NBA Press Note

March 15, 2001

Save The Narmada, Save Humanity!

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

Loan of Rs. 200 crores falls through, Harza out of Project;
Escrow cover for Maheshwar Project collapses;
NBA demands White Paper on the Project

In a lethal blow to the controversial Maheshwar Hydro-electric Project being built on the river Narmada in Central India, the Portuguese government has in a recent development, refused to give the COSEC guarantee to the multinational firm Asea Brown Boveri. The ABB had applied for this guarantee from the Portuguese export credit Agency COSEC, in order to secure a tied loan of Rs.200 crores (US dollars 46.28 millions) from the private German bank- Hypovereinsbank for the sale of ABB produced hydro-mechanical equipment to the Maheshwar Project. In the absence of the COSEC guarantee the Hypovereinsbank loan of Rs.200 crore to the Maheshwar Project has also fallen through. As a result, Alstom- the French Power utility that had recently bought ABB's hydro-power division is without the guarantee that can help make the supplier's contract that they have with the Project promoters of the Maheshwar Project a reality.

The refusal of the COSEC guarantee to the Project also implies that the 6% equity that the ABB was to bring to the Project will no longer be forthcoming. Nor will the equity share be replaced by Alstom. It may also be noted that the commitment of Project equity of 16% that was to come from Siemens has not been renewed after Siemens failed to obtain the Hermes guarantee from the German government for the Maheshwar Project in August, 2000.

The Secretary of the Ministry of Finance, Portugal confirmed in a recent written communication to a Portuguese organisation that the COSEC guarantee for the Maheshwar Project has been refused. This development which has come closely on the heels of the US power utility Ogden's withdrawal from the Project in December 2000 (that was to give 49% of the Project equity) seems to suggest that this is the very end of the Project. This also means that, in all, in the last few months 71% of total Project equity has been withdrawn from the Project and the loan component of Rs. 825 crores has become worthless in the light of the desired guarantees having being refused.

In another important development, it is learnt that Harza International of the U.S.- the company that was responsible for the monitoring and coordination of the civil works for the dam has withdrawn from the Project. The IFCI reappraisal report underscored the cruciality of Harza's presence to the participation of financial institutions in the Maheshwar Project, given that the S.Kumars have no previous experience in Hydro construction. Harza's withdrawal has now put the Project at technical risk and will jeopardize further any possibility of Indian financial institutions participating in the Project.

The refusal of the COSEC guarantee is clearly a vindication of the issues being raised by the Narmada Bachao Andolan that has insisted that the Maheshwar Project is fundamentally flawed on technical, social and environmental grounds. The Maheshwar Project has a crossed history over the last four years as company after company left the Project in the face of the people's resistance and the truth of the issues that they are raising. In 1998, the US power utility PacGen withdrew. In 1999, two German power utilities Bayernwerk and VEW Energie withdrew. In June, 2000, the Development Ministry of the German government commissioned a team to visit the area and assess the social and environmental mitigation plans. In the wake of a sharply critical report, the Hermes guarantee for the Project did not come through and the Rs.600 crore German loan for the Project fell through. Then in December 2000, the US company Ogden also snapped its ties with the Project. The refusal of the COSEC guarantee and the collapse of the Rs.200 crore loan as well as the withdrawal of Harza is only the last desertion from this dying Project.

In the mean time, the escrow cover for this Project has also collapsed after the bifurcation of the erstwhile Madhya Pradesh. The original plan was to allocate the revenues available from the regional account offices (RAO) of the MPEB in Ratlam, Mandsaur, Bilaspur and Ambikapur towards the compulsory annual payments of over Rs.600 crores to the Maheshwar project. However after the bifurcation, Ambikapur and Bilaspur have gone to Chattisgarh. According to the report of the CRISIL advisory services of October 1999 submitted to the Supreme Court, Ambikapur and Bilaspur were to contribute 80% of the total revenues to be allocated from the four revenue centres to the Project. The revenue from the other MPEB centers in Madhya Pradesh having already been allocated against earlier borrowings, it becomes fairly evident that after the creation of Chattisgarh, there is no longer any escrow cover available for this Project and Madhya Pradesh has no ability to provide any escrow cover for this Project. The recent Shivraman Committee report on the financial condition of the MPEB (Madhya Pradesh Electricity Board) has also confirmed that the MPEB has no escrow capacity at all. In the circumstances the Indian financial institutions are hardly likely to risk investor confidence by investing in this dying Project.

Neither can this Project be entirely funded by Indian financial institutions because notifications of the Central Power Ministry do not allow more than 40% public investment for any privatized Project. Moreover, the Project has neither received a techno-economic clearance by the Central Electricity Authority of the Power Ministry at the proposed investment level of Rs.2254 crores nor do the private Project promoters have a statutorily required environmental clearance needed for constructing the dam further.

The Maheshwar Hydro-electric Project is a big dam being constructed on the river Narmada in Madhya Pradesh. This Project will submerge or adversely affect the lands and the livelihoods of nearly 50,000 people in 61 villages in the area. But a large part of the power produced (nearly 78%) will be produced during the monsoon when the demand is very low and there is a surplus of power in the state. For the 8 non- monsoon months of the year the Project will produce an average of only 1- 1.5 hours a day.

Moreover, this Project will produce electricity that will be prohibitively expensive. This Project will produce power that will cost Rs. 7 per kWh at busbar for all power and Rs. 9.65 per kWh at busbar for peaking power. The Power Purchase Agreement of the Maheshwar Project is similar to that of Enron in which the government has to make payments to the Project promoters irrespective of whether electricity is produced or not, or whether it can be sold or not on account of its prohibitive rates. The Enron experience has shown us the true costs of privatization in the power sector is the unacceptable enrichment of a single company at the cost of the entire society.

The Government of Maharashtra has been compelled to seriously reconsider the Enron Project at this late hour. No doubt it will have to pay very high costs. Yet in Maheshwar, nothing is lost yet. Not even the financial closure has been effected. It may be far wiser to scrap the worthless Maheshwar Project now rather than later. In the light of the Enron controversy, the NBA demands that the Government of Madhya Pradesh immediately issue a white paper on the Maheshwar Project and disclose details of power tariffs, expected payments and how the state government intends to pay for this Project for the next 35 years.

The Narmada Bachao Andolan calls on the Madhya Pradesh government and the Central government to take cognizance of the flawed nature of this Project and its disastrous technical, social and environmental impacts, not the least of which are concerns about seismicity in the light of the recent and tragically destructive earthquake. It asks them to scrap this Project once and for all, and implement cheaper and better energy alternatives.

Mangat Verma
Chittaroopa Palit
Alok Agarwal
(Village Lepa)