Export Credit

Indian scandal has Canadian roots

Mata Press Service
February 12, 2007

Indian police have been tasked with getting to the bottom of a “promise” by Quebec-based engineering conglomerate, SNC Lavalin, to provide Canadian aid to Kerala in exchange for it getting a multi-million dollar hydro-electric project.

The money – about C$26 million for a cancer hospital – has not shown up, 10 years after
the contract was awarded. Now the Kerala High Court has ordered India’s Central Bureau of Investigation to conduct an inquiry into the case, which is being described as the Southern state’s biggest corruption scandal.

And Kerala’s chief minister V. S. Achuthanandan is demanding that SNC Lavalin be blacklisted because the company had not met its promise to provide the money for the Malabar Cancer Centre which was part of the deal.

Canada’s foreign aid watchdog, Probe International, claimed that Canadian Crown agencies that help to fund Canadian business projects abroad – in particular the Canadian International Development Agency and Export Development Canada – should
assist the Indian authorities with the case. “These agencies may hold key information,” Patricia Adams of Probe International was quoted as saying. “And Canadian international affairs officials have long lectured Third World nations on the need to root out corruption. “The last Canadian federal government, which was in power when this deal was struck, fell because of corruption. I hope the current government will take a different approach.” At least two former ministers in charge of Kerala’s power supply are being implicated in the affair which, which local political commentators and newspapers is calling a “clear case of political corruption”.

According to Indian government documents, the scandal has its roots in a contract for the renovation of three hydro-electric power stations that was signed by the Kerala state
government and SNC Lavalin in October 1996. The $85 million contract was to upgrade 12 generating machines at three powers stations in the Periyar river basin whose output was much below their design capacities.

A report by India’s Comptroller and Auditor General’s said that excess costs equivalent to some $70 million was incurred during the progress of the work. The auditors also found that the State of Kerala did not receive monies from a grant that Lavalin agreed to arrange at the time the contract was signed. The money was intended to fund the establishment of a cancer centre as part of the deal.

“But 10 years later, there is no hospital and no one knows where the rest (of the money) went,” the Indian Express paper said.

The Auditor-General in his report also pointed out serious breach of norms, undue haste, and complicity in the deal.

A summary of the report issued by the Press Trust of India said that the consultancy contracts were finalised without obtaining prior formal approval of the electricity board members. It said that the contract for supply of equipment and engineering services was finalised by a 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 was 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. Last month Kerala’s Anti-Corruption Bureau ruled the deal out of order because no tenders had been invited. To make matters worse, some of the upgraded machinery
is already unserviceable while not an extra megawatt of power is being generated from the three hydroelectric projects. “Who, besides SNC-Lavalin, has benefited from this failure is the crucial question,” wrote an Indian newspaper columnist.

The Malayalam Manorama calculated, if the estimated loss is divided among the state’s
population, every pocket in Kerala has been picked to the tune of 106 rupees.

SNC-Lavalin Group Inc., Canada’s biggest engineering and construction group, is due to disclose its fourth-quarter and full 2006 results on Feb. 23. It operates in 100 countries, managing mining and metals, energy, infrastructure and environmental projects. Net income has grown steadily from $14.7 million in 1992 to $134.6 million in 2005.

Its chief executive officer Jacques Lamarre said the conglomerate is now interested in buying Atomic Energy of Canada Ltd., the federally owned designer and marketer of CANDU nuclear reactors. SNC Lavalin, is also the subcontractor picked by InTransit BC to do tunnel boring on the rapid-transit line between Vancouver, the airport and  Richmond. In 1998 SNC Lavalin was part of a Canadian-Pakistani consortium accused of
bribing officials of Benazir Bhutto’s government so it could overcharge for electricity.

The consortium built a $160 million power plant in the Punjab and supplies electricity to the area. Pakistan is moving to cancel the contract with Southern Electric.

B.C. Hydro reportedly loaned $1 million to the chief executive officer of Southern
Electric. Pakistani officials say that money has disappeared. SNC Lavalin has also been criticized for its involvement in the controversial Three Gorges Dam megaproject on China’s Yangtze River, which forced the evacuation of roughly two million people living in
low-lying areas.

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