| NBA Press Release
|| 31 December 2002
Movable and immovable properties of Maheshwar dam attached; Rural Electrification Corporation refuses to pick up equity in the Project; Demand to scrap the Project and recover public money
NARMADA BACHAO ANDOLAN
Jail Road, Mandleshwar
District Khargone, Madhya Pradesh
In a very significant development, ten days ago, on the 20th of December, the Khargone district administration seized and attached the immovable properties and 326.7 hectares of land of the S.Kumars promoted privatized Maheshwar Project in Madhya Pradesh, including all dam site lands on behalf of the Madhya Pradesh State industrial Development Corporation under the Madhya Pradesh Public Money (Recovery of Dues) Act 1987 and the Madhya Pradesh Land Revenue Code, 1959. This attachment was for the recovery of a short-term loan of Rs. 44.75 crores taken from the MPSIDC by the Promoters of the Maheshwar Project - the S.Kumars in 1999-2000.
This loan was taken in the form of Inter-Corporate Deposits by the Induj Enertech Limited (formerly S.Kumars Power Corporation Limited) - of which the the Shree Maheshwar Hydel Power Corporation Limited is a 100% held subsidiary, for the purposes of financing the Maheshwar Project. Both Induj Enertech Limited and Shree Maheshwar Hydel Power Corporation Limited are group companies of the S.Kumars. The S.Kumars company - Induj Enertech Limited who had borrowed these monies for the avowed purpose of financing the Maheshwar Project had refused to pay back the amount despite the fact that they were posting profits on its accounts for the last three years. The movable properties of the Project have already been attached earlier by the MPSIDC, an All India financial institution notified by the RBI.
This attachment of the movable and immovable properties of the Maheshwar Project and recovery actions against the Induj and SMHPCL has confirmed and vindicated the concerns consistently raised by the Narmada Bachao Andolan about the large-scale abuse of public funds by the S.Kumars and grave financial irregularities in the Project and the multiple instances of diversion of public funds and willful defaults by the Promoters. The attachment of the Project assets has come on the heels of the formal refusal of the Rural Electrification Corporation to participate in the Maheshwar Project as a strategic partner. The REC had been approached by the S.Kumars to participate in the equity of the Maheshwar Project but after studying the Project as well as the issues raised in the legal notice served by the NBA to the REC, in November, they declined to participate in the Project.
Apart from these grave financial irregularities in the Project and of the Promoters, it is clear enough that the Maheshwar Project is fundamentally flawed and cannot be justified on grounds of public interest. For the last six years, the people of the Narmada valley and the Narmada Bachao Andolan have been pointing out that the electricity to be produced by this Project will be both very little and prohibitively expensive. Since the Power Purchase Agreement of the Madhya Pradesh government with the S.Kumars undertakes to pay the Promoters nearly Rs. 600 crores a year for the next 35 years, whether or not electricity is produced or not or can be sold or not on the basis of a deemed generation clause, it is clear that this Project is likely to become an stranglehold around the shoulders of the government and the people of Madhya Pradesh very much in the manner of Enron's Dabhol plant in Mahrashtra. Through the process of struggle, it has also became very clear that there was no possibility of rehabilitation of the 50,000 farmers, fisherpeople and boatspeople to be affected by this Project. Thus it is very clear that the Project is fundamentally flawed on technical, financial and social, and human grounds. The NBA also demands that all public financial institutions and banks who have invested in this disastrous Project must immediately institute legal proceedings for the recovery of public monies.
The NBA also notes that the instances of diversion of public monies and willful defaults by the various S.Kumars companies - the SMHPCL that is building the dam, its holding company - the Induj Enertech Limited, the S.Kumars Tyres company now known as Modak Rubber and Textile Company Limited as well as the flagship company of the S.Kumars group- the SKNL are not isolated instances, but multiple and recurring, and that they constitute a dark track record of the misuse and abuse of public money. The NBA notes that the RBI notification of May 2002 states that not only units but promoters/ entrepreneurs who are guilty of multiple willful defaults and diversions and siphoning of public funds must be debarred from any institutional finance from banks and financial institutions and access to capital markets for the next five years. It demands that the S.Kumars group be denied any further access to public money and penal action in the form of initiation of crminal proceedings must be taken against this group.
The Andolan expresses surprise that as per reports in the media the lead institution for this Project - the IFCI had responded to a Ministry of Finance query in November 2002 on the matter of defaults of public money by the S.Kumars (prior to yet another bail-out package for the IFCI,) by encouraging the Promoters to go in for a bonds issue to finance the Maheshwar Project, although it has been very much aware for the last number of months that the Project assets were in the process of being attached and sold. It also expresses surprise that the Power Finance Corporation has been actively considering giving a defaulter guarantee to this bonds issue and Project while at the same time being in correspondence with the MPSIDC about the attachment of the Project assets because of default. There is no doubt that this is exactly how the Indian financial institutions and banks have promoted the creation of non-performing assets, abuse of public money and the large scale loot of public money by certain delinquent corporates, whose magnitude has crossed over one lakh crore rupees today.
The NBA calls on the FI's and banks to report their investment in the Maheshwar Project as non-performing assets and begin recoveries of these public monies, and warns them that the public will not tolerate any action by the Institutions to support this disastrous Project further and will respond by public and legal action on this issue. It may be noted that over ten Indian public financial institutions and banks led by the IFCI have contributed Rs. 350 crores of public money to this Project, despite the fact that there has been no financial closure till date, no confirmation of any strategic investor and violation of the pre-disbursement conditions, including the return of Rs. 106.4 crores of public money that had been given away by the promoters to agencies who had NO contracts for Project works. It may also be noted neither the Lender's Engineer- NHPC's Report nor the Report of the KPMG are publicly available, despite repeated requests to confirm the full use of the Rs. 560 crores already claimed to have been spent by the SMHPCL. The NBA demands that these reports be made publicly available and that the RBI and the Ministry of Finance institute a Committee of enquiry to examine the cumulative evidence of large scale abuse of public funds by this corporate group and take penal action on this matter. The NBA is in the process of serving legal notices on all FIs and banks involved in the Project as well as rating agencies on this matter through Shri Prashant Bhushan, Supreme Court lawyer as well as apprising the RBI and the SEBI as well as the Ministry of Finance and Power, the CEA and the Government of Madhya Pradesh of this matter.
It may be noted that this final nail on the coffin of this Project in the shape of attachment of the movable and immovable properties of the Project is only the last of the various critical events and withdrawals surrounding this Project. As the struggle of the people made the critical issues surrounding the Project public knowledge, a string of investors including the Siemens, Bayernwerk and VEW Energie of Germany as well as the PacGen, Ogden and Harza Engineering of the US withdrew from the Project. The German and Portugese governments also refused to give export credit guarantees to this Project. A number of Indian financial institutions including the REC have also refused to associate themselves with the Project.
Thus, the current outcome in Maheshwar as well as the experience of Enron in India and world wide establishes that projects with bad economic fundamentals and the financial irresponsible behavior that these corporates have displayed are unlikely to ever be viable propositions in the long run. And that not all the King's horses and all the King's men in shape of political support from the ruling establishment can hold them up or put them together again.
Some instances of defaults and diversions by the S.Kumars group are mentioned below: