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DAM-L LS: Portugese govt refuses guarantee to Maheshwar (fwd)
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Date: Wed, 14 Mar 2001 12:07:33 -0800 (PST)
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Subject: LS: Portugese govt refuses guarantee to Maheshwar
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Narmada Bachao Andolan
Jail Road, Mandleshwar,
District Khargone, Madhya Pradesh
Telefax : 07283-33162,
E-mail: nobigdam@vsnl.com
Press Note , 15.03.2001
PORTUGESE GUARANTEE TO MAHESHWAR PROJECT REFUSED
Loan of Rs. 200 crores falls through, Harza out of Project
Escrow cover for Maheshwar Project collapses, NBA demands White Paper
on the Project
In a lethal blow to the controversial Maheshwar Hydro-electric
Project being built on the river Narmada in Central India, the
Portugese government has in a recent development, refused to give the
COSEC guarantee to the multinational firm Asea Brown Boveri. The ABB
had applied for this guarantee from the Portugese export credit
Agency COSEC, in order to secure a tied loan of Rs.200 crores (US
dollars 46.28 millions) from the private German bank- Hypovereinsbank
for the sale of ABB produced hydro-mechanical equipment to the
Maheshwar Project. In the absence of the COSEC guarantee the
Hypovereinsbank loan of Rs.200 crore to the Maheshwar Project has
also fallen through. As a result, Alstom- the French Power utility
that had recently bought ABB's hydro-power division is without the
guarantee that can help make the supplier's contract that they have
with the Project promoters of the Maheshwar Project a reality.
The refusal of the COSEC guarantee to the Project also implies that
the 6% equity that the ABB was to bring to the Project will no
longer be forthcoming. Nor will the equity share be replaced by
Alstom. It may also be noted that the commitment of Project equity of
16% that was to come from Siemens has not been renewed after Siemens
failed to obtain the Hermes guarantee from the German government for
the Maheshwar Project in August, 2000.
The Secretary of the Ministry of Finance, Portugal confirmed in a
recent written communication to a Portugese organisation that the
COSEC guarantee for the Maheshwar Project has been refused. This
development which has come closely on the heels of the US power
utility Ogden's withdrawal from the Project in December 2000 (that
was to give 49% of the Project equity) seems to suggest that this is
the very end of the Project. This also means that, in all, in the
last few months 71% of total Project equity has been withdrawn from
the Project and the loan component of Rs. 825 crores has become
worthless in the light of the desired guarantees having being refused.
In another important development, it is learnt that Harza
International of the U.S.- the company that was responsible for the
monitoring and coordination of the civil works for the dam has
withdrawn from the Project. The IFCI reappraisal report underscored
the cruciality of Harza's presence to the participation of financial
institutions in the Maheshwar Project, given that the S.Kumars have
no previous experience in Hydro construction. Harza's withdrawal has
now put the Project at technical risk and will jeopardize further any
possibility of Indian financial institutions participating in the
Project.
The refusal of the COSEC guarantee is clearly a vindication of the
issues being raised by the Narmada Bachao Andolan that has insisted
that the Maheshwar Project is fundamentally flawed on technical,
social and environmental grounds. The Maheshwar Project has a crossed
history over the last four years as company after company left the
Project in the face of the people's resistance and the truth of the
issues that they are raising. In 1998, the US power utility PacGen
withdrew. In 1999, two German power utilities Bayernwerk and VEW
Energie withdrew. In June, 2000, the Development Ministry of the
German government commissioned a team to visit the area and assess
the social and environmental mitigation plans. In the wake of a
sharply critical report, the Hermes guarantee for the Project did not
come through and the Rs.600 crore German loan for the Project fell
through. Then in December 2000, the US company Ogden also snapped its
ties with the Project. The refusal of the COSEC guarantee and the
collapse of the Rs.200 crore loan as well as the withdrawal of Harza
is only the last desertion from this dying Project.
In the mean time, the escrow cover for this Project has also
collapsed after the bifurcation of the erstwhile Madhya Pradesh. The
original plan was to allocate the revenues available from the
regional account offices (RAO) of the MPEB in Ratlam, Mandsaur,
Bilaspur and Ambikapur towards the compulsory annual payments of over
Rs.600 crores to the Maheshwar project. However after the
bifurcation, Ambikapur and Bilaspur have gone to Chattisgarh.
According to the report of the CRISIL advisory services of October
1999 submitted to the Supreme Court, Ambikapur and Bilaspur were to
contribute 80% of the total revenues to be allocated from the four
revenue centres to the Project. The revenue from the other MPEB
centers in Madhya Pradesh having already been allocated against
earlier borrowings, it becomes fairly evident that after the creation
of Chattisgarh, there is no longer any escrow cover available for
this Project and Madhya Pradesh has no ability to provide any escrow
cover for this Project. The recent Shivraman Committee report on the
financial condition of the MPEB (Madhya Pradesh Electricity Board)
has also confirmed that the MPEB has no escrow capacity at all. In
the circumstances the Indian financial institutions are hardly likely
to risk investor confidence by investing in this dying Project.
Neither can this Project be entirely funded by Indian financial
institutions because notifications of the Central Power Ministry do
not allow more than 40% public investment for any privatized Project.
Moreover, the Project has neither received a techno-economic
clearance by the Central Electricity Authority of the Power Ministry
at the proposed investment level of Rs.2254 crores nor do the private
Project promoters have a statutorily required environmental clearance
needed for constructing the dam further.
The Maheshwar Hydro-electric Project is a big dam being constructed
on the river Narmada in Madhya Pradesh. This Project will submerge or
adversely affect the lands and the livelihoods of nearly 50,000
people in 61 villages in the area. But a large part of the power
produced (nearly 78%) will be produced during the monsoon when the
demand is very low and there is a surplus of power in the state. For
the 8 non- monsoon months of the year the Project will produce an
average of only 1- 1.5 hours a day.
Moreover, this Project will produce electricity that will be
prohibitively expensive. This Project will produce power that will
cost Rs. 7 per kWh at busbar for all power and Rs. 9.65 per kWh at
busbar for peaking power. The Power Purchase Agreement of the
Maheshwar Project is similar to that of Enron in which the government
has to make payments to the Project promoters irrespective of whether
electricity is produced or not, or whether it can be sold or not on
account of its prohibitive rates. The Enron experience has shown us
the true costs of privatization in the power sector is the
unacceptable enrichment of a single company at the cost of the entire
society.
The Government of Maharashtra has been compelled to seriously
reconsider the Enron Project at this late hour. No doubt it will have
to pay very high costs. Yet in Maheshwar, nothing is lost yet. Not
even the financial closure has been effected. It may be far wiser to
scrap the worthless Maheshwar Project now rather than later. In the
light of the Enron controversy, the NBA demands that the Government
of Madhya Pradesh immediately issue a white paper on the Maheshwar
Project and disclose details of power tariffs, expected payments and
how the state government intends to pay for this Project for the next
35 years.
The Narmada Bachao Andolan calls on the Madhya Pradesh government and
the Central government to take cognizance of the flawed nature of
this Project and its disastrous technical, social and environmental
impacts, not the least of which are concerns about seismicity in the
light of the recent and tragically destructive earthquake. It asks
them to scrap this Project once and for all, and implement cheaper
and better energy alternatives.
Mangat Verma Chittaroopa Palit
Alok Agarwal
(Village Lepa)
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