| NBA Press Release
|| 22 October 2001
S.Kumars divert over Rs. 100 crores of public funds earmarked for Maheshwar Hydro Project to its other companies, defaults on other public loans and payments
NARMADA BACHAO ANDOLAN
Jail Road, Mandleshwar
District Khargone, Madhya Pradesh
In the light of the gathering evidence of the financial irregularities perpetrated by the S.Kumars including the diversion of public funds earmarked for the Maheshwar Hydro-Electric Project to its group company the Induj Enertech Ltd., its default on the loans taken by the S.Kumars company- from the Madhya Pradesh State Industrial Development Corporation Ltd. and that owed to the M.P. agency the NVDA, the Narmada Bachao Andolan has called upon the RBI to freeze the accounts of the Induj Enertech Ltd. as well as the Shree Maheshwar Hydel Power Ltd. (SMHPCL) and investigate all transactions that lead in and out if these accounts. The RBI must also institute legal cases of fraud and for financial misappropriation against the S.Kumars and to identify and take punitive action against the responsible officers of the banks and financial institutions who should have already taken action on this matter but have not yet done so, and who have in fact made additional disbursements in violation of the pre- disbursement condition of the IFCI appraisal report that the capital advances of 106 crores must first be brought in. Action has to be taken against them for willful and deliberate dereliction of duty and criminal collusion.
Noting that the Induj Enertech the S.Kumars Group company to whom the above RS. 19 crores has been diverted had announced on the 7th of July, 2001 that its Board of Directors have decided that the Company would be coming out with a Public issue of Secured Convertible Debentures and Redeemable Preference Shares, the NBA has also written to the SEBI to investigate whether it can allow Induj Enertech to issue an IPO for Secured Convertible Debentures and Redeemable Preference Shares in light of the evidence of the financial liabilities of company, their defaulter status and now their criminal culpability in diverting public funds. The NBA has also asked the SEBI to ensure that the guidelines for due diligence on part of the merchant bankers are followed.and that all risks associated with the project be publicly disclosed as per the guidelines - in the public interest and for investor protection
It may be noted that out of nearly Rs. 300 to Rs. 400 crores of public finance which has been already disbursed by the FI's to S.Kumars for the purpose of building the Maheshwar dam, the significantly large sum of Rs. 106.4 crores has been siphoned off by the S.Kumars to its group companies and other agencies "who have not been awarded any project contracts." Out of this, Rs. 19.3 crores was diverted to M/s Induj Enertech- a S.Kumars group company, formerly known as S.Kumars Power Developers Ltd. although it had no approved contracts for the Project. In fact this diversion of Rs. 106 crores was noted and documented by March 2000 when only Rs. 122 crores of public money had been disbursed.
The fact of the diversion is stated in black and white in the appraisal report done by the IFCI (Industrial Finance Corporation of India) which appraised the Maheshwar Hydro-Electric Project on behalf of the other financial institutions in March 2000.The report stated that an important pre-disbursement condition for the Indian public financial institutions in regard to this Project was that the "SMHPCL shall bring back the capital advances of Rs. 1064 million, with interest, given to various agencies who have not been awarded with any project contracts." Unfortunately this has not happened.
In the meantime however, despite established and compelling evidence about these grave financial irregularities, rather than take punitive action against the S.Kumars and suspend all future financing for the Project, the IDBI has disbursed a further Rs. 30 crores and the PFC has sanctioned another 132 million US dollars for the Project in the last one year.The rest of the Indian public financial institutions as well as BHEL are still actively considering financing the Project. This raises questions about possible complicity between a segment of the senior management of these financial institutions and corrupt companies such as S.Kumars and their shared contempt for public interest.
Meanwhile, in another related development, the Induj Enertech the same S.Kumar company that has siphoned off Rs. 19 crores of public funds meant for the Maheshwar Hydro-Electric Project out of a total documented amount of Rs. 106 crores siphoned from this Project is now facing legal action for default of payments. On the 13th of September, the Madhya Pradesh State Industrial Development Corporation Ltd. has issued a pubic notice in the Economic Times, Mumbai that states that " Induj Enertech Limited Mumbai, and M/s Modak Ruber Textile Industry Pvt.Ltd. Mumbai , companies of the S.Kumars group are willful defaulter in repayment of overdue principal and interest more than RS.11.08 crores towards financial assistance given by us on promise of prompt and timely payment . Despite several intimation,lot of opportunities and demand notices given to them ,the aforementioned Companies have not bothered to pay or respond. Hence the MPSIDC is contemplating LEGAL ACTION against the Promoters, Directors, Guarantors and the Companies. The LEGAL ACTION shall include petition for winding up of the said companies and other appropriate measures."
Further, it has now come to light that the S.Kumar are yet to pay the Madhya Pradesh state government even for Rs. 10.47 crores plus interest that had been incurred by the state department on Project related works before the Project was privatized even though it is seven years now since the Project has been transferred to the S.Kumars. This irregularity has been reported in the report of the Comptroller and Auditor General of India presented to the Madhya Pradesh legislature on the 15th of July, 1999.
SEBI is also currently investigating yet another S.Kumars company- the S.Kumars Synthetics and its links with the stockbroker Ketan Parikh and whether these companies have benefited from these connections. The SEBI had informed the Joint Parliamentary Committee that it had received complaints of price rigging in these scrips.
The conclusions are inescapable- the S.Kumars are involved in the flagrant, established and large scale swindling and diversion of funds from Indian public financial institutions to their group companies. Moreover, they are persistent defaulters in the case of loans taken from other public financial agencies and have even defaulted in the payment for the Maheshwar Project that they took over from the state government in 1994. The financial institutions have also violated the Ministry of Power notified norm of a limit of 40% for the public financing of a privatized Project, which is applicable in the case of Projects that have not been able to mobilize and maximize external financing such as Maheshwar. It is amply clear that any decision to invest further in the Maheshwar Project by the FIs, ignoring even the simple arithmetic of expensive power as well as the large scale diversion of public funds already done by the S.Kumars will lay the FI's open to allegations of taking decisions about public money against public interest and of corrupt practices.
It may be noted that as a result of the five-year struggle by the affected people of the area, by January of 2001, most foreign utilities and suppliers had withdrawn from the controversial Maheshwar Project. This was both because of the failure of the social and rehabilitation processes which led to the refusal of the Portugese and the German government to give export credit guarantees to the Project, as also because of the bad economics of the Project as was cited by Ogden Energy the US utility that withdrew from this Project in November, 2000.
Consequently, the Project promoters of the Project the S.Kumars company are now attempting to raise over 90% of the total Project financing over Rs. 2000 crores from the total investment of Rs. 2231 crores from Indian public financial institutions. In fact although the S.Kumars have announced the financial closure of the Project three times already in as many years, prominently in the business newspapers, the truth is that the financing of this Project is yet to be tied up. Yet, without the statutorily required CEA techno-economic clearance for the Rs. 2231 package and concurrence under the Section 31 (a) of the Electricity Supply Act by the CEA being in place, and without financial closure the financial institutions have illegally jeopardized over Rs. 400 crores of public money in this Project already.
It may be recalled that the NBA have made a formal and confidential representation to the CAG earlier this year to investigate the status and actual use of public funds being infused in to the Project. In this context, the Narmada Bachao Andolan has expressed its deep apprehension that the work on the dam site and other sunk costs are actually far less than is being claimed by the state government and the Project promoters. The NBA also stated its belief that there has been a systematic over invoicing of all components of the Project which has led to the five fold increase in the costs of the Project from Rs. 465 crores to over Rs. 2231 crores since the Project was privatized and handed over to the S.Kumars. This has led to a commensurate increase in the tariff which is now over Rs. 6 per kWh.
In the light of the above, besides an urgent need to set up an enquiry into the diversion of over Rs. 100 crores to other companies by the S.Kumars as well as the need to actually do a physical verification of work on site, the NBA has asked the RBI to do a fresh appraisal of the Maheshwar Project that takes cognizance of its knotted and unmitigable social impacts as well as the fact the power slated to be produced by the Maheshwar Project will be at par or more expensive than Dabhol power and will destroy the Madhya Pradesh State Electricity Board as well the production economy of the state much in the way that the Dabhol Project has impacted Maharashtra.
Pointing out that the problems faced in the Maheshwar Project are generic and have been highlighted in the last year most starkly in the case of Enron, if the RBI wants the banking sector to be prevented from piling up an additional one lakh crore Non-performing Assets (NPAs) the NBA has asked the RBI must declare an immediate moratorium on the public financing of all private power projects, pending a rigorous and transparent re-examination of these IPPs case by case. In its letter to the RBI it has said that the RBI must take the initiative to appoint an Independent Committee on the lines of the Godbole Committee which must be comprised of people known for their outstanding integrity. This Committee must do the reappraisal of the Independent Power Projects case by case on the lines of the Godbole Committee.
It has pointed out that there is also a need to systematically force the Fl's to evolve accountability, appraisal and audit policies that take cognizance of the technical, financial and social aspects of Project financing. The NBA has also asked that in the interest of the general public and the millions of people who are banking with the FI's and the public banks, the time has come for the RBI to evolve and insist on a disclosure and transparency policy whereby the investors, shareholders or members of the general public can seek and find information about the financial dealings of all developmental banks and financial institutions, and to repeal the Banking Secrecy Act.
It must be realized that funds from public financial institutions cannot not be used to bolster private profits and graft as is happening in the case of Maheshwar, and that this destructive Project must be scrapped once and for all. The country cannot afford any more Enrons. The Indian public financial institutions have already sunk Rs. 6250 crores of public money into the high cost Enron Project. It cannot afford to lose a further Rs.2000 crores in Maheshwar.Mangat Verma