Maheshwar Project MP Govt Takes The Dabhol Route

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 Highlights

Item Year Project Cost
Project Approved for MPEB 1991 Rs.465.63 crore
Project Transferred to Shree Maheshwar Power Corporation of S Kumar 1996 Rs.1,707 crore
Current Costs as Projected by S Kumar 2002 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.

Financial 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.