NBA Press Note

Bhopal, December 13, 2000

Save The Narmada, Save Humanity!

Jail Road,Mandleshwar,
District Khargone, M.P.
Telefax: 07283-33162, 0265-382232

NBA urges financial institutions to stop squandering public funds into this Project and stop violation of financial norms

The recent decision of the US power utility Ogden Energy Group the fourth in the line of investors to withdraw from its commitment to fund 49% of its equity has clearly put the controversial Maheshwar Hydro-Electric Project into jeopardy. It may be recalled that the withdrawal of Ogden is only the latest event in the chequered history of the Maheshwar Project and the long line of investors who have deserted this flawed Project. In 1998 and then 1999, as a consequence of the people's struggle and the strength of the issues being raised by it, first, the US power utility Pacgen and then the German power utilities Bayernwerk and VEW Energie withdrew from the Maheshwar Project. Subsequently,in June, 2000, a team of international experts commissioned by the Development Ministry of the German government visited the valley and came out with a report that sharply indicted the Project .In the wake of the report, the Siemens was compelled to withdraw its application for an export guarantee from the German government, and a proposed loan of Rs.5700 million from a German bank fell through.

The Narmada Bachao Andolan welcomes the prudent decision of Ogden Energy to sever connections with this destructive Project after their due technical, legal and financial due diligence found the Project to be wanting in many respects. The NBA warns the Indian public financial institutions, notably the IFCI, IDBI, GIC, LIC, SBI not to squander any further public investment into a Project whose only future is to become a non-performing asset (NPA). In fact, the news of the Ogden withdrawal has completely exposed the S.Kumar's recent and patently false claims that the Project has attained financial closure. Far from achieving financial closure, it is clear that there are no takers for the Project. It is unlikely now that any international investor will invest in this Project. On the other hand, no further funds can be forthcoming from the Indian public financial institutions funds without compounding existing violations.In fact , the S.Kumars have proposed that nearly 70% of the Project outlay should come from the FI's a financing pattern that is in complete violation of the existing financial norms and government notifications , and which therefore cannot be allowed.

The Andolan also calls on the Central government to scrap this Project that is fundamentally flawed on techno-economic as well as social and environmental counts, and to implement suggested alternatives to meet the energy needs of the common people of this country. The Maheshwar Project is the first Hydel Project to be privatized in India and will produce prohibitively expensive power, at around Rs7 per unit. This Project which cost Rs.465 crores before privatization has been padded upwards in the last few years to Rs. 2254 crores. Clearly, the power from Maheshwar Project will be more expensive than even the controversial Enron power. It is also clear that the people of this country need affordable power, not loot in the name of power. It is already becoming extremely difficult to pay for Enron which produces power at Rs.7 per Kwh or Essar (Gujarat) with power costed at Rs.31 per Kwh . Attempts to push such expensive and non viable Projects like Maheshwar through can only result in severe political backlash, the rupturing of the social fabric,and the collapse of the country's economy.

After the ouster of the of Ogden, the people of the valley are now determined to take the public financial institutions to task. Even as sources of foreign funds to this Project dried up in the last 4 years, the Project promoters are attempting to replace them with rupee and dollar term loans from Indian public financial institutions. As a result, nearly Rs.1458 crores out of a total proposed investment of Rs.2254 crores- nearly 70% of the total investment is being sought to be raised from public banks and financial institutions. Yet, the raison d'entre of privatizing these and other private Projects in India was to generate additional resources.The Government resolution no.237 notified in the Gazette of India on October 22,1991 states that in order "to ensure that the investor brings in additionality of resources to the electricity sector, not less than 60% of the total outlay for the Project must come from sources other than Indian public financial institutions." But S.Kumars and indeed the lead financial institution for this Project, the IFCI have proposed funding 75% of the total outlay of the Maheshwar Project with FI funds ,in place of the allowable 40%.Obviously,this is patently illegal and cannot be cleared by the CEA. The people of the Narmada valley have demonstrated at the offices of the financial institutions such as the PFC (Power Finance Corporation), IFCI and the HUDCO in the recent months, challenging them to prove the public viability of the Project and the possibility of rehabilitation of the affected people. They now intend to follow this up with an intensification of direct struggle on the ground and legal action against the FI's .

The IFCI will have to answer how it has considered giving funds to the Maheshwar Project at the proposed level of Rs.2254 crores, when the Project does not even possess the statutorily required techno-economic clearance for this amount. The Narmada Bachao Andolan had served legal notice on the CEA, earlier this year, restraining them from clearing this inferior high tariff package. As a result, the techno-economic clearance of this Project at this level is yet to be cleared. It may also be noted that the Project company SMHPCL does not possess the environmental clearance that is statutorily required by the Project. The earlier clearance given to the state government has been openly violated, and a petition from the Narmada Andolan led a team of officials from three Central Ministries to prepare an extremely critical report in 1998, that concluded that the clearance may have to be revoked if the conditions are not met. Without these two clearances in place, there is no possibility of any financial closure.

In the valley, as the news of Ogden's withdrawal spread in village after village, elated residents celebrated this victory, renewing their resolve to fight to the finish, and to stop this destructive Project at any cost. It was in March 2000 , during the visit of the US President Clinton that Ogden representatives who had traveled to India as part of Clinton's corporate entourage signed a Memorandum of Intent with the private promoters of the Maheshwar Project. The Memorandum expressed the intention to put in 49% of the total equity of the Project making them the strategic investor. Outraged people responded first by protesting in front of senior officers of Ogden as they flew into the dam site and then by demonstrating at the US embassy in New Delhi. Protests followed at Calcutta and by members of the Indian Diaspora at Washington .The popular people's struggle in the area compelled a visiting Ogden team to visit a large number of villages in the area to gauge both the extent of popular resistance as well as the failure of the rehabilitation process. Hundreds of villagers gathered in each of these villages to represent to the team that investment in this Project would not only destroy one of the richest land and water economies in India, but also be extremely risky for any potential investor on techno-economic and social grounds. The well considered decision of Ogden to withdraw after looking at all aspects of the Project has vindicated the issues raised by the struggle.

The Maheshwar Hydro-Electric Project is a large dam being constructed on the river Narmada in Madhya Pradesh. A power- only Project, it has a proposed installed capacity, yet average actual firm power determined by hydro flows will be no more than 80 MW. Although the Project is being built ostensibly to meet peak power requirements, not more than 20% of the power produced will be in the 8 non-monsoon months when peaking deficits exist. More, the Project will produce power that will be prohibitively expensive a levellised tariff of around Rs 7 per unit - that is several times the cost of power presently being produced by the Madhya Pradesh State Electricity Board and more expensive than the controversial Enron power.

Yet, the Power Purchase Agreement of this Project deems that whether or not electricity is produced as expected, and whether this power can be sold or not ,the Project promoter will receive a guaranteed return of a minimum of 16% on equity and a sum of around Rs. 6000 million per annum for the next 35 years from the public exchequer. Obviously, the Project will become a dead weight on the public exchequer without yielding any benefits, very much like the Enron Project in Maharashtra whose agreement is now being sought to be reviewed.

The Maheshwar Project will destroy the lands, lives and livelihoods of over 50,000 people in the fertile plains of Nimad in Madhya Pradesh. It will submerge thousands of acres of deep, black cotton soils irrigated by the waters of the Narmada, cause severe waterlogging in another few thousands, and inundate forever scores of extremely productive sand quarries and river bed draw-down agriculture that supports the economy of not only an industrious peasantry but also thousands of Dalit, boatpeople and fisherpeople. The people of this area have been carrying on a determined struggle against this Project since 1997, capturing the dam site over 10 times, barricading all roads to the dam site for months, and moving ahead in the face of enormous repression.

The Narmada Bachao Andolan notes that this Project is flawed on techno-economic grounds and will bring not light but darkness to the people of Madhya Pradesh ,if implemented. It also notes that the rehabilitation of the affected people is impossible in the complete absence of cultivable land and other necessary resources, as pointed out by the report of the Task Force Group constituted by the Madhya Pradesh government, the report of the three Central Ministries and the report of the team of international experts commissioned by the Development Ministry of the German government.

Finally, the Andolan reiterates its call to the Indian public financial institutions not to squander public money and jeopardize the interests of public investors by investing in the destructive Maheshwar Project. It asks S.Kumars to seriously review its position in this destructive Project and cut any further losses by withdrawing from it. The Andolan also calls on the Central government to scrap this destructive Project after considering all its aspects and implement its alternatives.

Chittaroopa Palit
Alok Agarwal
Mangat Verma
Jagdish Patidar