government oil firms with Swan Energy – which does not have much of a track record in their field – but eventually preferred not to respond.

Nitin Patel, who cleared the Gujarat government’s concession agreements with Swan LNG, did not respond to questions sent to him. Gujarat chief minister Vijay Rupani too did not respond to queries on his government’s dealings with Swan Energy.

Gujarat’s energy minister Saurabh Patel, who went to college with Merchant and was his hostel mate, denied there had been any favouritism shown towards Swan Energy.

In an attempt to get a more complete picture of Merchant and his various businesses, The Wire reached out to some of his associates but drew a blank. For example, Merchant is a director on Navi Mumbai Smart City Infastructure, a company owned by Skil Infrastucture. However, Nikhil Gandhi of Skil messaged back to say he was at a “heart rehabilitation session” and would revert later.

Asked about other high profile contacts, Merchant said that he has been in business for over 35 years. “It is a normal business conduct that you happen to meet Eminent Personalities from diverse fields on some Business Forums or Social Gatherings. It should also be noted that despite being in business for such a long time and having cordial relationship it has taken us 10 years to secure the necessary permissions and licenses to start the construction of the LNG terminal; however, it is still distant for completion. This long gestation period has only sunk us further in debt and will continue possibly for some more years before we break even. Therefore, it is extremely imaginative and wild assumptions to link any of these people for any gains and relating to my existing business venture.”

In closing, he added: “I would like to thank you for bringing up [these] unfounded rumours to my notice and I sincerely hope that the above clarifies the matters once for all. This Is Swan Energy’s flagship project and probably one of its kind in India where we believe that it would be beneficial for the country in terms of employment, technology and energy space.

It will be, therefore, [be] in our mutual interest to ensure that [these] unfounded rumours are addressed … to put an end to this matter at the earliest.”

The rumours of his influence and proximity to power may be unfounded, as Merchant says. Yet the fact is that   both of Swan Energy’s flagship ventures – the aborted power deal in Pipavav and now the LNG terminal project at Jafrabad, Gujarat – rested crucially on the backing of public sector companies. Across the world, whenever government-run companies or institutions become bulk revenue generators for private sector projects, some degree of regulatory scrutiny is inevitable and even mandatory. This ensures transparency, and India still has a long way to go in doing this.

Rohini Singh is a journalist who lives and works in Delhi.