Dubious record

Vijayendra N. Kaul, Comptroller and Auditor General of India - KAMAL NARANG

The Sardar Sarovar project, plagued by problems from the start, continues to be mismanaged at the expense of the people.

THE history of the Sardar Sarovar dam on the river Narmada is the history of successive governments finding surreptitious ways to drown reasonable debate in the face of incontrovertible facts. Today, evidence in the audit reports of the Comptroller and Auditor General (CAG) points to the economic insolvency that plagues the project. These reports highlight irregular disbursal of funds, indiscriminate market borrowings leading to unsustainable interest burden, undue favours being extended to contractors and so on. They have met with little public debate, no response from government departments and ministries, and scarce attention from Members of Parliament or the Public Accounts Committee.

In June 1992, the independent review committee headed by Bradford Morse asked the World Bank to "step back" from the Sardar Sarovar Project (SSP), noting that "the underlying difficulties - the failures that reach back to the origin of the project - cannot be overcome by patchwork of studies". The October 1992 meeting of the Bank's executive directors witnessed several calls for the suspension of loans. However, the majority voted to continue financing the project, and authorised management to proceed with a six-month action plan to address the environmental and resettlement problems. Six months later, when the conditions of the action plan had not been met and it became clear that the Bank would have to withdraw from the project, the government of India announced that it wished to cancel the remaining balance on the loan.

On November 1, 1993, Sardar Sarovar Narmada Nigam Limited (SSNNL) resorted to market borrowing by floating 20-year Deep Discount Bonds, with a view to raising Rs.300 crores. The bonds were issued at a discounted price of Rs.3,600, promising the investor a yield of Rs.1,11,000 at the end of 20 years. While bondholders were given the right to pre-redeem their bonds at the end of 7th, 11th or 15th year, SSNNL does not have the right to call back the bonds unilaterally.

With a mere 6 per cent of bondholders coming forward to pre-redeem their bonds at the end of the 7th year (2000) and attempts to call back the bonds unilaterally at the end of 11th year (May 2004) meeting with failure, these bonds have turned out to be Deeply Distressing Bonds today. According to the CAG report on Gujarat (Commercial) for the year ending March 31, 2001, in the year 2014, when the bonds will mature, SSNNL will have to make provision for Rs.7,448.41 crores towards redemption payments.

The blame for the escalation in cost is often put on the Narmada Bachao Andolan (NBA) and the Supreme Court's decision to stop the dam construction. However, reading the CAG's report makes it clear that the costs went up because SSNNL resorted to market borrowing by issuing bonds that carried an interest rate even higher than that prevalent at the time of their issue.

The report sharply criticises SSNNL for resorting to "indiscriminate market borrowings". Pronouncing a sharp indictment of SSNNL for having spent on debt servicing and interest charges Rs.2,413.98 crores out of Rs.10,978.63 crores (22 per cent) spent on the project as on March 31, 2001, the audit report states:

"It was seen in audit that the components of cost towards interest charges and debt servicing were not identified while submitting the original investment proposal to the Planning Commission. Further, the revised cost estimates prepared in 1991-92 also did not indicate expenditure likely to be incurred on account of debt servicing and interest charges. SSNNL borrowed in an ad hoc manner and cash flow was not worked out accurately. The State government had directed it [in January 1996] to create a sinking fund out of its own resources with ad hoc contribution of around Rs.50 crores annually. It, however, neither created such a fund nor proposed any alternative arrangement for liquidating the debt liability arising out of issue of bonds. Thus without any systematic plan for redemption of the debts it went on borrowing for redemption of earlier debts, which resulted in abnormal increase in the expenditure on servicing of the debt."

The audit worked out SSNNL's debt payment obligations and concluded that its average annual debt liability of SSNNL was Rs.945 crores.

The CAG report for the Union of India for the year ending March 31, 2003 carried out a performance appraisal of the Accelerated Irrigation Benefit Programme (AIBP). During audit scrutiny it was found that the SSP was included under the AIBP in violation of its own guidelines. The report did not mince words in criticising the irregular disbursal of AIBP funds. It stated:

"The Planning Commission accorded investment approval to the project in October 1988 for Rs.6, 406.04 crores at 1986-87 price levels. Due to disputes between the Government of Gujarat and Madhya Pradesh over certain issues, the cost estimates revised subsequently during 1991-92, 1996-97 and 1998-99 could not be approved by the Planning Commission. However, pending such approval, Central Loan Assistance (CLA) of Rs.2, 896.25 crores was irregularly released during the period 1996-2003."

Despite such irregular disbursal of AIBP funds which are reserved for truly last-mile projects that can yield Ultimate Irrigation Potential (UIP) within a year, the performance on irrigation utilisation remained pathetically poor. The CAG report stated, "Against the target UIP of 1,792 thousand hectares, Irrigation Potential (IP) of 141.09 thousand hectares (7 per cent) was created till March 2003 of which IP of 26.83 thousand hectares (19 per cent) could be utilised."

The latest figure available (May 2005) on the irrigation potential is 500 thousand hectares at the dam height of 110 metres, of which an irrigation potential of only 57 thousand hectares (11 per cent) is utilised. This suggests that the figure of irrigation coverage has actually gone down.

When such irregular disbursal of AIBP funds could not prevent the erosion of the State's resources and work on canals and drinking water pipelines lagged behind even as the dam wall kept rising, the project authorities were quick to find an escape route in the ADB's post-earthquake reconstruction assistance.

The CAG report for Gujarat (Civil) for the year ending March 31, 2005 implicated the ADB in the SSP, despite flagrant violations of its own guidelines. The audit revealed that this resulted in a cost escalation of Rs.125 crores in addition to time overrun. These comments raise pertinent questions on the claim made by international financial institutions that given the continued non-compliance on rehabilitation of the families displaced by the dam and environmental mitigation, they will not be involved in funding the SSP. It is also a matter of grave concern that although ADB funds are used to build the infrastructure that provides drinking water - claimed as an SSP benefit by the SSNNL and the Gujarat government - the bank is not taking responsibility for the project's social and ecological impact, and remains a mute spectator of non-compliance.

In April 1987, SSNNL awarded the construction work of the concrete dam to Jaiprakash Associates for Rs.320 crores. The terms and conditions for the award were stipulated in the main agreement SSNNL entered into with the contractor.

However, within two months of the Supreme Court judgment of October 2000, which gave the go-ahead for the project, SSNNL entered into a supplementary agreement with the contractor that not only did away with the date of completion of the dam work (January 2006), but also provided for a `payment of idle charges' clause. This clause meant that if the concreting work done on the dam in a working season (July to June) was less than the target of three lakh cubic metres for reasons not attributable to the contractor, idle charges at the rate of Rs.823.90 per cubic metre were payable by SSNNL to the contractor for the shortfall in concreting work.

This supplementary agreement never became a matter of public debate, even though it had the potential to make the stipulated amount of construction work on the dam a fait accompli and throw the linkage with the rehabilitation work of the dam-displaced - as included in the pari passu clause - out of gear. Now, thanks to the latest CAG report for Gujarat (Commercial), we are told how the dam building corporation, contractors and governments were burning the midnight oil to ensure that at least three lakh cubic metres of concrete was poured over the dam wall every year. They were quick to invent a clause that ensured this by entering into a supplementary agreement within two months, while they never bothered to draw the rehabilitation master plan as directed by the majority judgment of October 2000.

So, even after all these imprudent ways of pushing ahead the project, can it be said to have yielded proportionate benefits?

The CAG report (2004) that covered three districts under the Saurashtra pipeline states: "The gross average daily intake during the two years of its operation [December 2000 to November 2002] was 119.80 million litres a day against the envisaged capacity of 287 million litres a day [42 per cent] only. Of the envisaged coverage of 1,860 villages/ towns, benefit reached only 543 [29 per cent] villages."

Further, putting a scanner over the utter failure of Gujarat to provide clean water to the people, the CAG report goes on to state that "of the 1.51 million beneficiaries, 1.42 million [94 per cent] in 503 villages/towns were supplied with raw water as there was no filtration arrangements at the headworks, exposing them to the risk of contracting water-borne diseases."

The CAG report (2006) covering Kutch, Jamnagar and Rajkot districts states: "As a result of the delay in the execution of the distribution works, the gross daily intake from May 2003 to June 2005 was 145.17 million litres a day [29 per cent] against the envisaged capacity utilisation of 500 million litres a day and only 415 out of 1,342 targeted villages/towns were covered." Putting the blame on the failure of the Gujarat Water Supply and Sewerage Board as well as the consultant in the monitoring and execution of works, the CAG held them responsible for "ineffective internal control resulting in cost and time overruns and deprivation of benefits to the targeted population".

The only purpose these reports seem to have served is to awaken us to the slumber quotient of the governments, and still we witness a former CAG accepting the brief from the Prime Minister to head a rehabilitation oversight committee, in the face of complete impunity and inaction on the CAG's criticism of the project.

Himanshu Upadhyaya is an independent researcher on public finance issues.