NBA Press Note

April 9, 2001

Save The Narmada, Save Humanity!

Jail Road, Mandleshwar
District Khargone, Madhya Pradesh
Tel: 07283-33162

NBA apprehends large scale financial irregularities in the Maheshwar Hydro-Electric Project
Asks CAG to investigate

Public funds from Financial Institutions cannot cross stipulated limits

In the last few days, many newspapers have reported a recent flurry of activity by the state government and the Project promoters of the controversial Maheshwar Project seeking to patch work and finalise funds for this jeopardized Project. It is becoming increasingly clear that as the struggle in the Narmada valley has succeeded in successively compelling all foreign power utilities to leave the Project, desperate and irregular attempts are being made now to infuse public funds from the Indian financial institutions into this privatized Project in order to save it from collapsing without a trace.

While on one hand the fact that the S.Kumars is negotiating with the BHEL for the purchase of power equipment finally and decisively clarifies that Siemens has withdrawn from the Project despite S.Kumars protests for many months, on the other hand the lower costs being offered by the BHEL for the purchase of turbines has begun to open up the Pandora's box of financial irregularities and malpractices that the Maheshwar Project has been based on.

In this context, the Narmada Bachao Andolan expresses its deep apprehension that the work on the dam site and other sunk costs are actually far less than is being claimed by the state government and the Project promoters, thus leading to the real possibility of the diversion of funds to other concerns managed by the Project promoters. The NBA also believes that there has been a systematic over invoicing of all components of the Project. It may be recalled that in the course of the last 7 years since privatization, the Project costs have been raised by the Project promoters five-fold from Rs. 465 crores to over Rs. 2250 crores. Since most of the Project is being sought to be financed with public funds, the Narmada Bachao Andolan has made formal and confidential representations to the CAG and the RBI to investigate the status and actual use of public funds being infused in to the Project .

The Narmada Bachao Andolan demands that instead of negotiating or concluding agreements in secret, the Project promoters and the Madhya Pradesh government must make a public statement about what funds have already been spent on the Project and in which works, what the currently proposed Capital costs for this Project is and what the power tariffs will be at this cost, and finally what sort of guarantees have been given to the Project and how the general public will be forced to pay for the cost of this through increased power tariffs.

In this context ,the NBA urges the FI's reveal to the people of the country what the report of the lender's engineer NHPC about actual progress on the site and costs incurred are. It may be noted that the IFCI reappraisal note of March, 2000 concedes that the FI's were yet to receive a formal report as is legally required before infusing any more funds from the NHPC. At this juncture it is clear that FI's cannot proceed in this case without a full due diligence and that if they still continue to do so, and the funds become non-performing assets (NPA's), as per the recent judgement of the Supreme Court in the Lucknow Development Authority case , the individual officers taking the flawed decision will be held accountable for the misuse of public funds.

The NBA also demands that the state government and the Project promoters must divulge to the people of Madhya Pradesh that if BHEL is quoting lower costs for the same turbines, what is the reason that despite claims of the Project promoters that they have followed the International Competitive bidding route , that the turbines which had earlier been contracted for are not one or two, but hundreds of crores of rupees more expensive than the ones being presently negotiated .The Narmada Bachao Andolan would like to know whether it is only in power equipment component that over invoicing has been done or whether this practice of padding has been followed in all heads of Project cost. The NBA demands a full investigation of the financial irregularities that mark this Project. It asks that funds from public financial institutions should not be used to bolster private profits as is happening in the case of Maheshwar and that this destructive Project must be scrapped once and for all.

It may be noted that in the last few weeks, the Project promoters have been negotiating with the Unit Trust of India for a large loan as well as with the LIC, GIC , IFCI and other financial institutions to take up the share of 49% of Project equity vacated by US power utility Ogden Energy in December, 2000. Similarly , the SMHPCL is not only negotiating with BHEL for the purchase of turbines but has also asked it to participate in the Project equity. The actual quantum of participation of the Financial institutions that is being sought comes to a whopping 94 % of the total Project cost- including both equity and loans. It may be noted that the main reason for the privatization of the power sector in the state and the country in the last decade has been the lack of availability of public investment for power projects.

It is therefore incomprehensible when privatized Projects which are expected to bring in additional funds depend on funds from public financial institutions. As per the norms for investment of the Ministry of power, the share of Indian FI's in privatized Projects can be to a maximum of 40%. The Government resolution published in the of the 22nd October,1991 states clearly that in order "to ensure that the investor brings in additionality of resources to the power sector ,not less than 60% of the total outlay for the Project must come from sources other than Indian financial institutions." Thus the funding of 94% of the total Project cost of the Maheshwar Project from Indian financial institutions is clearly illegal.

This becomes particularly poignant when we remember that the Maheshwar Project had a total Project cost of only Rs.465 crores when the Project was with the state government, and has been increased to Rs.2254 crores in the course of the last 6 years by the private Project promoters. Yet, now over Rs.2000 crores of public money will be used in the Project which was privatized because the state could not mobilize Rs. 465 crores of public funds.

It may also be noted that with the bifurcation of Madhya Pradesh , the Revenue Allocation Centres of Ambikapur and Bilaspur have become part of Chattisgarh and so 80% of the revenue allocated for the payments to Maheshwar Project is simply not forthcoming any more and the escrow agreement has been rendered merely a paper document . In the circumstances for Indian financial institutions to jeopardize public funds and investor confidence by investing and disbursing funds to this Project is completely unwarranted. It is clear that if the S.Kumars cannot mobilize additional resources then it must withdraw from the Project.

It may be recalled that Siemens is only the last foreign agency to desert the Project. This Project has been successively deserted by the US power utility Pac- Gen in 1998 and the German power utilities Bayernwerk and VEW Energie in 1999 . Subsequently, the German government guarantee sought by Siemens fell through in August 2000 and the Portugese government also refused ABB a guarantee in January, 2001 leading to the cancellation of Rs. 700 crore loan from a private German bank.

There is no doubt that the Maheshwar Project is completely and deeply flawed on social, environmental , technical and financial grounds. In the present context after the bifurcation of Madhya Pradesh with most of the hydel generation coming to Madhya Pradesh and most of the thermal power going to Chattisgarh , it is clear that Maheshwar Project cannot solve the electricity problems of the state .In this context the NBA calls on the M.P. govt. and the Central power Ministry to definitively scrap this Project once and for all and implement cheaper and better alternatives .

Urmila Patidar
Alok Agarwal