SNC Lavalin scandal
Encyclopedia
The SNC Lavalin scandal is financial scam related to the contracting of the government with a Canadian company, SNC-Lavalin
which resulted in an alleged net loss to the exchequer
of 374.50 crore
in the renovations of the hydro electric power stations at Pallivasal (37.5 mw), Sengulam (48 mw) and Panniar (30 mw) - also known as PSP project in short - installed in between 1940 and 1964 at Idukki district in Kerala
state of India
. Several politicians were involved and eventually charged, including former ministers G. Karthikeyan
of Indian National Congress, Pinarayi Vijayan
.
(CEA) of India rejected a proposal of Kerala State Electricity Board
(KSEB) to renovate the three hydro-electric power projects at Pallivasal, Sengulam and Panniar instead the CEA recommended a capacity upgradation of the generators in these three power projects, after they found that these projects are in good condition. KSEB disregarded this recommendation and went forward with the decision to renovate these projects.
The initial negotiations with the Canadian company SNC-Lavalin
- a company which had been present in the state's power sector for several decades - began during the tenure of United Democratic Front government, under the leadership of the then power minister C.V. Padmarajan and later, the Kerala State Electricity Board
(KSEB) signed a memorandum of understanding
(MoU) with SNC-Lavalin
in August 1995, when G. Karthikeyan of the Congress Party
was the power minister, after the resignation of C.V. Padmarajan. Under the provisions of the MoU
, the funds for the renovation were to be arranged by SNC Lavalin from the Export Development Canada
(EDC), Canada, and the Canadian International Development Agency
(CIDA). Later, it was also found out in a probe by CBI, that G. Karthikeyan also wanted a quid-pro-quo assistance from the Canadian government for the setting up a hospital for granting a project for refurbishment of Pallivasal, Shengulam and Panniyar Hydro electric stations in Kerala, after the revelation of a letter by G Karthikeyan to the then vice-president of Lavalin business operations, Klaus Triendl, who is also an accused in the Lavalin scandal. It was only in the September of 1995, that the KSEB undertook a feasibility study on the proposal, by a retired Chief Engineer of the KSEB, who later became a consultant to SNC-Lavalin
.
Based on the consultant's report and further discussions, the KSEB under the leadership of G. Karthikeyan, signed the contracts with SNC-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 agreement did actually include the rates for various equipments to be purchased as part of the project. Consultancy agreements were converted into fixed price contracts for the supply of machinery and technical services as part of the renovation at a cost of 67.94 million Canadian dollar
s (Rs 169.03 crores). The final follow-up agreement with SNC-Lavalin regarding the renovation of PSP project was signed by Pinarayi Vijayan
of Left Democratic Front
- after they took office winning the majority in legislative assembly in 1996 - in february 1997. Technically, the Left Democratic Front (Kerala) led government could not retreat from the agreements, even if they wanted to, according to the provisions of the MoU which was already signed by their predecessors, that is the ministers of United Democratic Front government.
After the final contract was signed, the KSEB entrusted the National Hydro Electric Power Corporation Limited (NHEPCL) a study to justify the prices quoted by Lavalin, and they concluded in that study that in view of the grant to the proposed Malabar Cancer Centre (MCC), the purchase of Canadian equipment and accessories could be considered favorably.
The CAG
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 a 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 the 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 the fee for technical consultancy from fixed price contracts resulted in an 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 Centre
as the MoU was not renewed in time during the tenure of United Democratic Front when Kadavoor Sivadasan
was the minister in charge of power.
On 16 January 2007, Kerala High Court
ordered a CBI
enquiry into the scandal.
On February 18, 2008, the CBI
informed High court of Kerala that the investigation was progressing and said that former Electricity Ministers Pinarayi Vijayan
and G. Karthikeyan would be examined at the appropriate time.
On 21 January 2009, the CBI filed a progress report on the investigation in the Kerala High Court. Pinarayi Vijayan
had been named as the 9th accused in the case..
On 2 February 2009, the CBI wrote a letter to the Governor of Kerala, seeking sanction for the prosecution of Pinarayi Vijayan under section 197 of the CrPC , who later referred it to the cabinet .
On 6 May 2009, the Cabinet opined that it was not necessary to grant permission to prosecute Pinarayi Vijayan .
On 31 August 2011, the Supreme Court of India issued notices to Government of Kerala and the CBI, on a petition filed by Pinarayi Vjayan, challenging the then Kerala Governor, R.S. Gavai's nod to prosecute the former, over-riding the decision of the council of ministers, after he wrongly assumed that he had jurisdiction and power to grant sanction on his own. The proceedings against Pinarayi Vijayan initiated in the special court was stayed by this order .
SNC-Lavalin
SNC-Lavalin Group Inc. is a large Canadian engineering firm. It is one of the ten largest engineering firms in the world and is based in Montreal, Quebec. It formed in 1991 from the merger of SNC and the failing Lavalin, another Quebec based engineering firm....
which resulted in an alleged net loss to the exchequer
Exchequer
The Exchequer is a government department of the United Kingdom responsible for the management and collection of taxation and other government revenues. The historical Exchequer developed judicial roles...
of 374.50 crore
Crore
A crore is a unit in the Indian number system equal to ten million , or 100 lakhs. It is widely used in India, Bangladesh, Nepal, and Pakistan....
in the renovations of the hydro electric power stations at Pallivasal (37.5 mw), Sengulam (48 mw) and Panniar (30 mw) - also known as PSP project in short - installed in between 1940 and 1964 at Idukki district in Kerala
Kerala
or Keralam is an Indian state located on the Malabar coast of south-west India. It was created on 1 November 1956 by the States Reorganisation Act by combining various Malayalam speaking regions....
state of India
India
India , officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world...
. Several politicians were involved and eventually charged, including former ministers G. Karthikeyan
G. Karthikeyan
G Karthikeyan is an Indian politician and the speaker of kerala legislative assembly. He is currently the Member of the kerala Legislative Assembly MLA from Aruvikkara. He is the son of N. P. Gopala Pillai and Vanajakshy Amma. He was born at Varkala on 20 January 1949. He entered politics through...
of Indian National Congress, Pinarayi Vijayan
Pinarayi Vijayan
Pinarayi Vijayan is a politician and a former minister of Kerala, South India. He is currently a politburo member and the state secretary of Kerala State Committee of Communist Party of India .- Early life :...
.
History
In 1992, the Central Electricity AuthorityCentral Electricity Authority of India
The Central Electricity Authority of India is a statutory organisation constituted under section 3 of Electricity Supply Act 1948, which has been superseded by section 70 of the Electricity Act 2003...
(CEA) of India rejected a proposal of Kerala State Electricity Board
Kerala State Electricity Board
Kerala State Electricity Board is a public sector agency under the Government of Kerala, India, that generates and distributes the electricity supply in the state...
(KSEB) to renovate the three hydro-electric power projects at Pallivasal, Sengulam and Panniar instead the CEA recommended a capacity upgradation of the generators in these three power projects, after they found that these projects are in good condition. KSEB disregarded this recommendation and went forward with the decision to renovate these projects.
The initial negotiations with the Canadian company SNC-Lavalin
SNC-Lavalin
SNC-Lavalin Group Inc. is a large Canadian engineering firm. It is one of the ten largest engineering firms in the world and is based in Montreal, Quebec. It formed in 1991 from the merger of SNC and the failing Lavalin, another Quebec based engineering firm....
- a company which had been present in the state's power sector for several decades - began during the tenure of United Democratic Front government, under the leadership of the then power minister C.V. Padmarajan and later, the Kerala State Electricity Board
Kerala State Electricity Board
Kerala State Electricity Board is a public sector agency under the Government of Kerala, India, that generates and distributes the electricity supply in the state...
(KSEB) signed a memorandum of understanding
Memorandum of understanding
A memorandum of understanding is a document describing a bilateral or multilateral agreement between parties. It expresses a convergence of will between the parties, indicating an intended common line of action. It is often used in cases where parties either do not imply a legal commitment or in...
(MoU) with SNC-Lavalin
SNC-Lavalin
SNC-Lavalin Group Inc. is a large Canadian engineering firm. It is one of the ten largest engineering firms in the world and is based in Montreal, Quebec. It formed in 1991 from the merger of SNC and the failing Lavalin, another Quebec based engineering firm....
in August 1995, when G. Karthikeyan of the Congress Party
Indian National Congress
The Indian National Congress is one of the two major political parties in India, the other being the Bharatiya Janata Party. It is the largest and one of the oldest democratic political parties in the world. The party's modern liberal platform is largely considered center-left in the Indian...
was the power minister, after the resignation of C.V. Padmarajan. Under the provisions of the MoU
Memorandum of understanding
A memorandum of understanding is a document describing a bilateral or multilateral agreement between parties. It expresses a convergence of will between the parties, indicating an intended common line of action. It is often used in cases where parties either do not imply a legal commitment or in...
, the funds for the renovation were to be arranged by SNC Lavalin from the Export Development Canada
Export Development Canada
Export Development Canada is Canada's export credit agency. It is a Crown corporation wholly owned by the Government of Canada, which provides financing and risk management services to Canadian exporters and investors in up to 200 markets worldwide, with spread across all provinces in Canada, and...
(EDC), Canada, and the Canadian International Development Agency
Canadian International Development Agency
The Canadian International Development Agency was formed in 1968 by the Canadian government. CIDA administers foreign aid programs in developing countries, and operates in partnership with other Canadian organizations in the public and private sectors as well as other international organizations...
(CIDA). Later, it was also found out in a probe by CBI, that G. Karthikeyan also wanted a quid-pro-quo assistance from the Canadian government for the setting up a hospital for granting a project for refurbishment of Pallivasal, Shengulam and Panniyar Hydro electric stations in Kerala, after the revelation of a letter by G Karthikeyan to the then vice-president of Lavalin business operations, Klaus Triendl, who is also an accused in the Lavalin scandal. It was only in the September of 1995, that the KSEB undertook a feasibility study on the proposal, by a retired Chief Engineer of the KSEB, who later became a consultant to SNC-Lavalin
SNC-Lavalin
SNC-Lavalin Group Inc. is a large Canadian engineering firm. It is one of the ten largest engineering firms in the world and is based in Montreal, Quebec. It formed in 1991 from the merger of SNC and the failing Lavalin, another Quebec based engineering firm....
.
Based on the consultant's report and further discussions, the KSEB under the leadership of G. Karthikeyan, signed the contracts with SNC-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 agreement did actually include the rates for various equipments to be purchased as part of the project. Consultancy agreements were converted into fixed price contracts for the supply of machinery and technical services as part of the renovation at a cost of 67.94 million Canadian dollar
Canadian dollar
The Canadian dollar is the currency of Canada. As of 2007, the Canadian dollar is the 7th most traded currency in the world. It is abbreviated with the dollar sign $, or C$ to distinguish it from other dollar-denominated currencies...
s (Rs 169.03 crores). The final follow-up agreement with SNC-Lavalin regarding the renovation of PSP project was signed by Pinarayi Vijayan
Pinarayi Vijayan
Pinarayi Vijayan is a politician and a former minister of Kerala, South India. He is currently a politburo member and the state secretary of Kerala State Committee of Communist Party of India .- Early life :...
of Left Democratic Front
Left Democratic Front
Left Democratic Front is a coalition of left winged political parties in the state of Kerala, in India. This is one of the two major political coalitions in Kerala, each of which have been in power alternatively for the last two decades. LDF is the coalition that is presently in oppposition...
- after they took office winning the majority in legislative assembly in 1996 - in february 1997. Technically, the Left Democratic Front (Kerala) led government could not retreat from the agreements, even if they wanted to, according to the provisions of the MoU which was already signed by their predecessors, that is the ministers of United Democratic Front government.
After the final contract was signed, the KSEB entrusted the National Hydro Electric Power Corporation Limited (NHEPCL) a study to justify the prices quoted by Lavalin, and they concluded in that study that in view of the grant to the proposed Malabar Cancer Centre (MCC), the purchase of Canadian equipment and accessories could be considered favorably.
The CAG
Comptroller and Auditor General of India
The Comptroller and Auditor General of India is an authority, established by the Constitution of India, who audits all receipts and expenditure of the Government of India and the state governments, including those of bodies and authorities substantially financed by the government. The CAG is...
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 a 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 the quality of renovation work in the absence of technology transfer
Technology transfer
Technology Transfer, also called Transfer of Technology and Technology Commercialisation, is the process of skill transferring, knowledge, technologies, methods of manufacturing, samples of manufacturing and facilities among governments or universities and other institutions to ensure that...
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 the fee for technical consultancy from fixed price contracts resulted in an 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 Centre
Malabar Cancer Centre
Malabar Cancer Center established at Kodiyeri near Thalassery in Kerala state, South India is an autonomous centre under Government of Kerala...
as the MoU was not renewed in time during the tenure of United Democratic Front when Kadavoor Sivadasan
Kadavoor Sivadasan
Kadavoor Sivadasan in Kadavoor, Kerala is an advocate, political worker and trade unionist from Kerala, India.- Personal life :...
was the minister in charge of power.
On 16 January 2007, Kerala High Court
Kerala High Court
High Court of Kerala is the highest court in the Indian state of Kerala and in the Union Territory of Lakshadweep. The High Court of Kerala is headquartered at Kochi...
ordered a CBI
Central Bureau of Investigation
The Central Bureau of Investigation is a government agency of India that serves as a criminal investigation body, national security agency and intelligence agency. It was established on 1 April 1963 and evolved from the Special Police Establishment founded in 1941...
enquiry into the scandal.
On February 18, 2008, the CBI
Central Bureau of Investigation
The Central Bureau of Investigation is a government agency of India that serves as a criminal investigation body, national security agency and intelligence agency. It was established on 1 April 1963 and evolved from the Special Police Establishment founded in 1941...
informed High court of Kerala that the investigation was progressing and said that former Electricity Ministers Pinarayi Vijayan
Pinarayi Vijayan
Pinarayi Vijayan is a politician and a former minister of Kerala, South India. He is currently a politburo member and the state secretary of Kerala State Committee of Communist Party of India .- Early life :...
and G. Karthikeyan would be examined at the appropriate time.
On 21 January 2009, the CBI filed a progress report on the investigation in the Kerala High Court. Pinarayi Vijayan
Pinarayi Vijayan
Pinarayi Vijayan is a politician and a former minister of Kerala, South India. He is currently a politburo member and the state secretary of Kerala State Committee of Communist Party of India .- Early life :...
had been named as the 9th accused in the case..
On 2 February 2009, the CBI wrote a letter to the Governor of Kerala, seeking sanction for the prosecution of Pinarayi Vijayan under section 197 of the CrPC , who later referred it to the cabinet .
On 6 May 2009, the Cabinet opined that it was not necessary to grant permission to prosecute Pinarayi Vijayan .
On 31 August 2011, the Supreme Court of India issued notices to Government of Kerala and the CBI, on a petition filed by Pinarayi Vjayan, challenging the then Kerala Governor, R.S. Gavai's nod to prosecute the former, over-riding the decision of the council of ministers, after he wrongly assumed that he had jurisdiction and power to grant sanction on his own. The proceedings against Pinarayi Vijayan initiated in the special court was stayed by this order .