On the SNC Lavalin Related Matters and the
CBI Case Against Pinarayi Vijayan
(Adopted by The Central Committee At its June 11-12, 2009 Meeting)
Renovation and Modernisation of
Pallivasal, Sengalam and Panniyar Power Stations
A Memorandum of Understanding (MoU) was signed by the Kerala State Electricity Board (KSEB) with SNC Lavalin, a Canadian company, for the renovation and modernisation works of Pallivasal, Sengulam and Panniyar (PSP) power stations on August 10, 1995 during the period of the UDF government. Shri A. K. Antony was the Chief Minister and Shri G. Karthikeyan was the Minister for Electricity. The KSEB accepted the technical report which suggested complete replacement of machineries and control system. After mutual discussions between KSEB and SNC Lavalin company, three separate but identical implementation/consultancy agreements were signed during the UDF period for the same projects in continuation of the MoU on February 24, 1996. These agreements provided for works such as preliminary engineering, detailed engineering, preparation of drawings and specifications, constructions and civil drawings, construction supervision and inspection, procurement of equipments, financing and commissioning of these projects by the SNC Lavalin company. Schedule of the contracts contained list of machineries and equipments to be replaced with and its price estimates corresponding to the year 1995 for each project. Consultancy charges was fixed as Rs. 24.04 crores payable to SNC Lavalin company and the equipment cost was valued at Rs. 157.40 crores. Clause 17 of the contracts stipulated that in case of any breach of contract, the arbitration for that is subjected to the rules and procedures of international Chamber of Commerce in Paris. These agreements also contained provisions that the Export Development Canada (EDC) will provide loans for the projects and the equipments required for the project should be purchased from Canada.
In 1996 May, the UDF lost the assembly elections and the LDF government, under E. K. Nayanar, assumed office. Pinarayi Vijayan became Minister for Electricity. The state was facing acute power shortage at that period. 100 per cent power cut was imposed on the industries and load shedding was imposed for commercial and domestic consumers. The power crisis resulted in the closure of many industries and caused major setbacks for the economy of the state. The unemployment situation further worsened.
One of the important problems faced by the LDF government was to find an immediate solution to the problem of the power crisis. The government took many steps to solve the problem of power shortage. One of the issues that came up before the Party and government was whether to go ahead with the MoU and agreements signed with SNC Lavalin company for renovation and modernisation of Pallivasal, Sengulam and Panniyar projects during the UDF period. The state secretariat held on August 22-23, 1996 decided to permit Pinarayi Vijayan, then Electricity Minister, to visit Canada in October 1996 to hold discussions with SNC Lavalin company and other authorities. The delegation led by Vijayan held discussions with SNC Lavalin company, EDC and Canadian International Development Agency (CIDA). During the discussions in Canada, the SNC Lavalin company and other institutions in Canada agreed to make three important changes in the agreements signed during the UDF period. They were the following :
i) The quantum of the foreign loan will be reduced.
ii) Some equipments such as transformers and allied equipments which were available plenty in India can be purchased by KSEB from India.
iii) The value and quantum of equipments fixed and agreed to be purchased from Canada in the original agreements signed during UDF period will be reduced. The consultancy charges etc. also will be reduced.
The Kerala Party state secretariat meetings held on November 10-12 and November 28-29, 1996 discussed the results of the visit of Pinarayi Vijayan to Canada and the discussions he had in Canada with SNC Lavalin and other authorities. Pinarayi Vijayan reported to the state secretariat details such as the loan amount, the need to purchase equipments from Canada, the possibility of getting grant for setting up a Cancer Centre etc. There was no difference of opinion in the Party at any stage of the decision making process.
On MoU Route
On the basis of the discussions, the KSEB and the government decided to go ahead with the MoU and agreements signed during the UDF period for the following reasons. The state was facing a severe power shortage and finding out an immediate solution could not be delayed. The Pallivasal, Sengulam and Panniyar power projects produced 10 per cent of the power output at that time in Kerala. The cancellation of MoU and the agreements signed during the UDF period might cause delay, lengthy legal procedures and payment of compensation to the SNC Lavalin company. The SNC Lavalin company also agreed to reduce the consultation fees and prices of certain equipment agreed by the UDF government. The SNC Lavalin company also agreed to arrange financing for setting up a Cancer Centre by collecting funds from various sources.
The LDF government had the experience of cancelling an MoU signed by the UDF government with a Swiss company, ABB, for renovation and modernisation of the Neriamangalam Hydro Electrical Power Station. No implementation agreement was signed for this as in the case of PSP power stations. Even then the ABB filed a case against the cancellation of the MoU in court. The case went on for five years and ABB got a favourable order from court. On the basis of the court order, renovation and modernisation work was again allotted to ABB. The work got delayed during the whole period of the case. Considering all aspects it was decided to go ahead with the MoU and implementation agreements signed during UDF period. Except in this matter, the LDF government had not accepted the MoU route for any other power projects in Kerala and made an important policy shift to put an end to the MoU route and go for global tender for all such works.
Balanandan Committee
A committee headed by E. Balanandan was constituted by the Kerala state government on September 19, 1996 to prepare a project report and to formulate specific recommendations on various issues relating to the development of electricity as well as ways and means to raise the resources for the development of electricity. The government order mentioned that the committee should consider the following aspect for the projects.
“(i) Reasons for the Electricity Board's failure to generate electricity taking into consideration the demand of electricity for domestic, industrial and other sectors and the need if any, to make necessary changes in the working of the State Electricity Board.
“(ii) Measures to be taken for the development of power generation, transmission and distribution at a faster pace taking into consideration the increasing demand for electricity in the years to come.
“(iii) Measures to raise resources for the increased requirement of funds in the sector.”
The committee submitted its report on February 2, 1997. The report alongwith its major recommendations suggested that the proposal for total replacement of generating machinery in Pallivasal, Sengulam and Panniyar should be limited to essential replacement of parts and modernisation. The estimated cost for uprating and modernisation of the power stations, Pallivasal, Sengulam and Panniyar was calculated as Rs. 100.50 crores.
The recommendations with regard to PSP power stations are as follows:
Pallivasal power station: “The construction of these rehabilitation scheme as cleared by CEA is also recommended to be included as a most important short term measure to be completed in the next three years. Such a type of replacement is being done at Pykara, TNEB and has been earlier done at MGHE works Karnataka”.
Sengulam power station: “In view of these the proposal may be reviewed to limit the replacement of essential parts like injectors or changing alternators, winding and modernising with electronic governors/static excitation system and control system. Import of components from GEC Alsthom is now easier.”
Panniyar power station: “The complete replacement may be reexamined and replacement may be limited to essential components. Import of such items from the original suppliers M/s Hitachi, Japan are easier now. Modernising with electronic governors and static excitation system and control system is suggested”.
Based on the suggestions of Balanandan Committee Report, it was not possible for the government to unilaterally cancel the agreement with the SNC Lavalin for PSP projects at that time. The negotiations with SNC Lavalin company and other institutions had already been completed and decisions had been taken before the Balanandan Committee submitted its report on February 2, 1997. Moreover, the MoU and the agreements signed during the UDF period stipulated that any breach of contracts should be subjected for arbitration to the rules and procedures of International Chamber of Commerce, Paris. The cancellation of the contracts will cause delay in implementation of the works and SNC Lavalin may go to court and the liability to pay compensation may also arise.
Based on the discussions Pinarayi Vijayan had in Canada during October 1996 and the subsequent discussions, addendum agreements to the basic agreements of February 24, 1996 were signed between KSEB and SNC Lavalin on February 10, 1997. As per these addendum agreements, the price of the Canadian equipments was reduced from Rs. 157.40 crores to Rs. 131.27 crores and the consultancy charges was reduced from Rs. 24.04 crores to Rs. 17.88 crores. The addendums and revisions were signed not as independent contracts but as modification to the existing contracts dated February 24, 1996 signed during the UDF period. All other provisions in the contracts other than that were modified by the addendums stood as such in the agreements dated February 24, 1996 signed during the UDF period.
Malabar Cancer Centre
The Kerala Party state secretariat meeting held on May 30-31, 1997 permitted E. K. Nayanar and Pinarayi Vijayan to visit Canada. The delegation including Pinarayi Vijayan and headed by E. K. Nayanar visited Canada in June 1997 to hold discussions with SNC Lavalin representatives, EDC and CIDA for getting assistance for setting up a Cancer Hospital in Kerala. The Canadian authorities and SNC Lavalin representatives agreed to consider the request of the state favourably. No formal agreement was reached on the size of the assistance at that time but it was agreed to set-up a Specialty Cancer Hospital in Thalassery in Malabar area where no such facilities were available. The SNC Lavalin company agreed to assist Kerala by arranging funds by way of donations from various agencies in Canada including CIDA, EDC and Canadian Provincial government.
In October/November 1997, a team of SNC Lavalin company visited Kerala and prepared a detailed project report for setting up a Cancer Centre. On December 23, 1997, they submitted the proposal to Kerala government. In the project report, the assistance from Canada was stated as Rs. 98.3 crores and the state will have to arrange land and other infrastructure facilities on a cost of Rs. 5 crores. On January 20, 1998, the state Cabinet approved the project report for Malabar Cancer Centre.
On April 25, 1998, an MoU for setting up of Malabar Cancer Centre was signed between state government and SNC Lavalin. SNC Lavalin had agreed to assist Kerala by arranging finance for setting up a Specialty Cancer Centre as per the project report by way of assistance collected from various agencies in Canada including CIDA. The validity of the MoU signed was initially for a period of six months and to be renewed thereafter till a formal Memorandum of Agreement was executed in place of it. On October 3, 1998, the MoU was extended for another three months and the MoU was renewed subsequently on regular intervals till March 2002 and afterwards it lapsed.
As per the MoU, SNC Lavalin will carry out the final design, procurement, establishing construction contracts and supervise construction works. It was agreed that the SNC Lavalin will arrange the financing for the project through establishing a financial structure, negotiation with donors and financial institutions. It was further agreed that the MoU shall remain in force until a formal agreement is executed.
On the basis of the MoU, the SNC Lavalin company prepared a draft agreement replacing the MoU and sent to the government in the month of May 2000. The draft agreement was under the consideration of the government. The LDF lost in the general elections and UDF government was formed in May 2001. Shri A. K. Antony became the Chief Minister and Kadavoor Sivadasan became the Electricity Minister. The SNC Lavalin company extended the MoU for the Malabar Cancer Centre on September 14, 2001 and as it was not renewed as in the past, it lapsed on March 14, 2002. Even though the MoU was lapsed, SNC Lavalin company had expressed their willingness to sign an agreement with the government in their letter dated December 2, 2002 addressed to Shri A. K. Antony, then Chief Minister of Kerala. It states: “2. The original MOU which governed the relationship between SNC-Lavalin and the Malabar Cancer Centre Society was originally signed on April 25, 1998 and has long since expired. Over two years ago, we tabled a new draft Agreement, and we still wait for the response of the Society. The draft Agreement must be discussed and signed before further progress is made.” The MoU lapsed during the period of UDF government and they did not sign an agreement with SNC Lavalin company despite their willingness to sign an agreement. The UDF government alone was responsible for the resultant loss to the state and Pinarayi Vijayan or LDF government was not at all responsible for that.
Pinarayi Vijayan is not involved in any corruption either in the matter of renovation and modernisation of Pallivasal, Sengulam and Panniyar power projects or in the matter of Malabar Cancer Centre. Pinarayi Vijayan became Electricity Minister in May 1996 and demited his position as Electricity Minister in October 1998 and became state secretary of the Party in Kerala. The MoU and implementation/consultancy agreements for Pallivasal, Sengulam and Panniyar power projects were signed during the UDF period on August 10, 1995 and February 24, 1996. After Pinarayi Vijayan became Electricity Minister, with the permission of Party state secretariat meeting held on August 22-23, 1996, he visited Canada and held discussions with SNC Lavalin company and other concerned authorities. The discussions helped to reduce the consultancy charges and prices of equipments and the quantity of equipments purchased from Canada. Those changes were made in the MoU and agreements by signing the addendums on February 10, 1997. The results of the discussions in Canada were also reported by Pinarayi Vijayan to the Party state secretariat meetings held on November 10-12, 1996 and November 28-29, 1996. The matters related to Cancer Centre was also reported to the Party state secretariat. It was the Party state secretariat met on May 30-31, 1997 which gave permission to E. K. Nayanar and Pinarayi Vijayan to visit Canada. The MoU for financial assistance for setting up Cancer Centre was signed on April 25, 1998. It was again renewed on October 3, 1998.
The implementation of the renovation and modernisation of Pallivasal, Sengulam and Panniyar projects started in the year 1999 and the first phase was commissioned in 2001. The final phase of the work was completed by January 2003 and commissioned. The total amount which the SNC Lavalin was contracted in the agreements was only 149 crores at that time and the Indian components arranged and executed by KSEB was about Rs. 90 crores. The CAG report calculated that the total expenditure incurred for the projects became Rs. 374.50 by the time of completion. The additional expenditures include the variation in the value of Canadian dollars, future interest payments, the salary component paid to employees etc.
During the MoU was in force, the SNC Lavalin company undertook the first phase of works of the Malabar Cancer Centre by spending about Rs. 12 crores in the year 2000 and 2001 and the hospital became started working from 2001 onwards. The annual accounts of the Malabar Cancer Centre was also adopted by the governing body of the Malabar Cancer Centre in its meeting held on January 15, 2002 presided over by A. K. Antony as Chief Minister and Chairman of the governing body of the Malabar Cancer Centre. The Ministry of Home Affairs of the government of India also verified the accounts and records of the Malabar Cancer Centre for accepting foreign contribution and certified that the inspection has not revealed any misutilisation or misappropriation of the foreign contribution amounting to Rs. 13 crores in its order dated April 26, 2001.
It is a fact that there is no corruption involved in the matter of Malabar Cancer Centre. But when such agreements are signed for any work on power projects related agreements for financial assistance or grants for any other purpose such as the Cancer Centre should not be made in future as it may raise doubts on the genuineness of the original agreements. Here in this case, it was the UDF government which signed the MoU and the implementation/consultancy agreements for PSP projects and it was during the LDF period that the amounts in the original contracts got reduced through the intervention of the LDF government.
C.B.I. Case
On March 6, 2003, when the UDF government was in power, it referred the agreement with the SNC Lavalin for inquiry by the Vigilance Department on the basis of certain remarks in the CAG Report. The Vigilance Department after conducting detailed enquiries filed a report to the UDF government headed by the Congress leader Oommen Chandy on February 10, 2006. The enquiry report categorically stated that Pinarayi Vijayan cannot be held responsible for any lapses on this matter. When the UDF government found that the report of the Director of Vigilance did not suit its political purpose, it decided to remove the Vigilance Director from the post and referred the matter to the CBI on March 1, 2006 just on the eve of the assembly elections.
The CBI filed its report before the court and sought permission to prosecute Pinarayi Vijayan from the Governor and to prosecute the government officials from the government of Kerala. The offences alleged against Pinarayi Vijayan by the CBI in its report were criminal conspiracy and cheating. The CBI has no case that Pinarayi Vijayan had derived any pecuniary or personal benefits. According to the report of the CBI, the founder of the conspiracy was the UDF Minister, G. Karthikeyan and later Pinarayi Vijayan joined the conspiracy when he became Electricity Minister in May 1996. The report of the CBI states further that the aim of the second level of conspiracy was the setting up of Malabar Cancer Centre at Thalassery which falls within the native district of Pinarayi Vijayan. The CBI has not included Shri G. Karthikeyan in the list of accused even though he was named as the founder of the conspiracy in 1995. According to the CBI report, the benefits of the criminal conspiracy enjoyed by Pinarayi Vijayan was the setting up of the Malabar Cancer Centre at Thalassery. It is to be noted here that Thalassery was the constituency of E. K. Nayanar who was the Chief Minister at that time. The Central government has been misusing CBI as an instrument to foist false cases against political opponents and to exonerate political friends from criminal liabilities. The present case against Pinarayi Vijayan is another instance of misuse of the CBI to foist false cases against political opponents. The use of CBI by the ruling party as its instrument for political purposes is a matter of serious public concern.
The Governor of Kerala sought the advice of the Council of Ministers on the request of the CBI for sanction to prosecute Pinarayi Vijayan. The state Cabinet sought the legal opinion of the Advocate General on the matter. The AG sent his opinion to the state Cabinet stating that no offence was made out on the basis of the allegations contained in the report of the CBI. He also stated that the facts available in that case showed that Pinarayi Vijayan while discharging his duties as Minister for Electricity had only performed the duties entrusted with him for the benefit of the general public and the state. He recommended that no sanction for prosecution of Pinarayi Vijayan need be granted as requested by the CBI. The Cabinet in its meeting held on May 2009 accepted the opinion of the AG and informed the Governor that no sanction for prosecution should be given. The Cabinet also decided not to give sanction to prosecute the government officials. The Governor passed an order on June 7, 2009 which rejected the recommendation of the Cabinet and gave sanction for prosecution of Pinarayi Vijayan. The case is now pending before the CBI court.
The action of the Governor rejecting the advice of the Council of Ministers after seeking their views was biased and motivated. The Governor did not seek any advice from the Advocate General of the state or the Attorney General of the country on the matter. The order of the Governor states that the order was issued based on the private legal opinion of a former High Court Judge and whose name was also not disclosed in the order. The whole procedure adopted by the Governor was wrong and motivated.
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Annexure
The Central Committee and the Polit Bureau had taken the following positions in the matter:
1. Excerpts from the Press Communique issued after the Central Committee meeting held on March 11, 12, 2006.
“In this connection, the Central Committee condemned the decision of the UDF government to refer the case of renovation and modernisation of certain power projects to the CBI. This decision taken on the eve of the election is a patently political move to implicate the Secretary of the Kerala state committee and a member of the Polit Bureau of the Party in a case. The same UDF government had earlier entrusted the state vigilance department to investigate the matter. The report of the Vigilance Director was submitted to the UDF government and since it did not serve its interests, the Cabinet decided to refer the matter to the CBI.
The findings of the Comptroller and Auditor General’s Report should be taken up for discussion and scrutiny by the concerned committee of the legislature. The CPI(M) has always stated that it is prepared to face any investigation in the matter. The Central Committee pointed out that such maneouvres by the Congress and the UDF leadership will not succeed in diverting the attention of the people from the dismal record of misrule and corruption of the UDF government.”
2. Polit Bureau statement issued on January 22, 2009 after the CBI decision to prosecute Pinarayi Vijayan :
“The steps taken by the CBI to prosecute Pinarayi Vijayan, Secretary of the Kerala State Committee of the CPI(M) and former Minister for Electricity, in the SNC Lavlin case is politically motivated. It should be recollected that the then Oomen Chandy government had referred the case to the CBI in 2006 after the vigilance enquiry ordered by it had exonerated Comrade Vijayan of any wrongdoing.
The CPI(M) had condemned that move stating that it is being done on the eve of the assembly elections for partisan purposes. Now, with the advent of the Lok Sabha polls, once again the case is being proceeded with.
The use of investigating agencies by the ruling party for political purposes should be a matter of serious public concern.
The CPI(M) will take this issue to the people and expose the political gameplan behind this move.”
3. Excerpts from the Press Communique issued after the Polit Bureau meeting held on February 14, 2009:
“The Polit Bureau reiterated its position that the involvement of Com. Pinarayi Vijayan in the SNC Lavalin case is politically motivated. It is unfortunate that the central investigating agency, the CBI, is not immune from political pressure and influence of the ruling party at the Centre.
The decision to go ahead with the SNC Lavalin contract for renovation of three hydroelectric projects was taken up by the LDF government headed by E.K. Nayanar after it was initiated by the earlier Congress-led UDF government. The proposal was discussed by the state secretariat of the Party and Pinarayi Vijayan as the minister for electricity implemented the decision.
The CPI(M) has consistently held that any person holding public office should step down if they face prosecution by the CBI. This does not apply to Com. Vijayan as he is not a minister or holding any public office. The Party will fight the case politically and legally if it comes up in court.”
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