Wednesday, June 10, 2009

SNC Lavalin: Answers to Questions

A detailed article by T. M. Thomas Isaac, Finance Minister of Kerala, titled "ലാവലിന്‍ ഗൂഢാലോചന: പ്രതി ആര്‌ ?" (Lavalin Conspiracy: Who is the Guilty Person?) reveals that the new agreement negotiated by Pinarayi Vijayan in 1997 had managed to reduce many of the charges to be paid by the government to SNC Lavalin!

Read it at:

Also, after I had posted the article by M. A. Baby on the SNC Lavalin case in an email group, a senior activist of the Peoples' Science Movement in Kerala raised a few queries. I replied to them. His questions and my answers are below:

Q1. Whether there was a real need for drastic modernization of the PSP, rather than replacement of some parts. If the modernization was unnecessary, then KSEB officials and UDF have to answer.

A1. Right. That is what is argued by Baby: "The UDF government decided in 1995 to replace the existing machinery and to upgrade and modernise these power projects. For this purpose they chose the Memorandum of Understanding (MoU) route instead of calling global tenders. Accordingly, a MoU was signed with SNC Lavalin, a Canadian engineering and consultancy firm, on August 10, 1995 by C V Padmarajan..."

This was also part of one of the 8 questions that Thomas Isaac had posed to G. Karthikeyan Minister for Electricity under the UDF government) in the Assembly in July 2005. Some of the questions were: "Did the Central Electricity Authority (CEA) take the position that Chenkulam, Panniar and Pallivasal power houses need not be renovated? Why did the Antony Government decide to go in for the renovation? Why did the UDF Government sign an Memorandum of Understanding and agreement with SNC Lavalin instead of entering into an agreement with BHEL for the Kuttiadi extension scheme? Why was no global tender floated for renovation of Chenkulam, Panniar and Pallivasal schemes?" It was in reply to these questions in the Assembly that poor Karthikeyan really bungled, and let the cat out (see I think he had a gag order after that!

Q2. Whether it was wise to go for the MOU route rather than the Global Tender route.

A2. As Isaac had stated in his speech in the Assembly on July 12, 2005, global tenders were not possible in this deal since the loan for executing the project was to come from Canadian agencies whose aid was linked to purchasing materials from Canada.

Baby's elaboration thus: "It is a well-known fact that the MoU route with bilateral financial assistance precludes procurement through global tender. Actually the contract entered between KSEB and SNC-Lavalin on February 24, 1996 during the UDF regime was a contract which also included supply of Canadian goods and services in addition to providing Technical Services. There was no further addition to the scope of work during the LDF government's period...Thus the agreement of February 24, 1996 entered during the UDF regime was a fixed price contract and the subsequent LDF government was faced with a fait accompli from which there was no question of backtracking. All that could have been done was to reduce the cost of goods and services, which the LDF government succeeded in doing."

Q3. Whether it is true that by the time the LDF came into power, the deal was too far gone to be retracted, without undue penalty in the form of delays or litigation. This appears to be the crux of the problem, as far as Pinarayi is concerned. If not, the LDF MInistry will have to justify the deal on its own merits.

A3. As the article says: "Not a single project, which was started during LDF period was taken up under the MoU route or contracted to MNCs...In contrast, under earlier UDF regime, not a single project was contracted through open tender, including the now controversial PSP projects...After the formation of the government, the LDF ministry faced this question: What was to be done with regard to the projects initiated through MoU route by the erstwhile UDF government?...In the case of the controversial PSP projects, not only was a MoU signed but also an agreement had already been signed with SNC Lavalin during the UDF regime. As per the terms of the agreement, only International Chamber of Commerce in Paris could arbitrate disputes. Given the advanced stage of negotiations and terms of the signed agreement, the LDF government decided to go ahead with the package that was drawn up by the UDF government."

Q4. Whether there was any lapse on the part of the GOK, especially the succeeding govenments, in following up the MOU on Cancer Hospital. With all kinds of FERA clauses being applicable, it doesn't seem very probable that money could have come to India in an unaccounted manner. So, it is more likely a case of incompetence or lack of concern, for what ever reason.

A4. As the article says: "The government entered into an MoU with SNC Lavalin by which the latter was to be a consultant to the [hospital] project and also arrange the necessary grants from Canadian agencies. The MoU was to be converted into an agreement on the basis of further consultations...This was the stage when UDF came to power. The UDF was not enthusiastic about implementing the hospital project for political reasons and neglected the follow up to the MoU to its logical conclusion. Not only was the MoU not converted into an agreement but the MoU itself was not renewed and was allowed to lapse."

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