New Delhi: Adani Ports and Special Economic Zone Ltd has been excluded from investment by Norway's largest pension fund, KLP and the KLP Funds with effect from June 2021. This due diligence-based divestment has been implemented on the grounds that Adani's operations in Myanmar and its business partnership with that country's armed forces constitute an unacceptable risk of contributing to the violation of KLP's guidelines for responsible investment.
India's largest commercial port operator, Adani manages 12 ports in India, with logistics accounting for an important part of its business activity. Adani has entered into a business partnership with the military-owned conglomerate Myanmar Economic Corporation (MEC) for the construction of a new container port in the city of Yangon. KLP was invested in Adani at the time the company was excluded.
"When Adani signed the agreement, information about the armed forces' abuses was publicly available. This should have given Adani reasonable grounds to act with particular prudence with respect to the MEC, which owned the land. The company must exercise particular care when it operates in locations where there is war or conflict. Nor has the company adequately performed the necessary human rights due to diligence assessments. There are reasonable grounds to suspect that the company puts commercial considerations before the risk to human rights," KLP said.
The agreement's potential termination was conditional on the financial consequences following sanctions imposed by the US Department of the Treasury's Office of Foreign Assets Control (OFAC), and not on the behaviour of the armed forces. Even though no further financial transactions are carried out, the agreement is valid for a term of 50 years, which means that the risk of contributing to future violations does exist.
In addition, the agreement's object concerns a permanent and important piece of infrastructure, which may be used beyond the term of the agreement. In KLP's view, the company has failed to take such steps with respect to the agreement as would constitute due diligence but has instead continued its business partnership with the MEC. Adani has therefore not acted with sufficient prudence in its choice of business partner in a country where there has been an ongoing conflict, involving systematic and extremely serious abuses that affect a very large number of people, for many years, it said.
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Following publication of the "Port of Complicity report" in March 2021, Adani issued a public statement on its website, saying the port agreement was "facilitated by Myanmar Investment Commission". It also said that the company would "engage with the relevant authorities", and that it intends "to contribute towards the nation's economic and social development goals".
Subsequent to this, Adani was also removed from the S&P Dow Jones Sustainability Indices due to the company's "commercial relationship with Myanmar's military".
A report also provides a list of companies that have business partnerships with the military conglomerate MEC, including Adani. In "Port of Complicity", the voluntary organisations Australian Centre for International Justice (ACIJ) and Justice For Myanmar (JFM) have published details of the collaboration between Adani and MEC. These details are based on leaked documents.
In May 2019, Adani signed a development, operating and transfer agreement with the MEC. The agreement entails the construction of the country's largest commercial container port Ahlone International Port Terminal 2.353 in the city of Yangon. This port is being built on land owned by the armed forces, which has been leased from the MEC for a period of 50 years. Adani has committed to investing in the project, in addition to an annual payment to MEC to lease the site. According to Adani, the leasing fee has already been paid in full. On the other hand, the IFFMM also states that it has failed to discover the origins of MEC's ownership of the land the port is being built on.
The armed forces currently own three commercial ports in Yangon, which are all, for the moment, in operation. The first phase of Adani's port is scheduled for completion in 2021. When completely developed, the port will cover an area of 5 hectares (approx 12 acres). Its dock will be 635 metres long and will be able to handle three vessels at a time. $30 million has been paid in leasing fees, plus a further $22 million in "land clearance charges". On its website, Adani has referred to media coverage stating that the land is owned by the MEC. The IFFM's report states that: "These examples raise serious concerns that foreign companies are leasing MEHL, MEC or Tatmadaw-owned property for significant sums, without facing due scrutiny as to how their payments are benefitting the Tatmadaw."
KLP has engaged in written communication with the company about the agreement in Myanmar since March 2021. In April, a meeting between KLP and the company's management was also held. Adani declared that the company takes human rights seriously and that it has a human rights policy.
Adani maintained that its agreement was with the Myanmar Investment Commission and that they had won the contract after a global tender competition. The company considered this agreement to be a major commercial opportunity but also wanted to contribute towards economic development in Myanmar. Moreover, the company had fulfilled all its financial obligations under the agreement and there would be no further financial transactions, even though the agreement has a term of 50 years. The company emphasised this point several times during the meeting. The company confirmed that no due diligence assessments relating to human rights were performed before the agreement was entered into.
The company also confirmed that the port will be used for commercial purposes and that this was expressly regulated by the agreement. On the other hand, the company could not rule out the possibility that the armed forces might issue orders for it to be used for military equipment, for example, given the authority they have in the country. However, the actual agreement could not be shared with KLP on commercial grounds. The company disclosed that it takes this matter seriously after MEC was sanctioned by the US Office of Foreign Assets Control on March 25, 2021. The company has significant financial interests in the US and is therefore keen to assess whether its agreement in Myanmar could be encompassed by the OFAC's sanction. For this reason, Adani obtained a legal opinion from a US law firm in April, which concluded that the risk was considered low.
"This assessment was shared with KLP, but only for KLP's use in-house. At the same time, Adani was recommended to send a query to the OFAC to clarify the situation. The company stated that such a query would be sent and has confirmed in subsequent communications that it is in the process of doing so. If the OFAC confirms that Adani's operations in Myanmar may be covered by sanctions, the company will terminate the agreement relating to the port in Yangon with immediate effect, since its impact on access to capital in the USA would render it commercially untenable," as per a KLP statement.
"At the same time, the company said it found it hard to see that a commercial partnership could contribute to human rights violations. The company had no comments on the abuses the armed forces in Myanmar have perpetrated but said they were keeping abreast of the ongoing situation following the military coup. Furthermore, the company considered that, in general, any national armed forces would have many business partnerships," KLP said. KLP has assessed whether Adani, through its business partnership with MEC, could constitute an unacceptable risk of violating KLP's guidelines, including contributing to serious violations of the rights of individuals in situations of war and conflict.
Given the seriousness and the scope of the norm violations, the parties responsible are under investigation for crimes against humanity and genocide. The IFFMM's reports emphasise that the risk of future norm violations is high since there is a considerable risk of new abuses being perpetrated by the armed forces. The military coup has once again confirmed that the armed forces are capable of using arbitrary and disproportionate force against portions of the civilian population, with respect for fundamental human rights being completely ignored. Although the international community has condemned the abuses, the situation continues without any prospect of a speedy resolution in sight.
The agreement entails the construction of the country's largest port, a massive infrastructure project. The port is being built in a city where the armed forces already own three commercial ports. It is, moreover, being built on land owned by the armed forces, which means the military has good control over all activities undertaken there. KLP said Adani itself admits that the highest risk it faces is to ensure that illegal goods are not transported into the country via the port. Furthermore, Adani has admitted that if the armed forces were to decide to use the port for military purposes, the company would not be able to prevent it, nor are there any mechanisms that would enable it to do so.
There is an imminent danger that the armed forces could use the port to import weapons and equipment, or as a naval base. This equipment plays a crucial role in the attacks carried out by the armed forces. In this way, the port could be used by the army to continue its violations of human rights. These factors show that the company is operating in a business sector where there is a high risk of contributing to human rights abuses.
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(IANS)
