January 18, 2020
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A Fast-Track Exit

Red tape, legal tangles force Cogentrix to junk Mangalore project

A Fast-Track Exit

IT’S the perfect victim of India’s half-hearted and ill-planned tryst with liberalisation. One of the first eight "fast-track" power projects, a drive initiated by former finance minister Manmohan Singh to attract foreign direct investment into infrastructure, finally bade goodbye to India last week, after a seven-year wait for clearances and end to legal tangles.

The $1.3-billion 1,000 MW power project , to be executed by the Mangalore Power Company and parented by Cogentrix Energy Inc of the US with partner China Light and Power Inc of Hong Kong, has been swamped in several public interest litigations (PILs) alleging payoffs and violation of environmental norms since it signed the MoU in ’92. Announcing the pullout, Ron Somers, Cogentrix managing-director, said in Bangalore on December 9 that the company has "ceased development of the power project and is at present in the process of shutting down its offices in  Bangalore, Mangalore, New Delhi and at the site in Pudubidri".

The move will not only have a harsh impact on new foreign   investment in core sector projects, which India so badly needs, but is also the second high-visibility global consortium project to be nixed in Karnataka. The first was the Tata - Singa pore international airport project near Bangalore .

The decision has considerably dampened the ebullience of state chief minister S.M. Krishna, busy arranging a global investors’ summit in April to attract global majors in software, hard w a re and automobiles. For, Somers hasn’t minced words in blaming government agencies for the pullout. Efforts to construct the project, he said, "have been thwarted by delays in obtaining the required government approvals and resolving the PILs". This, after spending about $25 million to initiate rehabilitation measures as well as a detailed exercise to win over the local populace in the coastal districts of Udupi and Dakshina Kannda.

Somers and colleagues had to negotiate with at least four chief ministers on various issues. The power purchase agreement (PPA) was renegotiated three times and the cost of one unit of power brought down to Rs 2.40 as against Rs 3.70 being charged by Enron in Maharashtra. Such protracted negotiations (brought about by frequent changes in government) were buffeted by litigation launched by environmentalists, including Maneka Gandhi— eight of them, all of

which were won by Cogentrix with a few crores of rupees spent in court fees.

But the last nail came in the form of a PIL alleging payoffs of HK$122 million, which has delayed the project by two years. Even though the hearings ended in January, the apex court has yet to give its verdict. Sufficient reason for the Centre to hold back its counter-guarantee to the project.

Expectedly, both the central and state governments are playing down the enormity of the decision, saying it will have little impact on new investors. The Union power minister and power secretary have denied comment on the issue saying "the matter is sub-judice". And state industry minister R.V. Deshpande says: "This is an example of impatience. What can the government do when the matter is before the Supreme Court? It will not turn away investors because other companies have completed their projects here . "

A more candid reaction comes from T.R. Satishchandran, former Union energy secretary and former principal secretary to the prime minister. "The fact that in several other large projects, negotiations have gone on for years shows that a great deal needs to be done in policy and procedure to attract investments. As for the power situation in Karnataka, the future is bleak. A continuous flow of investment is needed to meet the demand here."

Officials of the Karnataka Power Transmission Corporation agree. In ’98-99, the demand-supply gap was 4,110 million units. The figure for 1999-2000 is still the same but might go up in summer as neighbouring states decline supplies. Yet, the lessons may still go unlearnt. The state has yet to clear the PPA with the Nagarjuna Group for another  1,000-MW plant near Mangalore. The 1,000-MW Chamundi Power plant, a hydel unit proposed at the Almatti Dam, is also hanging fire because of the Krishna water-sharing dispute.

Confident of going ahead after it won all the environment cases two years ago, Cogentrix had actually awarded the contract for the equipment. After the Pokhran blasts, the government indicated that it would get its counter-guarantee soon. A government that included the same George Fernandes who brought the payoff case. Perhaps Cogentrix does have a point there.

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