| NBA Press Release
|| 17 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
NARMADA BACHAO ANDOLAN
Jail Road, Mandleshwar
District Khargone, Madhya Pradesh
Even as 150 elected people's representatives from villages affected by the Maheshwar Project passed a resoulution and called on the Indian financial institutions( FI's ) other public sector institutions to desist from financing the destructive and high cost Maheshwar Project being built on the river Narmada in Madhya Pradesh, the Narmada Bachao Andolan - the organization of the people to be displaced by the large dams on the Narmada have written to the RBI to investigate the large scale diversion of public funds earmarked for the Maheshwar Project, by the S.Kumars to its group companies. The NBA also calls for a high level judicial enquiry into these irregularities and demands that stringent punitive action must be taken against those found guilty.
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.
This is stated 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 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 connivance 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 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."
It is ironical that the Induj Enertech Ltd. that has a had a profit of 57 lakhs in the last quarter, that could approximate to Rs. 2.28 crores in one entire year should be able to siphon off Rs. 19 crores from the FI's and Rs. 11 crores from the M.P Industrial Development Corporation Ltd.
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.
Since most of the Project is being sought to be financed with public funds, the Narmada Bachao Andolan had demanded that instead of negotiating or concluding agreements in secret, the Project promoters and the Madhya Pradesh and Central governments must make a public statement about what funds have already been spent on the Project and in which works, what the currently proposed Capital costs for this Project is and what the power tariffs will be at this cost, and finally what sort of guarantees have been given to the Project and how the general public will be forced to pay for the cost of this through increased power tariffs.
In this context, the NBA urges the FI's, banks and other institutions to reveal to the people of the country what the report of the lender's engineer NHPC about actual progress on the site and costs incurred are. The NBA also calls on the FI's to publicize the report of the concurrent Auditor of the Project that must detail how the claimed sunk project expense of Rs. 530 crores has been spent till date. At this juncture it is clear that FI's cannot proceed in this case and that if they still continue to do so, and the funds become non-performing assets (NPA's), the individual officers taking the flawed decision will be held accountable for the misuse of public funds.
The NBA demands a full judicial enquiry into the financial irregularities that mark this Project and punitive action for those found guilty. It asks that funds from public financial institutions should 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