February 14, 2006
The KSEB signed an MoU with Lavalin in August 1995. Under the provisions of the MoU, the funds for the renovation were to be arranged by SNC Lavalin from the Export Development Corporation (EDC), Canada, and the Canadian International Development Agency (CIDA). The Board did so, ignoring the CEA’s recommendation that immediate replacement of the generating units at the Pallivasal power station was not called for as
the plant was in fairly good condition. The Board undertook a feasibility study on the proposal only in September 1995, by a retired Chief Engineer of the KSEB, who later became a consultant to Lavalin.
Based on the consultant’s report and further discussions, the Board signed contracts with Lavalin to provide technical services for management, engineering, procurement and construction supervision in February 1996, to ensure completion of the projects within three years.
The consultancy agreements were converted into fixed price contracts for supply of goods and services for the renovation at a cost of 67.94 Canadian dollars (Rs.169.03 crores) in February 1997. The CAG has found that Lavalin was only a consultant intermediary and not the original equipment manufacturer and that the supply of goods and services was
made by other firms at much higher cost leading to excess expenditure.
According to the CAG, the absence of due professional care in negotiating the foreign loan proved to be detrimental to the financial interests of the Board. The Board also could not ensure quality of renovation work in the absence of technology transfer and training of
its engineers. Owing to various technical defects in the equipment, the generation of power could not be maintained even at the pre-renovation level and the Board had to spend on repairs. According to the CAG, failure to exclude fee for technical consultancy from fixed price contracts resulted in avoidable payment of Rs.20.31 crores, and failure
to negotiate and exclude the exposure fee from the loan agreement resulted in avoidable payment of Rs.9.48 crores and future liability of Rs.2.21 crores. In the opinion of the CAG, there was also an avoidable payment of Rs.1.20 crores as commitment fee despite there being committed but unavailed advance. The CAG found that the Government did
not receive Rs.89.32 crores out of the grant of Rs.98.30 crores that was promised for the Malabar Cancer Institute.