NBA Press Note

May 31, 2001

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

Financial Institutions must stop funding Maheshwar Hydro-Electric Project

Lesson from Dabhol: Moratorium on all further FI lending to Independent Power Projects

Over two hundred people affected by the Maheshwar Hydro-Electric Project: peasants, workers and fisherpeople demonstrated at the IDBI, UTI and Dena Bank offices at the World Trade Centre premises at Cuffe Parade in Mumbai. Simultaneously, smaller groups of affected people demonstrated at the SBI, bank of India, LIC, GIC and the IFCI. Waving banners like "Do not fund the Maheshwar Project - the Enron of Madhya Pradesh" and "FI's hosh me ao,public ka paisa mat dubao", the affected people called on the FI’s to desist from funding the economically non-viable, financially disastrous and socially destructive Maheshwar project. They expressed deep surprise that at a time when the nation was calling for a judicial investigation of the Enron agreements the FIs should seek to fund yet another such project in Madhya Pradesh. They urged the FIs to declare a moratorium on all further lending by the Indian Public Financial institutions to the independent power projects pending a case-by-case re-examination.

This demonstration was joined by many groups in Mumbai. These include the Forum Against Oppression of Women, India Centre for Human Rights and Law, Footpath Vasi Nagrik Sanghatana, YUVA, Samajwadi Jan Parishad, National Fishworkers' Forum, Sachetna, Bombay Sarvodaya Mandal, Jhopadpatti Bachao Parishad, Sanctuary and the Narmada Bachao Support Group.

At the Bank of India today, the police roughed up the activists of the NBA. Instead of taking heed of the voice of the people whose lives and livelihoods are severely threatened by the Maheshwar project and had braved a long journey from their villages to Mumbai, the police brushed them aside and refused to listen to them. At the IFCI, the strength of the people of Maheshwar persuaded the General Manager to invite the people for an hour-long discussion where he admitted that even they had not received the Lender's report as yet! As a result they were unable to take a decisive and informed step in this context. At the LIC, officials were forced to go down to meet the affected people and accept the memorandum prepared by the people.

At the State Bank of India the people met the Secretary to the Chairman who tried to evade the issue of FI accountability and told the people that they have not as yet invested any money in the project. However, they assured the delegation that they would consult with the affected people before taking any step in this direction. They also promised to call the people in a month's time for further discussions. At GIC they had an hour-long meeting with the Chairperson who expressed interest in looking at the various dimensions of the project. He has asked the people for more information and has promised the people of Maheshwar that he would call them for more discussions.

At IDBI at the World Trade Centre where the demonstration lasted four hours senior officials invited a 12 member delegation to meet them. NBA stressed that they firmly believe that the Maheshwar project is like Enron which is under a big cloud today primarily because of shortsighted policies. The NBA urged the IDBI to desist from spending public money on such fundamentally flawed projects and to learn from the Enron experience. The NBA and the IDBI officials engaged in a wide ranging discussion that touched on issues like the prohibitively expensive cost of electricity to be generated by the project, the people’s inalienable right to information to relevant reports pertaining to the project. The NBA strongly emphasized that all reports should be made public and the affected people in particular should have ready and immediate access to all reports. Legal obstructions to such access were mere excuses and could not be tolerated. The NBA further stressed that the IDBI was a public finance institution and could not sidestep the issue of accountability and particularly so when there was a struggle going on against the destructive project.

It may be noted that the project promoters of the privatized Maheshwar Hydro Electric projects, S.Kumars, is seeking project financing from a consortium of Indian public financial institutions comprising of IDBI, IFCI, UTI, SBI, LIC, and GIC, lending from the other commercial banks and financial institutions as well as a proposal for non—convertible debentures from the UTI. The project promoters have approached the public financial institutions to bridge the large gaps in equity and credit after two US and two German power utilities withdrew from the project and a Rs.900 crores private German bank loan promised to the project fell through after the refusal of the German and Portuguese governments to give guarantees to the Maheshwar Project.

The decision and consideration of the financial institutions to invest in the Maheshwar hydro-electric project is inexplicable for several reasons. These include: the high cost of power to be produced by the Maheshwar project, the financial bankruptcy of the Madhya Pradesh government and the Madhya Pradesh Electricity Board and its inability to honour any repayments, the lack of techno-economic and environmental clearance at the proposed level of investment and the huge social and human costs of the proposed submergence of several thousand acres of fertile and irrigated lands and livelihoods of over 50,000 affected people in the area.

At the proposed level of Rs.2254 crores outlay for the Maheshwar Project the cost of power will be Rs.6.52 per kWh as levelised tariff for the next 35 years and Rs.9.65 per kWh as the cost of peaking power. It may be noted that around 76% of the total outlay is dollar denominated and the power purchase agreement executed for the project promises to make large and more compulsory payments of nearly Rs.600 crores per annum whether power is produced or not and can be sold or not. The power purchase agreement also provides for 16% to 30% guaranteed rates of return on equity.

The current cost of MPEB produced power is Rs.1.25 per unit and the central undertaking NTPC is Rs.1.67 per unit. Obviously the cost of the Maheshwar power at Rs.7 to Rs.10 per unit will be prohibitively expensive and cannot be bought by any consumer - agricultural, industrial, domestic or commercial. Moreover, successive financial investigations by the CRISIL in June 1998 and Oct 1999, as well as the very recent Shivraman Committee report confirm that Madhya Pradesh has no escrowable capacity at all, that it is in default on other bonds and leases and that it is now in fact bankrupt and hence cannot pay for this power even for a year, let alone the next 35 years.

Successive investigations into the displacement and rehabilitation of the affected people by the Task Force Committee set up by the Madhya Pradesh government in 1998, the investigation team of the Central Ministry of Environment in 1999 and the team of independent experts commissioned by the Development Ministry of the German government in 2000 have all indicted the project for the complete lack of agricultural land to be provided to the oustees and any possibility for the restoration of livelihoods. The people of the Valley and the Narmada Bachao Andolan have brought these facts to the notice of the financial institutions repeatedly in the last one year. The Andolan has also served legal notices to the financial institutions mentioned above three weeks ago. Regrettably there has been no response or demonstration of any sort of accountability by the financial institutions. The Narmada Bachao Andolan notes the role of the financial institutions in backing the disastrous Enron project, destroying the energy and production economy of the state of Maharashtra and jeopardizing nearly Rs.6000 crores of public money in the Enron project. The Andolan decries the complicity and collusion displayed by the financial institutions in backing "Greenfield" projects promoted by private promoters and the failure of the appraisal and audit processes.

The Andolan warns the financial institutions and their managements that the Indian public will not tolerate the loot of their money in this manner and that if they continue to act against public interest they will individually be held accountable for all such scurrilous decisions. It urges the financial institutions to learn from the Dabhol experience and take a step back, declare a moratorium on all further lending to the independent power projects and to withdraw decisively from the high cost and destructive Maheshwar project.

Chittaroopa Palit
Alok Agarwar
Urmila Patidar
Mangat Verma