Government considering pumping funds into Maheshwar dam

LIC expresses interest in funding project even as increased capital costs make power from the project too expensive

By Anupam Chakravartty
Published: Wednesday 13 February 2013

It has been more than a year since the advocate general of Madhya Pradesh recommended termination of the power purchase agreement (PPA) with the developers of the Maheshwar dam power project. But the government seems inclined to lend a helping hand to the company.

People's front Narmada Bachao Andolan (NBA), which has been fighting for the rights of the people affected by the dam, has alleged that companies such as government's Life Insurance Corporation (LIC) of India are considering pumping more funds into the financially non-viable project.

The dam being constructed by Shri Maheshwar Hydel Power Company Limited (SMHPCL), a company of the S Kumars group, has compensated only about 20 per cent of the displaced people in the past 16 years, while the cost of power to be purchased from the dam has increased because of increased capital cost.

Replies sought under Right To Information (RTI) from the Madhya Pradesh government show that LIC approached the state secretary for energy, Mohammad Sulaiman, for the project’s funding. “We have been approached by IDBI Capital Markets Limited, the syndicate for financial assistance, on behalf of MW Infra Developers Limited, a holding company of Shree Maheshwar Hydel Power Project, for inter-alia funding,” said an LIC official.

Incidentally, the developers had defaulted on loans from Madhya Pradesh State Industrial Development Corporation (MPSIDC). When S Kumars and Company sent cheques worth Rs 55 crore to repay the loans to MPSIDC in 2006, all the cheques bounced.

AG advice ignored

In February 2012, the advocate general of Madhya Pradesh said that since the dam developers failed to commence production by April 25, 2011, Madhya Pradesh State Electricity Board (MPSEB) had a right to terminate the agreement by serving a notice to the developer. “It has been a year since Madhya Pradesh government sought the advice of the advocate general. Despite his opinion, the state government did not take action against the developers,” says Alok Agarwal of NBA.

In 1994, a PPA was signed by the Madhya Pradesh government, handing over the project to the S Kumars group of companies and committing MPSEB to purchase electricity from this project for the next 35 years. However, with massive increase in capital cost of the project, the Madhya Pradesh Power Generation Company Limited, formerly MPSEB, refused to purchase the high cost power to be produced from the Maheshwar project.

As per the assessments made by Central Electricity Authority, at the present capital cost of Rs 4,200 crore, the cost of purchasing power from Maheshwar dam is Rs 10.78 per unit in the first year, and Rs 9.98 in the second year. “If the power is purchased from Maheshwar dam project at Rs 10 per unit, the state government would have to pay an additional amount of public money of Rs 18,000 crore to the private promoters over the next 35 years,” says eminent lawyer Prashant Bhushan. The dam project would just generate about 800 million units per year, whereas the state requirement is approximately 40,000 million units.

Further, the project would displace about 60,000 persons from 61 villages of Khargone district of Madhya Pradesh. Recently, in an affidavit filed before the National Green Tribunal, the state government said the relief and rehabilitation has been held up because S Kumars and Company has time and again refused to release project funds for it. A committee has been formed under the Union Ministry of Environment and Forests in the wake of a review petition was filed by NBA before the green tribunal, but the state government is yet to take any decision.


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