SNC Scandal in Kerala

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<ul><li> SNC Lavalin Scandal <ul><li><ul><li>The broad picture </li></ul></li></ul><ul><li><ul><li>Edition:1 </li></ul></li></ul></li> <li> Who is SNC Lavalin ? <ul><li>One of the worlds largest Engineering Firm </li></ul><ul><li>Based in Canada </li></ul><ul><li>Formerly known as SNC Inc </li></ul></li> <li> Kerala Connection <ul><li>SNC's first International Project was in Kerala </li></ul><ul><li>Idukki Power Station </li></ul><ul><li>Canada govt provided loan for the project </li></ul><ul><li>Long time friend of many ;) </li></ul></li> <li> Little bit about 3 power plants </li> <li> 1990 (LDF?) <ul><li>CEA recommended (1992) that immediate replacement of the generating units of Pallivasal Power Station was not necessary, since the plant was in fairly good condition and suggested a new scheme of 60 MW as an augmentation of the existing scheme. Panniar Augmentation scheme to improve the water inflow and increase the power generation by 29.43 MU, was also underway (1995). Similarly, Sengulam Augmentation Scheme for additional power generation of 85 MU was also under consideration of the Board. All the above augmentation schemes necessitated uprating of capacity of generators rather than renovation. - CAG Report </li></ul>KSEB We want to Replace generating units of Pallivasal Power Station No, They are in good condition (replied with suggestions 1992) Central Electricity Authority(CEA) </li> <li> Some one still wants to Replace the machineries </li> <li> SNC Lavalin and UDF - 1995 Dear Friends, Replace machineries your power plants; Get us some business But Mr Lavalin, We dont have money </li> <li> SNC Lavalin and UDF - 1995 Dont worry, We get you money from Canada. We rule the country Then we can think of it. One more issue to over come. CEA told us not to replace machines. Liberal Party of Canada was ruling Canada that time. SNC Lavalin is one of the major corporate doner for the party. Government during that time in Canada became famous for several corruption cases Ref: Various reports in Canadian media. </li> <li> SNC Lavalin and UDF - 1995 Mr X will help you. He was your chief engineer earlier. He will become our consultant later Ok, deal is done... </li> <li> UDF Sign first agreement <ul><li>August 10, 1995 - The MoU between the KSEB and SNC Lavalin was signed, when Mr. C. V. Padmarajan, was the Power Minister. </li></ul><ul><li> a Memorandum of Understanding (MOU) with SNC Lavalin Inc, Canada (SNC) for establishing a joint venture association for carrying out rehabilitation of existing facilities, identifying the three Hydro Electric Projects at Pallivasal, Sengulam and Panniar for the first batch of renovation. As per the MOU, finance for the renovation was to be arranged by SNC from Export Development Corporation (EDC), Canada and Canadian International Development Agency (CIDA). </li></ul><ul><li>(Ref: CAG Report) </li></ul></li> <li> UDF Sign first agreement <ul><li>September 1995 - 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. (Ref: CAG Report) </li></ul></li> <li> Terms of UDF agreement <ul><li>February 24, 1996 - The follow-up agreement was signed, when Mr. G. Karthikeyan was in charge of the Power Department. </li></ul><ul><li> Based on the consultants report and further discussions, contracts were signed (February 1996) with SNC for providing technical services for management, engineering, procurement and construction supervision to ensure completion of the projects within three years. </li></ul><ul><li>(Ref: CAG Report) </li></ul></li> <li> Terms of UDF agreement <ul><li>The contract signed (February 1996) by the Board with SNC for technical services for renovation of Pallivasal, Sengulam and Panniar Power Stations provided for payment of a total service charge amounting to (Rs 24 crore) . The services to be provided were: </li></ul><ul><li>Preliminary and Detailed engineering </li></ul><ul><li>Preparation of drawings, specifications, bills of quantities and tender documents. </li></ul><ul><li>Calling for and evaluation of tenders and award of contracts. </li></ul><ul><li>Producing civil drawings </li></ul><ul><li>Review and approval of contractors design, drawings and other submissions </li></ul><ul><li>Construction supervision and inspection </li></ul><ul><li>Commissioning </li></ul><ul><li>Technology transfer and technical training </li></ul></li> <li> Consultancy agreement signed <ul><li>G Karthikeyan enters into agreement on Feb 24 1996 </li></ul><ul><li>SNC Lavelin shall provide technical services for management, Engineering, procurement, construction, supervision and other services so as to ensure the timely completion of the Projects within the agreed time frame of three years. The amount of consultancy service charges provided in the agreement are: </li></ul><ul><li>1. Pallivasal 3.2 Million Canadian Dollar (Rs.7.96 crores) </li></ul><ul><li>2. Sengulam 2.669 Million Canadian Dollar (Rs.6.64 crores) </li></ul><ul><li>3. Panniyar 4.26 Million Canadian Dollars (Rs.10.6 crores) </li></ul><ul><li>(Data from HC Judgement;one Canadian Dollar equal to Rs.24.88) </li></ul></li> <li> 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. Agreement does not include the purchase of machineries and the total amount to be paid to SNC Lavalin was just 24 Crores . </li> <li> Question to UDF <ul><li>Why the input given by CEA ignored ? </li></ul><ul><li>Were they aware of the fact that Rtd Chief Engineer selected is not credible ? </li></ul><ul><li>How was SNC Lavalin selected as consultant ? </li></ul>? </li> <li> Elections, New Government <ul><li>In May 1996 LDF Government comes to power </li></ul><ul><li>New hopes, Energy situation getting worse (low rainfall) </li></ul></li> <li> Balandan committee constitute <ul><li>Sept 1996, Balandan committee constituted by Government order ( 19.09.1996 as per G.O (MS) 23/96/PD) </li></ul><ul><li>26 members including expert and representatives from trade unions </li></ul><ul><li>2 Months time given </li></ul>How to save Kerala from Blackout ? </li> <li> Flying Canada Oct, 1996 </li> <li> <ul><li>Oct 12-23 1996 in Canada hmm, pretty long trip ;) </li></ul>Dont worry Mr Minister, SNC is our friend, you give purchase order to SNC, We give you money <ul><li><ul><li>Our common friend SNC is giving us consultancy to rehabilitate 3 of our power stations, but we dont have money for purchase machineries, can you help ? </li></ul></li></ul></li> <li> Canada Meetings Come on....These are things which you can sort out; we will work it out separately <ul><li><ul><li>But how can SNC be given purchase order ? They are not manufacturer, just consultants. More over the prices listed are exorbitant </li></ul></li></ul>EDC allows for limited tender from companies in Canada; MoU1/Contract(UDF) allows for the same </li> <li> Commission !!! The final contract for supply of equipment and engineering services was finalised by a Ministerial delegation directly with the consultant 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 cost leading to extra avoidable payments. (CAG Report) </li> <li> May be we can promise a hospital in Kannur.May be a cancer center K Mohanachandaran, Principal Secretary, Power Good. Why not, let our friend, SNC, prepare a plan for that. Cheers ... Back to Kerala But what justification will I give to my people back at home for fixed price contract? Interesting suggestion ! How can secretary for power decide needs of health sector ? Was there any meeting held on this before or during the Canada visit? Planning for Hospital by an Engineering Consultancy firm ? </li> <li> Men in Black <ul><li>Some things happened we don't know yet; lot of questions to be answered </li></ul><ul><li>From where did this idea of Cancer treatment centre come ? It is important because this was the main excuse used for converting the contract to fixed price purchase. That too to a consultant . </li></ul><ul><li>Proposal for Cancer Centre was introduced only to justify the the agenda of giving fixed price contract to SNC Lavalin at an exorbitant rate. </li></ul></li> <li> Old man creating trouble <ul><li>Feb 2 nd 1997 Balanandan committee submits report to Govt </li></ul><ul><li>Pallivasal Hydro Power project : </li></ul><ul><li> the proposals for the rehabilitation of schemes as approved by CWC&amp;CEA for the construction of 40 MW new power station with new water conductor system at a suitable near by location which would obviate pumping for letting the tail race water to Sengulam Balancing Reservoir should be taken up without losing time </li></ul><ul><li> this would enhance generating capacity of the scheme and provide a total peaking capacity of 77.5 MW </li></ul><ul><li>Committee recomended this as most important short term project to be taken up as CEA has cleared proposal already and it should be completed in 3 years </li></ul><ul><li>(No progress made on this later) </li></ul></li> <li> <ul><li>Sengulam Hydro Power station: </li></ul><ul><li>Proposal of the board to replace all equipment (SNC Lavalin proposal) </li></ul><ul><li> may be reviewed to limit the replacement to essential parts like injectors, or changing alternators, winding and modernizing with Electronic Governors/State Excitation system and control system </li></ul><ul><li> import of components from GEC Alsthom is now easier </li></ul><ul><li>Panniar Hydro Power Station: </li></ul><ul><li> replacement may be limited to essential components </li></ul><ul><li> import of such items from the original suppliers M/S Hitachi Japan are easier now </li></ul></li> <li> Feb 10 th 1997 MoU signed between KSEB and SNC Lavalin for Fixed Price purchase No No Yes ?? ? KSEB SNC Lavalin </li> <li> 1 st Set of questions to Mr Pinarayi <ul><li>Why did you ignore the report of Balanandan committee and CEA ? </li></ul><ul><li>Why was hurry in signing MoU-2 with SNC Lavalin ? </li></ul><ul><li>UDF contract was for ~ Rs 22 Crore, consultancy charges </li></ul><ul><li>Balanandan commission suggestions would have cost the state only Rs 100.5 crore (Ref: Express report 24 Jan 09) </li></ul><ul><li>Proceeding as per Balanandan Committee would have improved our power generation. Why did you ignore that despite acute power crisis? </li></ul><ul><li>Why did you give the supply contract to a consultant middleman? </li></ul><ul><li>New contract comes to around ~ Rs 300 crores </li></ul></li> <li> Features of SNC Lavalin MoU 2(LDF) <ul><li> KSEB wishes SNC-Lavalin to provide in addition to the agreed upon consultancy services, scope for supply of Canadian sourced Electro Mechanical equipment for the project </li></ul><ul><li> SNC-Lavalin has agreed the supply of such goods on a fixed price basis as contained in this Addendum No. 1 </li></ul><ul><li>Ref: Addendum to first agreement/MoU </li></ul><ul><li>Who decides the price of the item ? Blind trust for SNC Lavalin ? </li></ul></li> <li> E K Nayanar to Canada <ul><li>June 1997, Pinarayi takes EK Nayanar to Canada for further 'discussion'. What was there to be discusssed? </li></ul><ul><li>Trapping Com E K Nayanar so that he can escape... </li></ul></li> <li> Efforts to stamp the proposal <ul><li>CEA and Balanandan committee has created trouble, some how we need to get a stamping for the proposal of SNC. Let us form a committee to evaluate.. </li></ul><ul><li>Subcommitee of KSEB evaluates rehabilitation and maintenance proposals for Pallivasal, Sengulam, Panniar, Neriamangalam and Sabrigiri </li></ul><ul><li> the price offered for these Projects on a per megawatt basis was higher that of Sabarigiri and Neriyamangalam. The Committee also opined that Consultancy and supervision charges are very high for those projects (Ref: Report of the committee) </li></ul></li> <li> More trouble We need to get stamping for rates quoted by SNC. We have signed the agreement 8 months back. Let us go to NHPC Letter sent to NHPC on 10 Oct 1997. Agreement signed on 10 th Feb 1997 </li> <li> <ul><li> It was also seen that NHPC had not certified the reasonableness of the prices but had only stated that keeping in view of the soft loan with grant element, the purchase for Canadian equipment and accessories could be considered favorably. As the grant was not received there was hardly any justification as per NHPCs report. (Ref: CAG Report) </li></ul><ul><li><ul><li><ul><li>We haven't got the technical specification which are required to certify price given. However ... </li></ul></li></ul></li></ul><ul><li><ul><li><ul><li>Nov 19, 1997 </li></ul></li></ul></li></ul></li> <li> MCC Project plan <ul><li>SNC Lavalin prepares project plan for Malabar Cancer Center (MCC) and sends to KSEB Chairman on Dec 1997. </li></ul><ul><li>KSEB/Govt started working on agreements. </li></ul></li> <li> Get his head checked <ul><li><ul><li>Grant of ~ Rs 100 crore is part of the deal and since grant is not transferred to KSEB, GoK has to take steps to ensure that grant obtained. </li></ul></li></ul><ul><li><ul><li>--Jan 22, 1998 </li></ul></li></ul>Secretary, KSEB <ul><li><ul><li>Onu Vatta </li></ul></li></ul>KSEB Secretary writing to Power Secretary, Government of Kerala the unique feature of this proposal (R&amp;M of PSPHE projects) is the grant offered for setting up a Cancer centre at Thalassery in Kannur district </li> <li> <ul><li> that since the grant component is not coming directly to the Kerala State Electricity Board, the state government has to ensure that the promised grant for the Cancer center materializes </li></ul><ul><li> M/S EDC has imposed a number of normal conditions for availing the export credit including Govt/Bank Guarantee for repayment of the loan and 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 center is done pari-passu with the rehabilitation projects </li></ul><ul><li>-- Letter from Secretary, KSEB </li></ul></li> <li> Cabinet meeting March 3, 98 <ul><li><ul><li>Canada trip was good CIDA, EDC etc, are generous people they agreed to give ~ Rs 100 crore to set up a Cancer center. We need to spend only Rs 5 Crore. </li></ul></li></ul><ul><li><ul><li>If we get Rs 100 Crore as grant for MCC, then our project cost for rehabilitation of 3 plant are only Rs 200 crore. It is good, let us approve it. </li></ul></li></ul></li> <li> 2 nd Set of Questions to Mr Pinarayi <ul><li>Was there any commitment from Quebec government, CIDA or EDC for the grant (Malabar Cancer Center) ? </li></ul><ul><li>Did CIDA give a firm commitment on the amount? If yes, for what amount? Where is that agreement? </li></ul><ul><li>If No, Why did you say CIDA has promised $ 25 million in the Cabinet note? Why did you say NHPC has cleared the price? Why did you mislead the entire cabine...</li></ul></li></ul>