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Lavalin scam: When power and politics collide

Lavalin scam: When power and politics collide

Author: Rajeev PI
Publication: The Indian Express
Date: January 23, 2009
URL: http://www.indianexpress.com/news/lavalin-scam-when-power-and-politics-collide/414061/

The 13-year-old SNC Lavalin case remains one of Kerala's biggest financial scams, and the CBI decision to seek prosecution of state CPM secretary and Politburo member Pinarayi Vijayan could impact even political and power equations here in days to come.

The scandal had its genesis in a 1996 agreement that the then Congress-led UDF Government got its Kerala State Electricity Board (KSEB) to sign with a Canadian power consulting company, SNC Lavalin. The contract was for replacing and modernising three major hydroelectric projects at Pallivasal, Sengulam and Panniar.

Soon after, Pinarayi Vijayan joined the Left Cabinet of E K Nayanar as power minister. Vijayan personally led the renegotiation of the earlier contract the KSEB had signed with Lavalin and subsequently went with Nayanar to Canada to seal the new deal. The new contract involved the state Government agreeing to cough up an additional Rs 149.15 crore to Lavalin for buying equipment from suppliers it named - Lavalin itself manufactured no such equipment.

It did not take long for the deal to kick up a huge furore. It was soon exposed that by rooting for the Lavalin deal, the Left government had actually disregarded the recommendations of its own power reforms expert panel, headed by senior CPI(M) leader and former CITU national president E Balanandan, who died this month.

The Balanandan panel had clearly warned the state government that Lavalin's costs were far too exorbitant and had suggested alternatives that it maintained were more effective and less expensive. This included getting the public-sector BHEL to take up the job at far lower cost.

But the deal soon revealed itself to involve more than just a question of prudent costing. Vijayan had got Lavalin to agree to fork out Rs 98 crore to set up a cancer hospital at Thalassery, the home constituency of chief minister Nayanar, in return for firming the renegotiated contract with its worth ratcheted up.

This side deal, however, turned out to be legally unenforceable, and the hospital project eventually got no more than Rs 9 crore out of the Rs 98 crore from Lavalin. Even this money went to a private firm in Chennai that had been awarded the contract for setting up the hospital building. As things stand, no one in the government or the CPM knows where the remaining money went, if Lavalin did part with it.

To compound matter for the Left government and CPM, the Comptroller and Auditor General (CAG) of India found in 2005 that the renegotiated deal was rammed through in considerable haste, bypassing due processes. CAG pointed out that the Rs 374.50 crore spent on it amounted to a huge public loss.

That was not all. Lavalin, CAG found, had not even notionally helped to increase power generation despite the deal re-fixed at such escalated costs. The CAG report also quoted official figures to underscore that power generation in the three projects had actually fallen after Lavalin worked on them.

The case was initially being investigated by the state government's own Vigilance Department, after the Congress-led UDF government followed the Left in 2004. The Vigilance Department believed it had enough evidence to file an FIR and went on to do just that, neglecting to inform the government. An angry Congress chief minister, Oommen Chandy, promptly removed the vigilance director, Upendra Verma, from his job but the din the case kicked up in Kerala was by then getting out of control. The Chandy government announced it would hand the case over to the CBI at the fag end of its term, but the move remained stalled after the next Left government succeeded it in 2006.

For about six months, the Kochi unit of the CBI had to keep waiting for the nod from New Delhi to begin investigations. Interestingly, the Kerala High Court was unaware of this delay and actually disposed of a PIL seeking contempt proceedings against the CBI for not beginning the probe, observing that the investigation was already on. The then CBI director Vijay Shanker had to file a petition before the HC seeking to review the court's observation and admitting that the CBI was yet to begin looking into the case.

The CBI chief's affidavit pleaded it that the agency could not begin a probe because the mandatory notification (under the Delhi Special Police Establishment Act) had not been made by the government.

After it finally got permission from New Delhi, the CBI the go-ahead to interrogate Vijayan as well as his Congress predecessor heading the power ministry, G Karthikeyan. The agency had spread its probe to Canada to unravel the details of the case, before finally deciding to prosecute Vijayan now.

Politically, no scam before could shake up the Left in Kerala as this one has. In fact, it may have come as a godsend for beleaguered Chief Minister V S Achuthanandan, who has been locked in an interminable factional feud with Vijayan - the two were recently suspended from the CPM Politburo for airing their grievances against each other in public and violating party norms. Now, the Chief Minister may enjoy an advantage in his Cabinet populated by Vijayan men, who are given to working behind his back or casually overruling him.

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