Lavalin deal in Kerala

CPI (M’s) Bofors: Lavalin deal could dent Marxist image

Popular perception associates middle-class heroes with intellectual corruption, hardly ever with financial corruption. When Rajiv Gandhi became prime minister he was called Mr Clean. Bofors exploded that image. The Congress never recovered from the blow.

Among political parties the Communists enjoy a reputation for steadfastly maintaining middle- class morality. Allegations circulating in the grapevine, such as collusion by some of their leaders with stock market manipulators, have never been sufficiently authenticated. Now nemesis might catch up with the CPI (M). The Marxists might soon get their own Bofors-like scandal.

The scandal revolves around the deal struck between the Kerala government and the Canadian hydroelectric firm, SNC Lavalin Co. Controversy surrounded the deal ever since it was signed in October 1996 by the CPI (M)-led LDF government in Kerala. But it was only last week that it acquired the dimensions of an impending crisis.

Responding to a petition the Kerala High Court, on January 16, ordered the CBI to probe the deal. The CBI of course might well succeed in cover-up, as it does almost unfailingly with political corruption. But that should provide small comfort to CPI (M). Bofors remains unsolved but that has not prevented mud sticking to the Congress party.

In the Lavalin deal the Kerala Power Board signed an MOU in 1995 with Canada’s SNC Lavalin Co, appointing it as consultant for modernizing and replacing generators in three hydroelectric projects in Kerala’s Idukki District. The Congress-led UDF government was then in power. In February 1996 the contract was expanded to include the project’s supervision, technical assistance and sourcing of funds. The project was specified for completion within 3 years. The Consultancy fee was set at Rs.20.31 crore.

But rot set in around October 1996 when the CPI (M) headed the government. The late EK Nayanar was Chief Minister. Pinarayi Vijayan, the present state secretary of CPI (M) and rival of the current CM VS Achuthanandan, was the Power Minister. A high powered official team led by Pinarayi visited Montreal to revise the Lavalin contract.

The consultancy contract was expanded to include a supply contract for procuring equipment. The consultancy fee remained unaltered. But for buying equipment an additional Rs.149.15 crore was committed. It might be mentioned that Lavalin itself did not manufacture power equipment.

The contract also became a tied deal. An accompanying grant for the Malabar Cancer Centre Hospital was negotiated. Lavalin committed itself to mobilize Rs. 98.3 crore for the hospital. Mr S.Varadachari, then Principal Secretary, Finance, questioned the tied deal and the grant offer as a ploy to bypass accepted norms of tendering. His file noting enraged Pinarayi, who declared that the secretary should have his head examined.

The signing of the contract was rushed through in 1997, ignoring the lower offer for the same job by BHEL, a public sector undertaking. So much for Marxism!

In June that year Pinarayi Vijayan signed the new MOU with Lavalin in Montreal in the presence of Chief Minister Nayanar. Lavalin pledged to complete the cancer hospital in four years. By March 1998 Kerala’s power board as well as the cabinet had formally approved the deal, including the grant to the hospital.

The recommendation of an experts committee headed by E. Balanandan, a veteran Marxist leader and reputed expert in powerrelated matters, was ignored. This panel had assessed that the costs were excessive and BHEL could have delivered effectively.

By July 2005 the Congress was back in power. The Comptroller- Auditor General (CAG) pointed out serious breach of norms, undue haste, and complicity in the deal. Its report stated that the total cost of hydroelectric projects renewal at Rs. 374.5 crore incurred heavy losses to the exchequer.

In January 2006 the State Vigilance and Anti- Corruption Bureau ruled the deal out of order because no tenders had been invited. In February the Vigilance department recommended charge-sheeting top officials.

In March 2006 a writ was filed in the High Court demanding a CBI inquiry. The Congress government in power decided to hold the inquiry. This was followed by the usual kind of cover-up. Vigilance claimed a crucial file involving Pinarayi was missing. The SP who investigated the case went off on long leave.

Nevertheless, the Vigilance Director, Upendra Verma, submitted an FIR, without consulting the government. It was the last phase of the Congress-led government’s tenure. The Left government was expected to return to power. The Congress government tried to shift Verma. The Election Commission blocked the move because the model code was in force. In July 2006 the CBI found a prima facie case and asked the State Vigilance to hand over files.

A contempt of court petition in the high court alleged that CBI was softpedaling the probe. The CBI somersaulted and told the court that as a central agency it could not investigate the case because the Central Government had not issued the necessary orders for transferring the case. The High Court criticized the State Government for assuming there was no need for a CBI probe. The court directed the incumbent Government to respect its predecessor’s commitment in court. On January 16, 2007, the Kerala High court decreed that the CBI must probe the Lavalin deal.

The evidence is damning. The cancer center received less than Rs 9 crore. Home Minister Kodiyeri Balakrishnan, a Pinarayi loyalist, was an unofficial member of the Power Board when the deal was finalized. He is also on the board of the cancer hospital from which the grant money vanished. Of the Rs 98.3 crore pledged to the hospital only Rs. 12 crore was paid to Technikalia, a company in Chennai.

Why was this company authorized to receive the grant? An account had been opened in the SBI Thalasserry branch, where the hospital is located, to credit the grant. The CAG reported that the entire Rs.374.50 crore spent on the renewal projects was wasted because no renewal goals were reached. Some of the replaced equipment is already unserviceable.

Not an extra megawatt of power is being generated from the three hydroelectric projects. This scandal has rocked Kerala. As Malayala Manorama calculated, if the estimated loss is divided among the state’s population, every Malayali pocket has been picked to the tune of Rs.106! The national media of course remains too preoccupied with more pressing national and international issues, such as the Bachchan wedding and Shilpa Shetty.

So how will Comrade Karat and company respond to this exposure? Will they simply let the law take its own course? Or will they conduct an inhouse inquiry? Perhaps Comrade Surjeet who has NRI family members in Canada could help them follow the trail?