Text of questions sent to the promoter of Swan Energy and the written answers he provided.
Nikhil Merchant (centre), managing director of Swan Energy. Seen here with an official from Mitsui Shipping (left). Credit: ANI
Nikhil Vasantlal Merchant is the executive director and MD of Swan Energy Ltd, a company he acquired in 1991. Despite his low profile and virtually negligible internet footprint, or perhaps because of that, Merchant is seen by top politicians, bureaucrats and businessmen as a man of great influence and initiative. He has most recently put together a major LNG project worth Rs 5600 crore on the basis of off-take agreements with public sector oil companies and investments from two Gujarat-based PSUs. Favouritism has nothing to do with this, he says, in an interview to The Wire, as all government decisions taken were strictly within official norms.
Rohini Singh: Could you describe the business of Swan Energy and its subsidiary companies?
Nikhil Merchant: Swan Energy Limited – SEL, formerly known as Swan Mills Limited is a 100+ year old Publicly Listed Limited Company and has a long history of the textile business. Currently, SEL is in the business of Textiles, Real Estate and LNG Infrastructure development through its various subsidiaries. All information related to Swan business’ and its subsidiaries are publicly available on BSE, NSE and ROC websites.
Singh: Please describe your relationship with the Chief Vigilance Commissioner, K.V. Chowdary.
Merchant: Mr. K.V. Chowdary is an acquaintance and I have met him few times in social gatherings. If I remember it right he visited to enquire about my wellbeing after I underwent a Surgery.
Singh: Towards the end of the previous UPA government your offices were raided/surveyed by the Income Tax department. K.V. Chowdary was in the CBDT then. Did you know him then? Did you or anyone else on your behalf ever reach out to him?
Merchant: No, I never knew who K.V. Chowdary was when I was raided.
Singh: Could you describe your meeting with the Navy chief ? In what capacity did you meet him? Are you looking at entering the defence sector?
Merchant: I have never met the Navy chief any time and have no intention as of now to enter the defence sector.
Singh: State owned oil companies have booked 60% of capacity of your coming LNG terminal in Gujarat. Industry experts say that has enabled your firm Swan Energy to complete the Rs. 5600 crore project. Your comments.
Merchant: The 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. Swan has been pursuing its LNG terminal project since 2008. Project technical partners, location, modern technology, gas grid connectivity etc are key factors to take capacity reservation decision by oil companies. It should be noted that we had applied for environment clearance to the Ministry of Environment and Forests, Government of India in 2010. We were granted environment clearance in August 2013 after a series of presentations and study reports to the nodal authority. This was the first important approval for us to proceed further and engage with LNG users, including Indian oil majors for possibility of off-take agreements. You will be pleased to know that it took us over three years – in actual fact over six years as talks were initiated since our application for environment clearance – to have the off-take agreements signed in the year 2016, which is contrary to the belief of some unfounded rumours of favoritism.
Singh: Please describe your relationship with Gujarat chief minister Vijay Rupani. The final concession agreement for the LNG terminal of Swan was signed in October 2017, a few months before the Gujarat polls.
Merchant: I do not have any relationship with CM Vijay Rupani. Swan submitted [its] concession agreement for approval in April 2015, which was approved by the government in October 2017 for execution. Various departments of the state government have taken more than 2.5 years for approval of the same.
Singh: Gujarat PSUs – the Gujarat Maritime Board and GSPL – have taken 26% equity in the Swan LNG terminal. Is it that they have taken responsibility for the Rs 750 crore loan undertaken by Swan LNG for the project?
Merchant: The state government – energy and petrochemical department – announced [its] LNG terminal policy 2012 to promote LNG terminals in the state of Gujarat. Under the policy, the state government has the right to invest a maximum 26% equity through its authorised state government PSUs. The Swan LNG Terminal project was approved under this policy and accordingly the state government has taken a decision to invest 26% in the LNG terminal project.
GMB and GSPL have invested 26% equity in the project as strategic equity partners but they are not responsible or under any obligation to arrange the debt requirement of the project. Swan as lead promoter is solely responsible for arranging project debt requirement.
Singh: In 2010, the Gujarat government’s bid to disinvest its stake in the Gujarat Pipavav Power Company to Swan Energy had run into a controversy since the stake offload was done without competitive bidding. Moreover, the financials of Swan Energy showed the firm had suffered operating losses in the previous years and had no material business as such. Opposition party leaders claim that investment of state PSUs in Gujarat in your firm as well as navratna such as IOC and ONGC doing business with your firms under take or pay agreements is skewed in the favour of your company. Do you think the allegations are unfair?
Merchant: Swan Mills Limited in 2009, through a consultant, gave a unique proposal of converting coal-based power plants in Gujarat to gas-based to reduce the carbon footprint as per international norms. Due to this unique proposal, Swan was offered equity in the first of its kind greenfield gas based power plant at Pipavav. Initial advance equity was paid by Swan through internal accruals. However, due to delay in allotment of shares, we had no option but to withdraw from the project in 2010. This investment which was made through internal accruals adversely affected Swan’s financials.
The state PSUs’ investment of 26% in Swan LNG Pvt. Ltd.is based on the LNG Policy of the Gujarat government. The agreements thus signed are as per international norms applicable to LNG terminals worldwide and no exceptions have been made by any of the PSU offtakers.
Singh: According to data available with the Registrar of Companies you are associated with 18 firms. Can you describe your various businesses?
Merchant: All information related to the nature of business of all companies in which I am associated is available with the Registrar of Companies.
Singh: In January 2017, Tata Realty announced it would take a 10% stake in [the LNG project]. Has the deal materialised? The proposed Tata investment announcement came at a time when the Tata group was locked into a bitter feud between Cyrus Mistry and Ratan Tata. It was alleged by a faction in the Tata group that you played a prominent role in helping the Ratan Tata faction. Your comments please.
Merchant: After the announcement, Tata Realty completed the due diligence of the LNG terminal project. The Swan LNG terminal project is basically a port infrastructure project, which is not the primary objective of Tata Realty group. Therefore, no deal materialised and no financial transactions took place between the two companies. I have nothing to do with the Tata group’s internal matters.
Singh: Have you ever given any money to the Bharatiya Janata Party in terms of legitimate political funding, like a lot of other industrialists?
Merchant: I have never ever given any political funding to the BJP.
Singh: You are often described by people in the BJP and corporate India as one of the most powerful and influential persons in the country currently, given your proximity to the BJP leadership. Your comments.
Merchant: 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.
Singh: Could you describe your dealings with NBCC and its chief A.K. Mittal.
Merchant: I have no business deals with NBCC or its chief A.K. Mittal.
I would like to bring to your attention that we have been in business for over 35 years and 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 [an] extremely imaginative and wild assumption to link any of these people for any gains and relating to my existing business venture.
In closing 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 and [we] put an end to this matter at the earliest.
I now look forward for your kind co-operation in this matter.
Rohini Singh is a Delhi-based reporter.
