www.civilsocietyonline.com

April 2009 Edition

 

Himanshu Thakkar

THE Sardar Sarovar Project (SSP) is in the news again for the wrong reasons, as usual. This time the Sardar Sarovar Narmada Nigam Limited (SSNNL) is trying to go back on its promises to the very investors who put their money in the project when it was facing its strongest opposition from all quarters.

The story starts in 1993 when the World Bank decided to withdraw itself from the project following loss of its credibility. Then, the Gujarat government's SSNNL floated the deep discount bonds (DDBs). It promised a return of Rs 1.11 lakh after 20 years on an investment of Rs 3600. The Nigam issued over 7.14 lakh bonds in January 1994, collecting about Rs 260 crores. Around 6.69 lakh bonds remained outstanding when the current process of redemption started in November 2008. As per the DDB prospectus, the Nigam had no option to call the bonds for payment before maturity, though the bond holders had that option at various stages.

Gujarat Finance Minister Vajubhai Vala, while presenting the interim budget in the State Assembly on February 18 this year, admitted that the deficit in 2008-09 was much higher due to the prepayment of DDBs of the SSNNL for which the government had earmarked Rs 2,720 crore. Out of this, Vala said, about Rs 1,800 crore had already been disbursed against premature redemption of the bonds. It is not clear why the government earmarked Rs 2720 crores for the DDBs when the requirement was for over Rs 3300 crores.

The SSP has been a huge drain on the resources of the Gujarat government. As the Comptroller and Auditor General of India (CAG) has noted, the project was cleared without any financial plan. The state government borrowed indiscriminately to push ahead with the project at any cost, but most of the borrowings in the latter years went for servicing the earlier debts. Even as the project got by far the largest funding for any project from the Accelerated Irrigation Benefits Programme in complete violation of the norms of the scheme, the project's financial requirements have become an unbearable burden even for a so called prosperous state.

Now, considering that the SSNNL would have to pay over Rs 7400 crores to the DDB investors at maturity in January 2014, the Gujarat government passed legislation in 2008. The Act was to help the state escape the guarantee given earlier to the bond holders and to allow mandatory redemption of all bonds as of January10, 2009, by paying Rs 50,000 – the amount payable for each bond at the end of 15 years in case an investor so wishes, as per the original promise. If SSNNL succeeds in this attempt it will have to pay about Rs 3345 crores at this stage.

The SSNNL (Conferment of Power to Redeem Bonds) Act, 2008 passed by the Gujarat Assembly was clearly contrary to the terms and conditions of the bonds prospectus dated March 29, 1993. This Act has now been challenged by the investors in the Gujarat and Maharashtra High Courts. The lawyers also argue that the bonds were issued under securities laws and the Companies Act, 1956, passed by Parliament and the actions under the Union Act cannot be reversed through a State Act. The Gujarat High Court has mentioned that in case the Act is stuck down, the company would have to allow the investors to remain invested in the bonds. The Securities and Exchange Board of India (SEBI) itself has challenged the Act in the Supreme Court. SEBI had also asked SSNNL to inform the bond holders individually and SEBI, the basis on which the Nigam arrived at the redemption value. It seems SSNNL has not done this.

The Narmada Bachao Andolan (NBA) had warned in 1993, at the time of issue of the bonds, that the project is an unviable proposition, that the offer of such huge returns would put unjustifiable burden over the people of the state and that it would be an irresponsible way of allocating scarce public resources. That argument of the NBA, unfortunately, fell on deaf years.

Even CAG has repeatedly, including for the report for 2000-01, said that the state government has been borrowing in an irresponsible manner. The Gujarat government also realized this and in 2004 made an unsuccessful attempt at premature redemption of the bonds. SEBI had then asked SSNNL to first get prior, informed consent of the bond holders for premature redemption, through a meeting with them. Realizing that the bond holders are not likely to give their consent, the state government withdrew the proposal.

It is indeed ironic that the government was asked to take the prior informed consent of the bond holders who had voluntarily invested their surplus financial resources in the company. However, the government had to take no such prior informed consent of the landholders, whose only livelihood resource, the land, was being taken away by the government forcibly! It is clear for whom our system works.

SEBI has argued in its petition before the Supreme Court that if this Act of the Gujarat government is allowed, it "may lead to complete collapse of the market for securities issued by the government companies". The SEBI petition says that if, "a public limited company is permitted to avoid discharging their obligations to the public at large as also the institutional investors who are investing funds for the welfare of their members, it affects the entire securities market in as much as the investors would not come forward for investing funds in securities issued by the government companies". It is clear that the consequences of the state government's act are far reaching and dire.

Here it is relevant to note that even after spending over Rs 28011.53 crores by March 2009, the Gujarat government has achieved command area development and hence proper irrigation facilities in just 3.31 lakh ha, which is 18.45 per cent of the project's final benefits. If we look at the progress rate for the last three years, we see that the project would take at least 17 more years to achieve full command area development. The project is as yet able to use hardly 10 per cent of the water available in a year at the dam site. It is clear that instead of clamoring for further work on the dam, the state government needs to focus on achieving the utilisation of the water available now at the dam site. That may make the project slightly less distressing..

Clearly, the DDBs have turned out to be Distressingly Disastrous Bonds for the Gujarat government. This is another incident that shows that SSP is also a financially non viable project.

Himanshu Thakkar (ht.sandrp@gmail.com)
South Asia Network on Dams, Rivers & People (www.sandrp.in)

_________________________________________________________________________________________________________

 

Disclaimer

The views expressed here are strictly personal and civilsocietyonline.com does not necessarily subscribe to them. We shall endeavour to upload/publish as many of the comments that are submitted as possible within a reasonable span of time, but we do not guarantee that all comments that are submitted will be uploaded/published. Messages that harass, abuse or threaten other members; have obscene, unlawful, defamatory, libellous, hateful, or otherwise objectionable content; or have spam, commercial or advertising content or links are liable to be removed by the editors. We also reserve the right to edit the comments that do get published. Please do not post any private information unless you want it to be available publicly.

 

About Us | Site Map | Privacy Policy | Contact Us | ©2007 Civil Society

.
........................................Webmaster Vishwanathan ( vishu4@rediffmail.com )