CAG report finds major lapses in deal with SNC Lavalin

Press Trust of India
February 13, 2006

In a politically sensitive report ahead of the assembly elections in Kerala, the Comptroller and Auditor General has found serious lapses causing huge financial loss in a contract awarded to Canadian firm SNC Lavalin for renovation of three hydro electric projects during the previous LDF government’s tenure.

The report, tabled in the assembly today, pointed out that the government had violated norms in awarding the Rs 374.50 crore contract which did not yield commensurate benefit to the state.

CAG found that the cost of the projects were excessive by Rs 316.75 crore going by the norms prescribed by the Central Board of Irrigation and Power (CBIP) for cases of renovation and modernisation of hydro power stations.

The state also did not receive Rs 89.32 crore out of the grant of Rs 98.30 crore agreed to be provided by SNC-Lavalin for Malabar Cancer Hospital as part of the deal.

The Kerala State Electricity Board signed the MOU with SNC-Lavalin in August 1995 when the UDF government was in power, which was converted into a consultancy agreement in February 1996 and the final contract for the supply of equipment was signed in 1997 when the present CPI-M state secretary Pinarayi Vijayan was the Electricity Minister.

Coming as it does just three months ahead of assembly polls, the CAG report is certain to snowball into a campaign theme for the Congress-led UDF alleging irregularities and corruption in the deal.

The issue is bound to have implications on the internal equations in the CPI-M’s state unit with Vijayan’s detractors likely to seize on the issue.

Referring to the violation of norms, the CAG said global tenders were not invited while awarding the contract either before entering into consultancy or final agreement with SNC-Lavalin. The KSEB had not taken any measure to ensure reasonableness of the prices quoted by SNC in 1997 before signing of the contract, the report said.

The consultancy contracts were finalised without obtaining prior formal approval of KSEB members. The final contract for supply of equipment and engineering services was finalised by ministerial delegation directly with the consultant (SNC-Lavalin) who was acting as an intermediary and was not the manufacturer.

The supply of goods and services were actually made by other firms at much higher costs leading to ‘extra avoidable payments.’ The Board also could not ensure quality of renovation work executed by the contractor in the absence of technology transfer and training.

Due to various technical defects in the equipment, power generation could not be maintained even at pre-renovation levels. “The very objective of improvement in the efficiency of machines could not be achieved as there was no improvement in the generation of power,” the CAG concluded.

The issue had triggered strong political reaction after the AG sought an explanation from the KSEB in its interim report which prompted the government to order a Vigilance probe into the matter, whose report is to be submitted soon.

Categories: Asia, Canada, India, Odious Debts

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