THIRUVANANTHAPURAM: The Canadian company SNC Lavalin had gone back on its promise to give the Kerala State Electricity Board (KSEB) a big grant in return for the privilege of executing a 50-MW hydel scheme in Kerala, according to a report of the Comptroller and Auditor-General of India (CAG) presented in the Assembly on Thursday.

This report of the CAG refers to a second deal with SNC Lavalin.

According to the CAG, this deal for "implementing the Kuttiyadi Extension Scheme at an exorbitant cost without giving due regard to actual inflow of water rendered the investment of Rs.201.4 crores unfruitful."

(The other deal involved the modernisation and renovation of the hydroelectric schemes at Pallivasal, Chengulam and Panniyar, for which the KSEB's cumulative cost of borrowing exceeded Rs.300 crores. A grant of Rs.98 crores from SNC Lavalin to the Malabar Cancer Centre at Thalasserry was part of that deal, but the company did not honour that obligation to the State.)

According to the CAG, the KSEB had incurred an expense of Rs.201.4 crores against an original estimate of Rs.46.14 crores in implementing the Kuttiyadi Extension Scheme, which envisaged utilising the spillage of water from the 75-MW Kuttiyadi hydel project to operate a generating station with an installed capacity of 50 MW.

However, from the actual experience since 2001, when the extension scheme was commissioned, it turned out that the quantum of spillage from the original Kuttiyadi system was grossly overestimated.

Power generation at Kuttiyadi from 1997 to 2001, prior to the commissioning of the extension scheme, ranged between 242.61 million units and 320.33 million units annually.

The new 50-MW generating station did not help lead to a noticeable increase in power generation. The total quantum of power generated here from 2001 to 2004 ranged between 258 million units and 329.9 million units annually.

"Thus, the implementation of the scheme at a huge capital cost of Rs.201.4 crores, without reckoning the reduction in inflow of water at the time of the techno-economic study, lacked justification," the CAG report says.

Flaws in funding

The CAG also noticed deficiencies in the funding of the scheme and procurement of plant and equipment for the scheme. According to the financing pattern approved for the project, it was to be financed out of Canadian funding of 43.05 million Canadian dollars (CAD), which comprised a loan of 28.05 million CAD from the Export Development Corporation of Canada and a grant of 15 million CAD from Canadian International Development Agency.

The loan of 28.05 million CAD was agreed, in February 1996, to be financed at a fixed interest rate of 7.01 per cent a year. "It was, however, observed in audit that the loan was not properly negotiated and the actual financing cost was 15.85 per cent a year, indicating avoidable payment of financing charges of Rs.4.99 crores," the CAG says.

The promised grant of 15 million CAD was not utilised by the KSEB. For this, the CAG could find no reason on record. "Failure to avail [itself] of the grant deprived the Board of the benefit of reduction in financing cost by Rs.39 crores," according to the CAG.

The Union public sector company Bharat Heavy Electricals Limited (BHEL) had offered to supply the generator and equipment for the extension scheme for Rs.16 crores (at the rate of Rs. 32 lakhs a MW), according to the techno-economic feasibility report for the project prepared in 1993.

"Subsequently, as a precondition for obtaining Canadian assistance, the Board agreed in May 1995 to purchase machinery from SNC Lavalin at a cost of Rs. 81.4 crores (Rs. 1.63 crores a MW), without inviting global bids and verifying the reasonableness of the prices of SNC Lavalin. It was noticed in audit that in the case of Kuttiyadi Additional Extension Scheme involving 100 MW, taken up by the Board in August 2003, the firm price agreed to with BHEL-L&T Consortium on turnkey basis was Rs. 66.05 crores (Rs. 66 lakhs a MW).

This indicates that the prices agreed to with SNC Lavalin in 1995 were excessive by 2.47 times (excluding financing cost) and resulted in an extra cost of Rs. 48.5 crores," the CAG report says.

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