MP govt takes dabhol route

 sickle_s.gif (30476 bytes) People’s Democracy

(Weekly Organ of the Communist Party of
India (Marxist)


No. 14

April 14,2002

Maheshwar Project

MP Govt Takes The
Dabhol Route

Prabir Purkayastha


IT is shocking
that the Madhya Pradesh government has decided to guarantee bonds to the tune of Rs. 350
crore to be floated by S. Kumar for the Maheshwar Hydel Power Corporation Ltd. It appears
that the Madhya Pradesh State Government has learnt little from the bitter experience of
Enron/Dhabol, where guarantees were given by the governments and public financial
institutions. S. Kumar’s case is similar to the Enron/Dhabol case as the cost of
electricity from this project also is exorbitantly high due its inflated capital costs.

Further the
major funding for the Maheshwar Project, as in the Dhabol case, is by public financial
institutions. This makes a mockery of private investments in the power sector, as it now
clear that these so-called private investments are either loans from the public financial
institutions, or raised through guarantees given by the state government, with the state
government carrying the risk.


The Maheshwar
case is already controversial on two counts:

i) high capital
costs and dubious financial dealings of the promoters. Originally, this project of 400 MW
(10X40MW) was slated to be done by MPEB at the cost of Rs. 465.35 crore. The project was
transferred to S. Kumar who have projected now a cost of more than Rs.2,300 crore.

Capital Cost



Project Cost

Project Approved for MPEB


Rs.465.63 crore

Project Transferred to Shree Maheshwar Power Corporation of S


Rs.1,707 crore

Current Costs as Projected by S Kumar


Rs.2,300 crore

The project will
generate 920 million units based on normal Narmada flows, which will be augmented to 1226
million units once the Narmada Sagar is built. This is almost one third of what a
thermal plant of similar capacity would generate as the energy from a hydel project
depends on the water available and not on its peak rating.

In a thermal
plant, the rating determines the amount of power available. Thus, for the thermal plant,
with an availability of 80 per cent, the comparable energy that would have been delivered
would be around 2,800 million units.

Based on the
Power Purchase Agreement that MPEB has signed with S Kumar, this means a cost per unit of
more than Rs.6.00 per unit. Worse, this electricity is largely produced during monsoon
months when the Western Grid is surplus in electricity and therefore does not
require such expensive power.

Further S
Kumar’s financial track record has already become controversial. They have defaulted
in their payments to the Madhya Pradesh government on a number of occasions, as brought
out by CAG reports on the Madhya Pradesh government (1998 and 2000). At present, the
Madhya Pradesh State Industrial Development Corporation has given legal notice for winding
up M/s. Indjuj Enertech, the holding company of S Kumar’s for the project, due to
such defaults on its loans.

Institutions such as IFCI have also pointed out that capital advances of more than Rs 100
crore have been given to companies within the S Kumar group from loans taken from the
FI’s, without taking their prior approval.

This raises
serious issues regarding possible misuse of public money and diversion of funds. It is
difficult to understand why the state government is showing this company further
indulgence by guaranteeing their bonds.

The states and
central governments should now accept that the policy of private investments in the power
sector have failed and instead of using public funds for these so-called private
investments, should use the public funds to expand the power sector directly through state
agencies. Otherwise, we will repeat the Dabhol fiasco of using public money to subsidise
disastrous and non-viable projects


List of Defaults by S Kumar’s Maheshwar Project

  1. Rs 10.47 crore plus interest were
    not recovered for work done by the state agencies before the project was transferred to S
    Kumar (pointed out in CAG Report for 1998 and 2000 on the Government of Madhya Pradesh)
  2. Amount of Rs 44.75 crore was lent
    by MPIDC in 1999-2000 to S Kumar for financing the project. The amount due as principal
    and interests on 30.9.2001 was Rs.18.97 crore which has not been paid.
  3. IFCI, another financier of the
    project asked S Kumar to bring back the capital advances of Rs.1064 million, with
    interest, given to various agencies, who have not been awarded any project contracts. They
    have not done so till date.


gohome.gif (364 bytes)