NBA Press Note

June 1, 2001

Save The Narmada, Save Humanity! NARMADA BACHAO ANDOLAN
Jail Road, Mandleshwar
District Khargone, Madhya Pradesh
Tel: 07283-33162

Maheshwar dam affected people storm Financial institutions, FIs taken to task for irregularities

Collusion between FIs and private promoters, RBI must act to stop large scale loot of public finance

In a very successful series of direct actions, several hundred people affected by the Maheshwar dam Project being built in the Narmada valley in Madhya Pradesh stormed a large number of financial institutions in Mumbai yesterday. These included the IDBI, IFCI, SBI, UTI, LIC, GIC, Dena Bank and Bank of India. They held a day long dharna at the World Trade Centre at Cuffe Parade which houses the IDBI towers , the UTI head office and adjoins the Dena Bank head office. During the course of the protests, delegations of the affected people and NBA activists met senior officials of IDBI, SBI, LIC, GIC and IFCI and gave them notice for continuing to participate in the Maheshwar Hydro-Electric Project despite the fact that it threatens to be yet another disaster like Enron. The NBA called on the FI's to urgently and decisively withdraw from the Maheshwar Hydro-Electric Project that will produce power more expensive than Dabhol power that has threatened the entire production economy of Maharashtra and which the country cannot afford.

The meeting at IDBI continued for nearly 2 hours as a 12 member delegation led by Shri Alok Agarwal , leader of the Maheshwar struggle , affected people from the valley and representatives from other organisations in Mumbai questioned the officials of the IDBI about the participation of this institution in the controversial Maheshwar Hydro-Electric Project. Executive Directors Shri Nagarajan and Shri Jairaman as well as Chief General Manager Shri Raghavan and Venkatraman attended the meeting on behalf of the IDBI. The IDBI officials have agreed to a meeting of the lending consortium with the NBA in the near future.

The Project promoters of this privatized Maheshwar power project the S.Kumars Co. have approached the Indian public financial institutions for financing almost 90 % of total Project outlay a sum of Rs. 2000 crores out of a total of Rs. 2254 crores. During the course of the meeting with the NBA ,the IDBI officials admitted that last year ,they disbursed Rs. 30 crores out of a total Rs. 100 crores Rupee term loans and 50 crores equity pledged to the Project. Members of the Narmada Bachao Andolan pointed out that this action of disbursement was in direct contravention of the conditions of the IFCI Reappraisal of March,2000 that states that "before any additional disbursement out of present or proposed assistance (from the financial institutions) , SMHPCL would present a letter from Ogden- (the strategic investor) that all conditions precedent have been complied with by the SMHPCL. " But the fact of the matter as per the IDBI's own admission , is that despite this clear condition, the IDBI went ahead and disbursed Rs. 30 crores to the SMHPCL the company formed by the S.Kumars to build this Project at a time when the strategic investor was still conducting due diligence, despite the fact that the statutory techno-economic clearance of the CEA (Central Electricity Authority ) for the increased outlay of Rs. 2254 crores has not been cleared, and even before financial closure of the Project. It may be noted that the strategic investor itself withdrew from the Project at the end of their year long due diligence and that the CEA has still refused to clear the Project.

The IDBI officials also admitted that the reports of the concurrent auditors for the Project that was one of the main conditions of the appraisal process of the Financial institutions are yet to give their report at a point in the Project when the promoters were claiming that they had spent upwards of Rs. 517 crores , over Rs. 350 crores of which is public finance. The IFCI also admitted in its meeting with the NBA activists yesterday that despite these being conditions for further involvement of the FI's , neither the report of the concurrent auditors nor that of the Lender's Engineer for the Maheshwar Project was available with the lead agency yet. They also admitted that the Central Electricity Authority had not agreed to clear the Project at the proposed amount of Rs. 2254 crores yet, although the IFCI the lead agency of the consortium lending to the Maheshwar Project had concluded nearly a year back that the Rs. 2254 proposal "merits support from the FI's". This confirms that the FI's are contemptuous not only of public and investor interest but also of the common law of the land, since the CEA clearance is statutory and must be obtained before any work on the project is done.

The NBA notes that it is clear from these admissions that there seem to be no appraisal or audit process followed by the FI's that can ensure that decisions about Project financing are taken on the basis of rigorous appraisal and which can ensure that these public funds are even being actually used for the purpose of the Projects . On the contrary despite the fact that the funds in question are public funds , it seems that the FI's have put the interest of the private Project developers requiring these funds the interests of the investors and general public interest. The determination with which this is being done and the violations of all rules and conditions, including even their own appraisal process clearly points to collusion between the senior management of the FI's and the private developers , in this case the S.Kumars.

The Narmada Bachao Andolan expresses deep concern at these irregular and illegal practices of the Financial institutions that are jeopardizing thousands of crores of public funds into private projects and warns them that they intend to challenge the obvious collusion between the senior management of the FI's and the private promoters. It may be noted that the Godbole Committee report on the Dabhol Project also indicts the FI's for the lack of proper appraisal of the IPPs such as Enron.

The Narmada Bachao Andolan also calls on the Reserve Bank of India to regulate these illegal practices of the FI's that are designed to convert thousands of crores of public money into non-performing assets. It notes that the RBI has been very negligent in this matter despite periodic expressions of concern about the mounting NPA's of the FI's from time to time, and despite successive inspection reports of the RBI that have criticised the FI's for lending to promoters where there has been large scale diversion of funds. In fact, in September, 2000 the Madras High Court indicted the RBI and passed strictures on it for ensuring the safety of public funds in the matter of SPIC company of the MCF group. There is no doubt that to ensure the safety of public funds it is imperative that the RBI regulates FI practices about the appraisal, monitoring and funding of private projects especially IPPs.

The Narmada Bachao Andolan reiterates its demand that the FI's must immediately withdraw from financing the high cost Maheshwar Hydro-Electric Project , that there must be a moratorium on all further FI lending to IPPs pending a case by case review and that the RBI must use its powers and discharge its responsibilities to regulate the indiscriminate and irresponsible lending of public funds.

Chittaroopa Palit
Urmila Patidar
Alok Agarwar
Sanjay Nigam