SNC-Lavalin corruption case in India rages on

By Brady Yauch on September 16, 2013 • ( Leave a comment )

(September 16, 2013) SNC-Lavalin’s decade-long scandal in India goes to trial.

By Brady Yauch for Probe International

SNC-Lavalin can’t seem to put to bed a scandal in India that has been following the company for more than a decade. The country’s Central Bureau of Investigation (CBI), its equivalent of the FBI or RCMP, reiterated in a special court earlier last week its claim that a contract between SNC-Lavalin and a southern Indian state to renovate three hydro dams signed in late 1997 violated government procurement norms.

The agency also said a status report for the project, prepared by a retired official of the power utility, was an “eyewash” that had no bearing on the terms of the contract, which had already been decided as part of the conspiracy. According to coverage of the trial in The Hindu, the CBI reported that the government entered into the contract with SNC-Lavalin the very day the report was submitted.

These are the latest details in a case that has gripped the country for more than a decade – and has even spawned its own Wikipedia page.

Currently, nine are accused and facing charges in relation to the contract – including SNC-Lavalin VP Klaus Triendl and SNC-Lavalin itself, which have both failed to appear in court despite several summons. Local press has reported that Indian authorities have been seeking the extradition of Mr. Triendl, but Canada’s Department of Justice won’t confirm or deny the existence of the extradition request “due to the confidential nature of state-to-state communications.”

The allegations stem from a contract signed in 1997 between the government of Kerala, a south-western state in India, and SNC-Lavalin to rehabilitate three power plants at a cost of more than $67 million (CAD), which included consultancy fees paid to the engineering firm as well as the cost of materials and construction. But over the last ten years that contract has been criticized for being too expensive, failing to achieve power generation levels experienced prior to the rehabilitation and not following competitive bidding practices.

Among the allegations from the CBI is that those involved with the signing of the contract decided to “split” the project into three parts to lower its price tag in order to circumvent national Central Electricity Authority rules.

The CBI’s investigations revealed the contract was awarded at an exorbitant rate and that it caused a loss to the Kerala government with corresponding wrongful gain to Lavalin. An audit completed by the Comptroller and Auditor General of India (CAG) estimated that the total cost – when factoring in expenditures to fix faulty equipment and less-than-expected power generation – was more than double the original contracted price. According to the CAG audit, SNC was to arrange financing for the renovation from the Export Development Corporation (EDC) and the Canadian International Development Agency (CIDA), which together provided a $53.8 million loan to finance the project. But “the absence of due professional care in negotiating the foreign loan proved to be detrimental to the financial interests of the [Kerala State Electricity] Board,” the CAG concluded. Internal Canadian government documents released under Canada’s Access to Information Act also revealed that EDC and CIDA provided funding for the project.

The rehabilitation project has by most measures been a disaster. While it was supposed to be completed by September 2001, the final work was not finished until February 2003, nearly two years later.

The CAG audit said that even when the work was completed, the “equipment supplied by SNC…had various defects and certain equipment received could not be utilised.” The audit added that SNC-Lavalin was aware of problems with the technology employed in the rehabilitation, but “suppressed” this information from Indian officials.

The cost per megawatt of electricity generation at the rehabilitated dams was also significantly higher than at other, comparable, projects, according to the audit. The audit concluded: “No action was taken by the Board to ensure the reasonableness of the prices quoted by SNC in October 1997 before signing the contracts.”

Overhanging the controversial contract is a related agreement by SNC-Lavalin to raise grant money for the construction of a nearby cancer research centre. According to the audit, officials at the Kerala State Electricity Board said the money promised from SNC-Lavalin to set up the cancer research centre was “directly connected” with the contract to rehabilitate the dams.

The audit concluded that grant promised for the hospital “was an important factor taken into consideration while finalising the contracts” for the dam project. The National Hydroelectric Power Corporation (NHPC), which was asked to review the contracts awarded to SNC-Lavalin concluded that it was reasonable only if the promised grant element for the Malabar Cancer Centre (MCC) and the soft loan from the Canadian Export Development agency were factored into the cost estimate.

Yet the majority of the money promised for the hospital never came to fruition. SNC-Lavalin has responded to the allegations, saying that from its “own goodwill” it agreed to help the State of Kerala build the hospital and signed a Memorandum of Understanding (MOU) to raise money for the centre. The company said the MOU was dated on April 25, 1998 and was valid for 180 days and, again, through its “goodwill” agreed to repeated requests to extend the MOU.

“Numerous attempts on our side to enter into a formal agreement were ignored by the Government, and the MOU was finally allowed to expire in 2001. The maximum financing SNC-Lavalin was able to raise in the face of all of the difficulties associated with a change in Government in Kerala and an error-filled Auditor General’s report was $1.8M from CIDA,” the company said in a statement on its website. It added that it “advanced” around $2.64 million from “our own funds, to be recovered once the formal financing was in place.”

For now the case continues to grab headlines in India and adds to the many controversies plaguing SNC-Lavalin. The special court hearing the case against those involved in the deal is set to continue in October.

Brady Yauch is an economist and Executive Director at Consumer Policy Institute.

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