SNC Lavalin ScandalSNC Lavalin Scandal

The broad pictureThe broad pictureEdition:1Edition:1

Who is SNC Lavalin ?

One of the worlds largest Engineering Firm

Based in Canada Formerly known as

SNC Inc

Kerala Connection SNC's first

International Project was in Kerala

Idukki Power Station Canada govt

provided loan for the project

Long time friend of many ;)

SNC's first International Project was in Kerala

Idukki Power Station Canada govt

provided loan for the project

Long time friend of many ;)

Little bit about 3 power plants

Power StationYear of Establishment Power(MW)

Pallivasal 1941 37.5Sengulam 1955 48Panniar 1964 30

1990 (LDF?)

CEA recommended (1992) that immediate replacement of the generating units of Pallivasal Power Station was not necessary, since the plant was in fairly good condition and suggested a new scheme of 60 MW as an augmentation of the existing scheme. Panniar Augmentation scheme to improve the water inflow and increase the power generation by 29.43 MU, was also underway (1995). Similarly, Sengulam Augmentation Scheme for additional power generation of 85 MU was also under consideration of the Board. All the above augmentation schemes necessitated uprating of capacity of generators rather than renovation. - CAG Report

KSEB

We want to Replace generating units of

Pallivasal Power Station

No, They are in good condition

(replied with suggestions 1992)

Central Electricity Authority(CEA)

Some one still wants to Replace the machineries

SNC Lavalin and UDF - 1995

Dear Friends, Replace machineries your power

plants; Get us some business

But Mr Lavalin, We dont have money

SNC Lavalin and UDF - 1995

Dont worry, We get you money from Canada. We rule the country

Then we can think of it. One more issue to over come. CEA told us not to replace machines.

Liberal Party of Canada was ruling Canada that time. SNC Lavalin is one of the major corporate doner for the party. Government during that time in Canada became famousfor several corruption cases – Ref: Various reports in Canadian media.

SNC Lavalin and UDF - 1995

Mr X will help you. He was your chief engineer earlier. He will become

our consultant later

Ok, deal is done...

UDF Sign first agreement August 10, 1995 - The MoU between the KSEB and SNC Lavalin was

signed, when Mr. C. V. Padmarajan, was the Power Minister.

“ a Memorandum of Understanding (MOU) with SNC Lavalin Inc, Canada (SNC) for establishing a joint venture association for carrying out rehabilitation of existing facilities, identifying the three Hydro Electric Projects at Pallivasal, Sengulam and Panniar for the first batch of renovation. As per the MOU, finance for the renovation was to be arranged by SNC from Export Development Corporation (EDC), Canada and Canadian International Development Agency (CIDA). “

(Ref: CAG Report)

UDF Sign first agreement September 1995 - The Board undertook a feasibility study on the

proposal only in September 1995, by a retired Chief Engineer of the KSEB, who later became a consultant to Lavalin. (Ref: CAG Report)

Terms of UDF agreement February 24, 1996 - The follow-up agreement was signed, when Mr. G.

Karthikeyan was in charge of the Power Department.

“Based on the consultant’s report and further discussions, contracts were signed (February 1996) with SNC for providing technical services for management, engineering, procurement and construction supervision to ensure completion of the projects within three years.”

(Ref: CAG Report)

Terms of UDF agreement

The contract signed (February 1996) by the Board with SNC for technical services for renovation of Pallivasal, Sengulam and Panniar Power Stations provided for payment of a total service charge amounting to (Rs 24 crore). The services to be provided were:

Preliminary and Detailed engineering Preparation of drawings, specifications, bills of quantities and tender documents. Calling for and evaluation of tenders and award of contracts. Producing civil drawings Review and approval of contractor’s design, drawings and other submissions Construction supervision and inspection Commissioning Technology transfer and technical training

Consultancy agreement signed G Karthikeyan enters into agreement on Feb 24 1996 SNC Lavelin shall provide technical services for management,

Engineering, procurement, construction, supervision and other services so as to ensure the timely completion of the Projects within the agreed time frame of three years. The amount of consultancy service charges provided in the agreement are:

1. Pallivasal 3.2 Million Canadian Dollar (Rs.7.96 crores) 2. Sengulam 2.669 Million Canadian Dollar (Rs.6.64 crores) 3. Panniyar 4.26 Million Canadian Dollars (Rs.10.6 crores)

(Data from HC Judgement;one Canadian Dollar equal to Rs.24.88)

Based on the consultant's report and further discussions, the Board signed contracts with Lavalin to provide technical services for management, engineering, procurement and construction supervision in February 1996, to ensure completion of the projects within three years. Agreement does not include the purchase of machineries and the total amount to be paid to SNC Lavalin was just 24 Crores.

Question to UDF

Why the input given by CEA ignored ?

Were they aware of the fact that Rtd Chief Engineer selected is not credible ?

How was SNC Lavalin selected asconsultant ???

Elections, New Government

In May 1996 LDF Government comes to power

New hopes, Energy situation getting worse (low rainfall)

Balandan committee constitute

Sept 1996, Balandan committee constituted by Government order(19.09.1996 as per G.O (MS) 23/96/PD)

26 members including expert and representatives from trade unions

2 Months time given

How to save Kerala from Blackout ?

Flying Canada – Oct, 1996

SNC team taking Pinaray and team to Canada

Dont worry Mr Minister, SNC is our friend, you give

purchase order to SNC, We give you money

Oct 12-23 1996 in Canada – hmm, pretty long trip ;)

Our common friend SNC is giving us consultancy to rehabilitate 3 of our power stations, but we dont have money for purchase machineries, can you help ?

Come on....These are things which you can sort out;

we will work it out separately

Canada Meetings

But how can SNC be given purchase order ? They are not manufacturer, just consultants. More over the prices listed are exorbitant

EDC allows for limited tender from companies in Canada; MoU1/Contract(UDF) allows for the same

Commission !!!

“The final contract for supply of equipment and engineering services was finalised by a Ministerial delegation directly with the consultant who was acting as an intermediary and was not the manufacturer. The supply of goods and services were actually made by other firms at much higher cost leading to extra avoidable payments.” (CAG Report)

May be we can promise a hospital in Kannur.May be a cancer

center

K Mohanachandaran,Principal Secretary, Power Good. Why not, let our friend,

SNC, prepare a plan for that.

Cheers ... Back to Kerala

But what justification will I give to my people back at home for fixed price contract?

Interesting suggestion ! How can secretary for power

decide needs of health sector ?Was there any meeting held on this before or during the Canada visit?

Planning for Hospital by an Engineering Consultancy firm ?

Men in Black

Some things happened we don't know yet; lot of questions to be answered From where did this idea of Cancer treatment centre come ? It is

important because this was the main excuse used for converting the contract to fixed price purchase. That too to a consultant .

Proposal for Cancer Centre was introduced only to justify the the agenda of giving fixed price contract to SNC Lavalin at an exorbitant rate.

Old man creating trouble

Feb 2nd 1997 Balanandan committee submits report to Govt

Pallivasal Hydro Power project :

“the proposals for the rehabilitation of schemes as approved by CWC&CEA for the construction of 40 MW new power station with new water conductor system at a suitable near by location which would obviate pumping for letting the tail race water to Sengulam Balancing Reservoir should be taken up without losing time”

“this would enhance generating capacity of the scheme and provide a total peaking capacity of 77.5 MW”

Committee recomended this as most important short term project to be taken up as CEA has cleared proposal already and it should be completed in 3 years

(No progress made on this later)

Sengulam Hydro Power station:

Proposal of the board to replace all equipment (SNC Lavalin proposal)

“may be reviewed to limit the replacement to essential parts like injectors, or changing alternators, winding and modernizing with Electronic Governors/State Excitation system and control system”

“ import of components from GEC Alsthom is now easier”

Panniar Hydro Power Station:

“replacement may be limited to essential components”

“import of such items from the original suppliers M/S Hitachi Japan are easier now”

Feb 10th 1997 MoU signed between KSEB and SNC Lavalin for Fixed Price purchase

KSEB SNC Lavalin

No

No

Yes

???? ? ?

1st Set of questions to Mr Pinarayi Why did you ignore the report of Balanandan committee and

CEA ? Why was hurry in signing MoU-2 with SNC Lavalin ? UDF contract was for ~ Rs 22 Crore, consultancy charges Balanandan commission suggestions would have cost the

state only Rs 100.5 crore (Ref: Express report 24 Jan 09) Proceeding as per Balanandan Committee would have

improved our power generation. Why did you ignore that despite acute power crisis?

Why did you give the supply contract to a consultant middleman?

New contract comes to around ~ Rs 300 crores

Features of SNC Lavalin MoU 2(LDF)

“KSEB wishes SNC-Lavalin to provide in addition to the agreed upon consultancy services, scope for supply of Canadian sourced Electro Mechanical equipment for the project”

“SNC-Lavalin has agreed the supply of such goods on a fixed price basis as contained in this Addendum No. 1”

Ref: Addendum to first agreement/MoU

Who decides the price of the item ? Blind trust for SNC Lavalin ?

E K Nayanar to Canada

June 1997, Pinarayi takes EK Nayanar to Canada for further 'discussion'. What was there to be discusssed?

Trapping Com E K Nayanar – so that he can escape...

Efforts to stamp the proposal

CEA and Balanandan committee has created trouble, some how we need to get a stamping for the proposal of SNC. Let us form a committee to evaluate..

Subcommitee of KSEB evaluates rehabilitation and maintenance proposals for Pallivasal, Sengulam, Panniar, Neriamangalam and Sabrigiri

“the price offered for these Projects on a per megawatt basis was higher that of Sabarigiri and Neriyamangalam. The Committee also opined that Consultancy and supervision charges are very high for those projects” (Ref: Report of the committee)

More troubleWe need to get stamping for

rates quoted by SNC. We have signed the agreement 8

months back.Let us go to NHPC

Letter sent to NHPC on 10 Oct 1997.Agreement signed on 10th Feb 1997

“It was also seen that NHPC had not certified the reasonableness of the prices but had only stated that keeping in view of the soft loan with grant element, the purchase for Canadian equipment and accessories could be considered favorably. As the grant was not received there was hardly any justification as per NHPC’s report.” (Ref: CAG Report)

We haven't got the technical specification which are required to certify price given. However ...

Nov 19, 1997

MCC Project plan

SNC Lavalin prepares project plan for Malabar Cancer Center (MCC) and sends to KSEB Chairman on Dec 1997.

KSEB/Govt started working on agreements.

“Get his head checked”

Grant of ~ Rs 100 crore is part of the deal and since grant is not transferred to KSEB, GoK has to take steps to ensure that grant obtained.

--Jan 22, 1998

Secretary, KSEB

Onu Vatta

KSEB Secretary writing to Power Secretary, Government of Kerala

“the unique feature of this proposal (R&M of PSPHE projects) is the grant offered for setting up a Cancer centre at Thalassery in Kannur district”

“that since the grant component is not coming directly to the Kerala State Electricity Board, the state government has to ensure that the promised grant for the Cancer center materializes”

“M/S EDC has imposed a number of normal conditions for availing the export credit including Govt/Bank Guarantee for repayment of the loan and interest thereon, it is necessary that the government also binds SNC-Lavalin in some such agreements so as to ensure that the release of the grant for the Cancer center is done pari-passu with the rehabilitation projects”

-- Letter from Secretary, KSEB

Cabinet meeting – March 3, 98 Canada trip was good CIDA, EDC etc, are

generous people they agreed to give ~ Rs 100 crore to set up a Cancer center. We need to spend only Rs 5 Crore.

If we get Rs 100 Crore as grant for MCC, then our project cost for rehabilitation of 3 plant are only Rs 200 crore. It is good, let us approve it.

2nd Set of Questions to Mr Pinarayi Was there any commitment from Quebec government, CIDA or

EDC for the grant (Malabar Cancer Center) ? Did CIDA give a firm commitment on the amount? If yes, for what

amount? Where is that agreement? If No, Why did you say CIDA has promised $ 25 million in the

Cabinet note? Why did you say NHPC has cleared the price? Why did you mislead the entire cabinet?

Are you aware that CIDA has written to our government saying they never committed for such a huge amount?

Letter from Canadian high commission says that CIDA gave some funds to SNC for the cancer treatment center ? Where is the agreement for the same ?

Agreement signed

Apr 25, 1998 - MoU for MCC signed with SNC Lavalin

Jul 6, 1998 - Loan agreement signed with EDC KSEB secretary's caution ignored. No binding

contract for the Cancer Center grant. Instead the MOU renewed for another 6 months. WHY?

What Happened Later ?

SNC Lavalin takes money from KSEB for its work – Around Rs 300 crore

State Cheated - not able to get grant assured for MCC

Following the Malabar Cancer Center

As you would have understood by now, grant for Malabar Cancer Centre was an important component of MoU signed during Mr Pinaray's period. With out the proposed grant, contract with SNC Lavalin will be a huge lose for people of Kerala.

Let us try to construct history with available information

While there was an MoU(non binding) with SNC Lavalin to find funds for Malabar Cancer Centre, GoK was not able to enter into an agreement in this regard.

Several ministers tried for that. From the communications they had we can rebuild the history – Starting from year 2000.

The Financial Express - 24/7/2006

In the story titled “Lavalin scam comes back to haunt Kerala”, it is said that:

In a letter written by Canadian High Commissioner Peter Walker to the foreign office on his meeting with the then chief minister EK Nayanar in February 2000, he said: “The CM announced that the CIDA was contributing $40 million to the project. The CIDA again reminded SNC-Lavalin and the Kerala government that funds of this magnitude would not be considered.”

The letter also said the CIDA had questioned the public assurance made by Nayanar that the CIDA would contribute $40 million as early as 1998. “The CIDA’s contribution to construction of hospital buildings and provisions of medical equipment would be conditional upon free access to services by the poor and the CIDA should receive a commitment to be obtained by SNC-Lavalin from the Kerala government that the government would cover operational deficit of hospital and assure that the long-term financial requirements of the hospital would be met.

If the information in the previously mentioned article is true, LDF government was aware way back in 1998 that they dont have any assurance over CIDA grant.

Pinarayi was present in person when the issue was discussed with CIDA in Canada

Why did Mr Pinarayi betray his own cabinet ?

Mr Sharma's turn

Former minister, Sharma wrote: “According to the Para 2(1) of the Draft Agreement, as per the Project report it is the seen that SLI has only agreed to make all efforts for obtaining the full assistance for the project. This is a deviation from the clause in the Para 3(a) of the MOU that the full amount will be provided for the project. In this context, steps should be taken to enter into an Agreement in the time frame of the MOU by making necessary amendments, according to the clause 3(a) MOU to ensure that SLI provides the full amount”(SLI = SNC Lavalin)

Arrival of Technicaliya

A Chennai based consultancy company comes up from air and says participate in meetings of MCC

They construct MCC building (who entrusted them ?) Somebody gave them money to construct building which they

say is around Rs 8 crore investment ?Who paid them? If it is SNC/ CIDA, How did they get the grant which was

supposed to reach GoK/MCCS/KSEB ? Did they receive more ? Who were the beneficiaries in this deal ?

A society named MCCS(MCC Society) was formed and a bank account opened. Why did no money reach that account?

Based on the available evidence, isn't it clear that SNC Lavalin, Mr Pinaray and some officials from KSEB robbed us.

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