| NBA Press Release
|| 03 June 2004
CAG indicts the Power Finance Corporation of irregularities in disbursing funds to Maheshwar Project;
NARMADA BACHAO ANDOLAN
Jail Road, Mandleshwar
District Khargone, Madhya Pradesh
90-day period for financial closure as condition of Rs. 400 crore Madhya Pradesh govt guarantee to Maheshwar Project draws a blank from S.Kumars
The recent Report of the CAG of India (Commercial No. 3 of 2004) for the year ending March 2003 has severely indicted the Power Finance Corporation – the prestigious financial institution belonging to the Ministry of Power, for irregular disbursement of loans of nearly Rs. 100 crores to the S.Kumars promoted Shree Maheshwar Hydel Power Corporation Limited, and for placing the huge sum of Rs. 140 crores of public money in jeopardy. click here for link The CAG says that the PFC acted “without ensuring the (S.Kumars) compliance to pre-disbursement conditions as stipulated in the loan agreements, which was irregular”, and which has led to the PFC facing “the risk of potential loss of Rs.99.32 crore, besides loss of interest amounting to Rs.39.54 crore.” This includes the crucial condition that the S.Kumars bring in their full share of equity, before the loans from the Indian public financial institutions are disbursed. The CAG report states that despite the S.Kumars not bringing in their full share of equity a priori, the PFC management disbursed around Rs. 100 crores to the Maheshwar Project, in disregard of the directions of its own Board. The CAG Report states that “While approving the loan to the party promoted by S. Kumars Group, Board of Directors had directed that the PFC’s financing would be released only after the promoters bring in equity as committed by them. Despite the pre-disbursement conditions not being fulfilled, the Company (PFC) released Rs.99.32 crore. The party (S.Kumars) however, started defaulting in payment of interest from October 2000 and did not pay interest amounting to Rs.39.54 crore till 31 March 2003. Implementation of the project has been held up since February 2001 due to promoters’ inability to bring in further equity, backing out of the foreign collaborators and non-release of further disbursements of the loans by the other financial institutions owing to default by the party.”
The CAG report also refutes as unacceptable the PFC management explanation that it had merely followed the same pre-disbursement conditions as that of IFCI, the lead financial institution of the consortium, and insists that the PFC “should have safeguarded its financial interest by ensuring compliance of the pre-disbursement conditions... in view of the reservations of its Board of Directors about the financial position of the promoter group as regards its capability to invest in equity.” The grave financial irregularities brought to light by the CAG report confirms and vindicates the concerns that have been consistently raised by the Narmada Bachao Andolan about the public financing of the privatized Maheshwar Project. This is not the first time that CAG has indicted public agencies for misuse of public money, waiver of norms and failure to collect dues in connection with the S.Kumar’s promoted Maheshwar Project. The CAG Reports of the years ending 1998 and 2000 had noted that the S.Kumars are yet to pay the state agencies - MPEB (Madhya Pradesh Electricity Board) and the NVDA (Narmada Valley Development Authority) for the properties that they took over from these agencies in 1992. The CAG report of the year ending 2000, had also pointed out that the MPSIDC Board (Madhya Pradesh State Industrial Development Corporation Limited) had loaned Rs. 8.02 crores of money under irregular circumstances to the S.Kumars company – Induj Enertech and had violated the maximum allowable lending limit of Rs. 3 crores. Further, the S.Kumars refused to pay back this irregularly obtained money despite their posting profits over those years. In September, 2001, the MPSIDC publicly declared the borrowing S.Kumars company, Induj Enertech Limited as a “willful defaulter”. However, without paying back first loan taken from the MPSIDC, in 1999-2000, Induj Enertech obtained a second loan of Rs. 44.75 crores from the MPSIDC for the financing of the Maheshwar Project. When the Induj Enertech did not pay back even this loan, in September 2001, the MPSIDC issued a Revenue Recovery Certificate and instructed the District administration of Khargone to recover the outstanding amount from the attachment and sale of the movable and immovable properties of the Maheshwar project. In December 2002, the immovable properties including the dam site lands of the Maheshwar Project were attached by the district administration. Since the entire outstanding amount on this loan is not recoverable from the immovable properties of the Maheshwar Project alone, the MPSIDC has now issued further Revenue Recovery Certificates to make the recoveries from the properties of the Directors of the S.Kumars situated in Mumbai and Indore.
Apart from this default leading to attachment of project properties and lands, the Reappraisal Report of March 2000 of the IFCI, the lead agency of the lending consortium has brought other shocking financial issues to light. The IFCI Note stated that the S.Kumars had gave Rs. 106.4 crores of project funds slated for the construction of the Maheshwar Project to agencies who had no contracts for the project and who did no work on the project. The report also noted that the S.Kumars gave another Rs. 19.3 crores of the project funds to its group company – the Induj Enertech Limited without any contracts for the Project.
However, the newly elected Madhya Pradesh government chose to ignore these crucial financial issues connected to the Maheshwar Project, as well as the fact that the project properties are under attachment, and chose to jeopardize Rs. 400 crore of public money by giving a state guarantee on the 28th of January 2004 to the Project. The condition of the state guarantee was that the Maheshwar Project must obtain financial closure within 90 days. Since the time period has elapsed without the financial closure having taken place, no doubt the state guarantee extended to the Project stands automatically cancelled. In fact, as per media reports, in a recent meeting of the Indian public financial institutions in the first week of April 2004, the institutions have refused to put in any further public money into this controversial project unless the Shree Maheshwar Hydel Power Corporation Limited first pays up its huge interest defaults to them, and brings in its full share of equity. Obviously, the S.Kumars were not successful in mobilizing these funds. In the circumstances, the NBA calls on the state government and the Union Ministry of Power to scrap the high cost, overcapitalized and destructive Maheshwar Project that threatens to be another Enron, and to take the financially and technically prudent decision to use this investment in reducing the huge transmission and distribution losses of the state – almost 45% of the total electricity generated. This saving can make far more electricity available, than is slated to be produced by the Maheshwar Project, at one-fourth the unit cost, and bridge the energy deficit in the state. The Narmada Bachao Andolan also calls for a White Paper from the State and Central governments on the Maheshwar Project, its progress, finances, cost of power, and public utility, and a full investigation of the financial irregularities. It is apparent that the S.Kumars have built up a dark track record of non-payment of dues and willful defaults on crores of rupees of public money taken from banks, institutions and government departments. Just two months ago, on the 25th of March 2004, the Income Tax department attached the Indore based factory of the S.Kumars Enerprises Synfabs Limited for the non-payment of income tax dues. In 2002, the IFCI and the IDBI had identified the flagship company of the S.Kumars – the S. Kumars Nationwide Limited as a willful defaulter. In 2001, the MPSIDC had publicly declared both S.Kumars companies - Modak Rubber and Textile Industry Private Limited and Induj Enertech Limited as willful defaulters. These persistent financial irregularities of the S.Kumars is alarming and deserves censure. It is because of such delinquent conduct by a small handful of corporate groups, that the public financial institutions and banks such as the IFCI and the IDBI engaged in developmental lending are on the verge of collapse today, and nearly one lakh crore of public money has been jeopardized.
The NBA calls on the Reserve Bank of India and the Union Ministry of Finance to investigate the role of the financial institutions and banks involved in the Maheshwar Project who have also disbursed hundreds of crores of public money to the Maheshwar Project -– IFCI, IDBI, LIC, GIC, BoI, SBI etc without the fulfillment of important pre-disbursement conditions and to hold them publicly accountable for placing this money in jeopardy. The NBA also calls on the RBI to take the severest penal action against the S.Kumars and similar corporate groups guilty of multiple willful defaults, recover monies already given to them through attachment and sale of assets, and bar them from obtaining any further public money.