The Hindu
June 12, 2005

Was there a commitment from the Canadian company, SNC-Lavalin, to provide a grant of Rs. 98 crores to the Malabar Cancer Centre; and, if yes, why was it allowed to wriggle out of the obligation?

This is the main question involved in the controversial deal between this company and the Kerala State Electricity Board (KSEB).

Key documents pertaining to the renovation and modernisation (R&M) of the hydel projects at Pallivasal, Sengulam and Panniar, obtained by The Hindu, show that the Malabar Cancer Centre was very much part of the whole deal. The R&M project involved a cumulative cost of borrowing of more than Rs. 300 crores for the KSEB and, in return for being allowed to execute it, SNC-Lavalin had promised to provide Rs. 98 crores to the State for setting up the Malabar Cancer Centre at Thalasserry, in Kannur district.

Documents

There are four documents in the files now with the Vigilance and Anti-Corruption Bureau investigating the case that show that SNC Lavalin had promised to give the funds required to set up the Malabar Cancer Centre, on the condition that it is entrusted with the R&M project.

The first of these documents is the minutes relating to the visit to Canada of a high-level team from the State headed by the then Electricity Minister in October 1996.

The minutes pertaining to the discussions the team had with top officials of SNC-Lavalin between October 12 and 29, 1996, mention, among other topics, that “they had also agreed to assist Kerala for putting up a most modern Cancer Institute in the Kuttiyadi project area.”

The minutes of the team’s meeting with the top officials of the Canadian International Development Agency (CIDA), which was to provide the funds for the R&M project, have the following observations:

“Mr. Mohanachandran (the then Power Secretary) outlined the social situation of the northern area of Kerala, where development and services lag behind those of the south.

This was used as a basis for a request for CIDA assistance in the setting up of a Cancer Treatment Centre similar to the one existing in Thiruvananthapuram . . . It was suggested that SLI [SNC-Lavalin] provide experts to study the feasibility, cost, schedule, etc., of such a facility, including possible sources of financing; in other words, that Kerala with SLI to ‘do their homework’ so that a better based request can be presented in the near future.”

This ‘better based’ proposal is the second document showing that SNC-Lavalin had given a firm commitment to fund the Malabar Cancer Centre. It is a detailed project report for this hospital describing the advanced facilities the institution would have and the particulars of the cost involved.

The letter attached to this project report, sent to the State Government (Power Secretary, with copy to the KSEB secretary), was signed by SNC-Lavalin’s vice-president, Klaus Triendl. It informs that the total cost of the proposed Malabar Cancer Project will be in the region of Rs. 103 crores. It goes on to assure that the project will be completed in two phases, the first phase ‘early in the year 2000’ and the second phase ‘one year later’.

Mr. Triendl, in this letter dated December 23, 1997, says that he is “pleased to confirm that the Malabar Cancer Centre project is directly connected to the Rehabilitation Project [Pallivasal-Sengulam-Panniar] and can be availed on the satisfactory conclusion of the loan agreement with the Export Development Corporation of Canada and the exporter SNC-Lavalin.”

The third document is a lengthy report dated January 22, 1998, written by the KSEB Secretary to the Power Secretary (or the State Government) describing the salient features of the R&M project. Regarding the grant promised by SNC-Lavalin, he says, “The unique feature of this proposal is the grant offered for setting up a Malabar Cancer Centre . . . (that) will have a total project cost of Rs. 103 crores (the grant element shown as Rs. 98 crores).”

The fourth document is the note submitted to the Council of Ministers when the Cabinet met on March 3, 1998, to consider the R&M proposal. The note clearly says that the grant for the cancer hospital is part of the overall deal. It informed the Cabinet that, during the negotiations held in Canada between the high-level delegation from Kerala on the one side and SNC-Lavalin and the funding agency CIDA on the other, “it was also decided that, in addition to the loan, CIDA and other Canadian agencies will give 25 million Canadian dollars as grant to build a cancer treatment centre.”

It appears that the promised grant was a major factor that influenced the Council of Ministers when it decided to give its approval to the KSEB to go ahead with its deal with SNC-Lavalin. The deal was signed, the R&M project executed and the entire amount specified in the agreement pocketed by the Canadian company direct from the funding agency CIDA. But, only Rs. 15 crores out of the promised grant of Rs. 98 crores reached the Malabar Cancer Society formed in early 1998 with the Chief Minister as its chairman to set up the cancer hospital.

Reneging on promise

The baffling question is how SNC-Lavalin was allowed to go back on its promise. It was not that the Government was not warned about such a possibility even before the Cabinet approved the R&M project. The basic precaution that had to be taken to prevent this from happening does not find any mention in the Cabinet note submitted by the Power Department to the Council of Ministers on March 3, 1998, when it considered the proposal and approved it. This was in spite of the KSEB Secretary, in his report dated January 28, 1998, specifically drawing the Power Secretary’s attention to such a possibility.

To quote from this letter, “Since the grant component is not coming directly to the KSEB, the State Government has to ensure that the promised grant for the Cancer Centre materialises. M/s EDC (Export Development Corporation of Canada, through which the CIDA loan for the R&M project was released) has imposed a number of normal conditions for availing the export credit, including Government/Bank guarantee for repayment of the loan and the interest thereon. It is necessary that the Government also binds SNC-Lavalin in some such agreements so as to ensure that the release of the grant for the Cancer Centre is done pari-passu with the rehabilitation projects.”

This was never done. Who, besides SNC-Lavalin, has benefited from this failure is the crucial question.