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dam-l LS: NBA Letter on Maheshwar Public Share Issue
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>Date : 20th October, 1999
>To,
>The Chairman ,
>SEBI (Securities and Exchange Board of India )
>Mittal Tower ,
>Nariman point ,
>Bombay.
>
>Subject: Proposed Public issue of Shree Maheshwar Hydro power corporation
>Ltd / S.Kumars / MPEB (Madhya Pradesh Electricity Board) to finance the
>construction of the Maheshwar Hydel Project, M.P
>
>Dear Sir,
>
>1. I am writing to you today on behalf of the Narmada Bachao Andolan
>(NBA) a
>broad based, mass movement of farmers, tribals, fisher and boats people and
>dalits of the Narmada Valley - struggling for the last 15 years against the
>destructive large dams being constructed in the Valley.
>
> The Maheshwar Hydro-electric Project being constructed at village
>Jalud,
>Tehsil Maheshwar, District Khargone on the river Narmada is one of these
>large dams. It affects nearly 40,000 people of 61 villages, directly through
>submergence, and thousands more through project related activities and
>impacts such as waterlogging. For the last 2 years, since early 1997, the
>people of the Maheshwar Project impact zone have come together under the
>banner of the Narmada Bachao Andolan, and are waging a determined and
>successful struggle against this project.
>
>2. The project was privatised in 1994 and handed over to the S.Kumars.
>However, because of fundamental flaws in the project and because of mass
>resistance on the ground, the project is yet to achieve financial closure.
>
>3. Recently, we have learnt from reliable sources that the Shree Maheshwar
>Hydro power corporation Ltd. ( SMHPCL ) or the MPEB ( Madhya Pradesh
>Electricity Board ) or the S.Kumars is going to the market with a public
>issue - the intention being to raise finances for the Maheshwar project.
>
>4. Having studied the project in detail , we were disturbed to hear
>this. We
>believe that the above mentioned entities will be , during the process of
>public issue , concealing very critical information , and the tremendous
>legal , financial and political risks associated with the project.
>
> We believe and indeed request you that, as per your guidelines - in
>the
>public interest and for investor protection , the SEBI must ensure that all
>risks associated with the project be publicly disclosed. We out line the
>risks below , but also are enclosing a detailed paper herewith.
>
>5. Mass resistance to the Maheshwar Project :
>
> There is a huge , mass opposition today to the Maheshwar Project.
>Thousands
>of farmers, Kevats and Kahars whose lives and livelihoods will be destroyed
>by the project have in the last 2 years, taken over the dam site 8 times,
>barricaded all roads leading to the dam for three whole months, and held
>mass demonstrations and indefinite fasts opposing the dam. The affected
>people are determined that they will never let the dam be built. It is
>because of their resistance, that participating companies German power
>utilities Bayernwerk and VEW Energie who were to give 49% of the project
>equity -Rs. 308 crores, moved out in April 1999 and now, due to lack of
>funds and financial closure - work on the dam has been stopped.
>
>6. Displacement and rehabilitation : Violations and Legal Risks
>
> The homes and livelihoods of nearly 40,000 people will be submerged
>by the
>reservoir of this project. According to the rehabilitation policy of the
>Government of Madhya Pradesh, the statutory environmental clearance of the
>MOEF and other agreements and contracts, the project authorities have to
>rehabilitate the affected people with 'land for land'. Yet till date, not a
>single person has been rehabilitated with land. In fact, the project
>authorities have not been able to show any land or rehabilitation plan till
>now .Their only attempt is to illegally intimidate the affected persons to
>sell their lands for cash.
>
> The Madhya Pradesh government constituted Task Force has concluded
>"..that
>at present adequate land area has not been identified to enable allotment to
>all affected families." It also said that a fresh cost-benefit analysis and
>the establishment of a credible rehabilitation plan has to be made prior to
>the construction of the project. The Tata Institute Of Social Sciences [
>TISS ] have also pointed out in their report that the land claims of the
>project authorities are all "imaginary and concocted "
>
> Recently, the Ministry of Environment and Forests [MOEF] has also
>indicted
>the project authorities for lack of land and plan .It has demanded land
>related information prior to taking "a decision for revocation of
>environmental clearance". Clearly, these legal and human rights violations
>are the grounds for the determined mass struggle against the project and
>also represent enormous legal risks.
>
>7. The Case of Sardar Sarovar - A Precedent
>
> It may be noted that similar legal violations of the oustees were
>perpetrated in the case of Sardar Sarovar. As a result ,the World Bank -
>the largest funder to the project had to move out in 1993. Subsequently, the
>organisation of the affected people - the Narmada Bachao Andolan filed a
>petition in the Supreme Court in 1994. From 1995 to 1999, on the orders of
>the Supreme Court all work on the spillway section was suspended. In 1999,
>the Supreme Court allowed a 5 metres rise in height, after which it has
>again frozen construction, pending a final decision.
>
> The Madhya Pradesh Government has said on affidavit in Supreme
>Court that
>it has no land to rehabilitate the oustees as deemed by the Narmada Award.
>Obviously, then it does not have land for the rehabilitation of the oustees
>of the upstream Maheshwar Project either.
>
> It is clear that in Maheshwar too , with the project authorities
>openly
>flouting the policy and with legal violations of the conditions of the
>statutory environmental clearance ,the people and their organisation will
>have to seek legal intervention .
>
>8. No Hope of Payments : MPEB Bankrupt
>
> The Madhya Pradesh Electricity Board (MPEB),which is the monopoly
>purchasing agency for the project power for a period of 35 years as per the
>power purchase agreement, cannot recover its payments to the SMHPCL by
>selling electricity to consumers because of the high cost of this power.
>
> Nor can it make the payments year after year, from its own reserves
>because
>the MPEB is on the verge of bankruptcy and has negative cash flows as per
>the report of the rating agency CRISIL. The report says " There is no
>cushion available with the MPEB to even partially meet the financial
>obligations of the independent power producers". (IPPS of which SMHPCL is
>one) and that the MPEB "is not in a position to support even its own
>operations."
>
> Even the MPEB has said in its confidential note of 25-6-1995 to the
>Madhya
>Pradesh cabinet that "the present revenue received is not sufficient to meet
>our revenue expenses, the monthly receipts short by approximately Rs. 150
>crores."
>
> It is clear that the MPEB will certainly default in its payments
>and no
>counter guarantee from the state will be able to bail the project out year
>after year.
>
> That the MPEB has no escrowable capacity has been confirmed by the
>IDBI in
>an affadavit given to the Supreme Court in September 1999 when it said that
>"MPEB would not be in a position to lift the contracted capacity of power
>from the IPPs under PPA by the year 2003-04 ..."and that this can only
>happen when accompanied by " ... steep upward tariff revision" and that "to
>the knowledge of FI's/banks the projected upward tariff revision has not
>occurred".
>
> It may also be noted that the IPPs of Madhya Pradesh have gone to
>Supreme
>Court due to disputes over escrow cover.
>
>9. Expensive Power : Unviable, unsaleable
>
> The power to be produced by the project is prohibitively expensive -
>approximately Rs. 7 per unit at production point. Compare this to present
>cost of power produced by the state Electricity Board at Rs. 1.25 per unit.
>
> When this power reaches the consumer it will be priced at Rs.12 to
>Rs.15
>per unit. Clearly, there will be no takers. Even at Rs. 7 per unit it is
>unlikely that any one will buy this electricity. Today industry in Madhya
>Pradesh is generating its own power - cheaper and more reliable - through
>the captive power policy of the State Government. The domestic,
>agricultural and small industries sector cannot afford expensive electricity
>, and its demand is extremely sensitive to tariff fluctuations. What will
>happen if expensive Maheshwar electricity ever feeds into the grid is
>disaster - closed irrigation pumps, shut down industries, powerloom workers
>on the streets and substantially reduced agricultural and industrial
>production, as well as pauperization of large sections of society.
>
> No wonder then that apart from the affected people a large number
>of trade
>unions and political parties are opposing this privatized project and the
>implications of its costly power. In fact even the erstwhile Power Minister
>Shri Kumaramangalam has noted in his letter to Chief Minister, Madhya
>Pradesh that there are other concrete offer of power at Rs.2 per unit and
>that "when compared with the IPPs, it is observed that the tentative tariff
>offer far below that offered by any other IPP in Madhya Pradesh".
>
> This underlines the fact that the expensive power produced by the S.
>Kumar's will never be able to generate its own revenue. The added situation
>of a bankrupt MPEB, a financially shaky State Government, the ambiguous
>status of any counter guarantee, and the enormous resistance to the project
>both by the affected population as well as many central trade unions and
>political parties ,and people all over the state - will ensure that the
>Maheshwar Project will never be built.
>
>10. Delayed financial closure : No hope for International funding
>
> It may be noted that the financial closure of the project has been
>under a
>cloud from the very beginning. In 1998 the US power utility Pac Gen backed
>out of the project. In April 1999 the two German Power utilities that were
>to give 49% of project equity withdrew from the project.
>
> Today there is a grave question mark about the Hermes guarantee for
>the Rs.
>523 crore Hypo Vereinsbank loan that the Siemens has applied for. The
>German Development Minister has publicly announced that a Ministry will
>oppose the guarantee to Maheshwar Project. Thus it seems very likely that
>this guarantee and loan will never come in, and in the present context of
>social, environmental and technical considerations no International funding
>will be forthcoming for the project.
> We believe that the Maheshwar Project is fundamentally flawed on
>all these
>above mentioned counts. There is not even a slender hope of any dividends
>ever coming back to equity. We think it is imperative that the SEBI declare
>all these above risks during the declaration of a public issue.
>
> We will be glad to share with you any of the document quoted in the
>attached risks paper as well as respond to any queries , and hope for an
>early reply.
>
> Thanking you,
>
>
> Chittaroopa Palit
> Narmada Bachao Andolan
> 62, MG Marg,
> Badwani
> Madhya Pradesh
>
> Phones: 0265-382232, 027290-22464
> E-mail: nba@lwbdq.lwbbs.net.in