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Siemens has withdrawn from the Project despite S.Kumars protests for many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
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