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LGD 2000 (1) - Fernandes & Saldanha (cont)

Deep Politics, Liberalisation and Corruption:
The Mangalore Power Company Controversy (Continued)

15. A Controversial 'Deep Political' Judgement?

Justices Rajendra Babu and Sreenivasa Rao delivered the judgement on 27 August 1997. In their 165 page verdict, they stated that:

'there was due application of mind by (the respondents) the KSPCB and the MOEF in this regard … there was due justification for the location of the project at Nandikur' (Samithi case, 150).

The judgement was made despite an acknowledgement that the petitioners had produced material to prove, beyond any reasonable doubt, that the region which was to house the MPC mega-project was not degraded or barren - as had falsely been claimed by the respondents in order to justify site selection - but extremely fertile and culturally vibrant:

'The area is a vast agricultural land where paddy is grown and there are coconut plantations. Apart from that, there are certain species of wildlife, species of rare wild or plant life and there are places of religious interest such as two mutts, and there are also Nagabanas which are sacred forests' (Samithi case,150).

The Justices additionally conceded that the petitioners had successfully:

'pointed (out) that establishment of the project will destroy religious, education and cultural centres as it would displace two Moola Mutts[48] of Udupi Shri Krishna Temple - that is, Admar Mutt and Palimar; 29 famous temples; 55 historical Boothastanas[49]; 10 Mosques; 3 churches; 163 religious Nagabana's[50], Bhajan Mandalis[51] and Madarasa's[52 ]. It is stated that 19 schools will have to be displaced and established elsewhere' (Samithi case, 89).

Problematically, the judgement never even mentioned the land use study prepared by the Indian Institute of Science (John and Harish, 1997). On the issue of the public hearing, which the petitioners had contended was never held, the judgement stated that:

'on an earlier occasion, writ petitions had been preferred by Janajagriti Samithi and those writ petitions came to be disposed of by noticing that it is premature in as much as clearance by the concerned authorities had not been given and it was certainly open to the parties concerned to prefer their objections to the clearance before the concerned authorities[53]. It was stated that such objections had been filed. It is complained that the same has not been taken note of or (not) considered subsequently. An affidavit had been filed on behalf of the Union of India that there was due consideration of the objections filed on behalf of Janajagriti (Samithi) and a letter also had been sent to that effect'.

It has to be noted, however, that the Janajagriti Samithi strongly contested this position: Although the MOEF claimed to have sent this letter in their rejoinder, Janajagriti Samithi had stated, as it still does, that it had never received the same and had even sought the Ministry's despatch records to be produced in Court, to demonstrate if the letter had, indeed, been despatched, as claimed. The despatch records had controversially not been made available. The judgement also controversially concluded that:

'this was in extension of the public hearing that was given earlier to all those who were interested in the matter of maintenance of the environment who wanted to be heard in the matter'[54] (Samithi case, 155).

The judges' main conclusion briefly stated that 'none of the objections raised by the petitioners are sustainable to quash the clearance granted by the KSPCB or MOEF', as prayed. Yet, the dubious character of the clearance was acknowledged in view of the very strong evidence provided by the petitioners:

'Considering the fact that certain material is available now and could not have been brought to the notice of the concerned authorities (sic) and in as much as the project is still at the initial stages of being put through (the MOEF was directed) to take into consideration the report of the DANIDA, NEERI (reports) and the views expressed by Mr Sagardhara on the project' (Samithi case, 64).

It further directed the MOEF to 'also take note of the criticism of absence of the carrying capacity study (of Dakshina Kannada region which the State Government had ordered and) ascertain whether such information is such that the action taken by the 7th respondent (MPC) will affect the quality of human life and environment in a significant manner or extent which has not already been considered by them and decide the issue arising there in' (Samithi case, 164). The Court specifically directed that such action 'shall be taken within a period of three months from today ', i. e., latest by 29th November 1997 (Samithi case, 165).

Even though the Court refused to accept the petitioners position that the mandatory Public Hearings had not been held as claimed, it was, nevertheless, compelled to state that if 'the petitioners or any other interested party so desires, they may file appropriate representations to the MOEF for its consideration. Unless the MOEF considers oral hearing is necessary, the same need not be extended to the petitioners or any other party' (Samithi case, 165).

Within the context of a deep political debate, however, several key issues need to be borne in mind concerning the tone and nature of this judgement and its directions and findings. In the opinion of Saldanha, Fernandes and Mathai, aspects of this judgement clearly and unambiguously betray a shocking attitude of the court which needs to be reflected upon. In seeking to defend and exonerate MPC and the state's regulatory authorities, highly questionable and, in some cases, inaccurate statements and actions were undertaken. Whether through wilful ignorance or wilful intent, it would appear, from Saldanha, Fernandes and Mathai's analysis, that the justices clearly failed to abide by two key codes of the 'Restatement of Values of Judicial Life' which are designed to counter any suspicion of judicial corruption. (Saldanha et al, 2000) The first code, as has already been noted earlier, states that:

'Justice must not merely be done, but must also be seen to be done. The behaviour and conduct of members of the higher judiciary must reaffirm the people's faith in the impartiality of the judiciary...The last (16th) code mentions that every Judge must at all times be conscious that he is under the public gaze and there should be no act or omission by him which is unbecoming of the high office he occupies and the public esteem in which that office is held' (Venkatesan, 2000, 47).

However, there would clearly appear to be acts of omission in the Court judgement which resulted in a suppression of crucial evidence, a distortion of the truth with 'the Court joining the Respondents in suppressing the due rights of the communities … thus effectively violating them' in order to explicitly benefit the interests of MPC (Saldanha et al, 2000, 31, 29, 28). Such acts of omission, argue Saldanha, Fernandes and Mathai are severe enough to even:

'give us scope to ask the uncomfortable question of whether there were extraneous circumstances that bound the Court to decide in the manner that it did … There really appears to be no reasoning adopted in the decision'of the High Court (Saldanha et al, 2000, 40, 33).

Given the seriousness of these allegations and charges, it is necessary to examine the substance of Saldanha, Fernandes and Mathai's concerns in some detail. On the issue of the Courts judgement and summing up of the flawed REIA which had been submitted and cleared:

'This is not so much the problem with the judgement as much as the manner in which the decision was made, the issues that were addressed, or rather left un-addressed and the tone of the decision. For instance, the Court could have taken a strong view on the facts established by the petitioners that critical evidence pertaining to the impacts had been fudged, thus affecting the rights of the communities very adversely. The EIA notification specifically empowers cancellation of clearances granted should any 'false or misleading' data be the basis of a decision. In failing to direct action based on this powerful clause, the Court joined the respondents in suppressing the due rights of the communities, and thus effectively violating them' (Saldanha et al, 2000, 28).

As Mahalingam has clarified, there should be no hesitation in ignoring such a clearly stated and understood clause:

'Section 4 of the MOEF Notification on Environmental Impact Assessment of Development Projects, dated January 27, 1994 - as amended on May 4, 1994 - states that concealment of factual data or submission of false, misleading data or engineered reports will lead to the rejection of the project proposal' (Mahalingam, 1999, 84).

On matters relating to the public hearing, or lack of it:

'Worthy of mention here is the attitude of the Court as regards the necessity of the public hearing in the process of siting, for instance. The High Court made a peculiarly strange observation that 'though there is no requirement as such to hear the public (sic) … (a) public hearing … was given earlier to all those who were interested in the matter'. By completely ignoring the fact that no 30 days public notice had preceded the claimed public hearing, the High Court joins the respondents in distorting the truth, and thus denying the true right of the people to express their opinion on the matter and be heard. Further, by contorting natural right to represent as being a process part of a hearing, the Court attempts to completely deny the right to be heard by affected communities…But the status in law of the public hearing process was not the point that was before the Court. What the petitioners contended was the failure to hold a public hearing in the first place.

What transpired was that the State Government planned with the complicity of the company, to stage a public hearing without informing the people and selectively informing persons who they believed represented the people. The same was fortunately stalled and postponed to a later date. The public hearing has not been held to date and the same has been acknowledged by the KSPCB. The statement exposes just one of many reflections on the shocking attitude of the Court to this case. In the first instance, we can focus on its statement that law does not require a public hearing. There can be only two possible reasons for this statement: Either the Honourable Court was unaware of the provisions of the law or it was unaware of the status of notifications under the Constitution of India.

The requirement for a public hearing was made through a notification under the Environment Protection Act, a statute legislated by the Indian Parliament. Secondly, vide Art. 13(3)(a) of the Constitution of India, notifications are to be considered a part of law applicable to India. The result of this uneducated remark was thus to judicially de-recognise the Rights of the Citizens of India. Rights granted to it through a legislature elected by and responsible to the people…Such an irresponsible statement (by the Justices) that effectively wipes out basic rights of the people to be heard cannot not be considered a violation of the most basic of human rights. This particularly when KSPCB retracted its original statement that the Public Hearing had indeed been held, as claimed in its NOC, in the affidavit that it filed in response to the petition.

Similarly, the State and the Company have consistently lied to the Court by continuously altering the details of the submission. Despite these contradictions and the evidence provided by the petitioners, the court found it fit to note that 'on the main issue as to the location of the project, there has been due hearing. On the other issues such as rehabilitation and environmental safeguards to be provided, there were differences amongst various authorities and to give sufficient time and attention to them on these aspects, the matter was put off and therefore we do not think there is need for public hearing at all in the matter of site clearance'. Since this accepts in the face of hard core evidence to the contrary, with the acceptance of an untruth, the decision itself joins the submissions of the respondents in being a contortion of the facts. In not dealing with the merits of the purported public hearing, the process of legal redress itself has been withheld from the people.

Lastly, the issues of site clearance, rehabilitation and pollution control are all inter-connected and part of a whole, which affected the public equally, and they could not be separated in such a manner. As such, in adopting the argument forwarded by the respondents that these were separate issues, the court effectively refused the right of people to be heard…

The failure to hold the public hearing was a ground to quash the clearance granted for the project. By not considering the merits of the hearing, the Court effectively did not allow the quashing of the project but (actively and in a deep political manner) took upon itself the burden of legislating, rewriting the law and deciding what could be done to make amends … It appears that the Court was reluctant to examine the merits of the purported hearing and the bulk of the arguments have been forwarded to justify the status quo. It would be fair to say that the judgement relies totally on the submissions of the respondents. This would ordinarily not have been a problem, except for the fact that it ignores vital points that were raised by the petitioners' (Saldanha et al, 2000 , 31).

On matters relating to the court's deep political suppression of evidence:

'Quite in contrast to the claims of the respondents, that of the land (of the proposed MPC project site) being degraded, uncultivable, etc, the Indian Institute of Science study (clearly) revealed that 40% of the land was under thick tree cover, 40% under wetland cultivation and 10% under water bodies. The Court completely suppressed this evidence , thus allowing for the claim of the respondents, when, indeed, the site was one of the most fertile and ecologically diverse. Another instance of suppression of crucial evidence against the respondents involved the compliance of the conditions based on which clearance was granted…For instance, it was a requirement of the NOC that a comprehensive EIA should be conducted within a year of that clearance.

This, in effect, meant that the study was to be ready by 25 July 1996. Even as this study was not initiated a year later, a clear violation by itself, the MOEF proceeded to accord Final Environmental Clearance on 11 June 1996, once again reiterating the need to fulfil this condition. When the proceedings were held in High Court, it was clearly a year after the Final Clearance, and two years after the NOC was accorded, reasonably clear enough time to produce the EIA. The petitioners appeal to the Court to demand the production of the EIA in compliance with the conditions were ignored.

The petitioners then produced a confidential letter written by Shri. Ron Somers, MD of MPC, on 10 January 1997 to Karnataka Pollution Control Board, wherein he stated that the EIA will not be available till such time the land was not vested in the company's position. In effect, the petitioners had produced clear evidence of blatant disregard for the law and contempt for the court. The judgement completely fails to make any mention of this document, thus, once more, demonstrating a clear bias in favour of the respondents' (Saldanha et al, 2000, 31-32).

Other highly disturbing actions of the Court were also identified:

'The court also failed to make any comment about the NEERI report, a report that was extremely critical of the project and had raised substantial issues of concern as regards the project and based on the mandate of the Supreme Court of India. The only context in which the court found it fit to refer to it in its decision was that it did not add (sic) any new information which would affect the quality of the human environment in a significant manner' (Saldanha et al, 2000, 32).

As Saldanha, Fernandes and Mathai clarify, this Court judgement represented:

'a complete misstatement of the content of the report. Another issue where the Court failed to exercise its judicial discretion was on the issue of the EIA statements. The clearance for the project was granted without the impact statements being made on the jetty project, that of the pumping of sea water, the discharge of wastewater into the sea and the transmission lines for evacuation of power from the plant. It would be apparent that, as the project would not be able to begin functioning without these projects coming through, they were an integral whole. Yet the respondents vehemently protested and claimed that they were essentially unrelated (sic) projects. The Honourable Court accepted this argument' (Saldanha et al, 2000, 34).

It has also been argued that the court was guilty of acting against the spirit of the Precautionary Principle, which 'is a general principle of environmental law and is also accepted in the Indian legal system. In this case, the Court quite clearly indicated that there was no need for a procedure (on the carrying out of a 'carrying capacity' study) that could help in assessing environmental stress on the local habitat' and also adopted 'a whole lot of double standards' (Saldanha et al, 2000, 34)[55 ]. Further, and equally disturbingly, the Court failed to enforce its own directive to grant the petitioners access to key documents. This action clearly undermined the basis of the petitioners appeals' (Saldanha et al, 2000, 38, 39).

Within this uncertain atmosphere, it is perhaps unsurprising to discover that Saldanha, Fernandes and Mathai were of the opinion that:

'The hearing process was far from free and fair … It is obvious that the action of the Court to proceed in view of the justifiable stand of the petitioners counsel (that the respondents, firstly, needed to produce key documents in court which had been requested from them, before any final judgement could be made) amounts to a violation of the process of a fair hearing as the petitioners were not given an opportunity to make their case properly.

We are of the opinion that this is, in fact, the primary fault of the judgement and hence should be held bad in law … It may be noted that the right to legal redress and the right to a fair hearing are an important part of the Declaration of Human Rights (Article 8). The process described above clearly indicates that while there was the actus of hearing the petitioners, the factum of listening was clearly absent, a case of procedure lacking substance (in order to benefit the interests of the respondent parties).

In failing its duty as described in this case, the Court has abdicated this onerous responsibility and, as such, is in our opinion as much a party guilty of violations of human rights as the state machinery and the company' (Saldanha et al, 2000, 41).

16. Was the Judgement Leaked?

MPC claimed this judgement as an endorsement of its project, and 'the judgement made news the next day, but the more startling news was of what transpired in Court even as the judgement was being read out' (Saldanha, 1999, 1): Ron Somers, Managing Director of MPC:

'was seen holding an impromptu Press Conference with an all-ready Press Release within the Court Hall even as the operative part of the judgement was being read out. When the petitioners obtained a copy of the release, they were shocked to realise that Somers had predicted the outcome and may have had access to the judgement (before) its delivery. The attention of the Bench was sought to such events and a visibly disturbed Mr Justice Rajendra Babu directed the petitioners to file a memo. However, he later summoned the Samithi's advocate (on record), Mr Krishna Bhat, to his chambers and in the presence of the MPC Company advocate (on record), Mr K G Raghavan, who was already present, suggested to Mr Bhat, with sufficient camaraderie suited for the occasion, to make do with an apology!' ( Saldanha, 1999, 11).

The offer was declined and instead, the petitioners preferred a memorandum to the Chief Justice of India, then Justice Mr J S Verma. In their memorandum, the petitioners recounted the incident and implored the Court for corrective action stating:

'We approach the most revered institution of the country seeking justice for our grievances and hold the process of dispensation of justice with the highest esteem. The least that we expect in this process is that the honour of the court is vitiated by actions that are wholly inappropriate in keeping with the highest traditions. For instance, we expect the Karnataka High Court to prevent the Indian subsidiary of an American Multi-national Company from turning the court hall premises into the venue for a Press Briefing.

Further, we expect the Court to take the appropriate action when a Judicial Order is utilised by a private company as propaganda material to defend a project, the antecedents of which is still in public doubt. Finally, we expect the Court to avoid such a degree of pre-disposition in dealing with the matters brought before it that one of the parties to the action was able to (precisely) predict the outcome of the litigation' (Janajagriti Samithi, memorandum, 1997).

No action was taken by the Chief Justice of India, even as the Press reported the incident

17. Further Contemptuous Actions

One might think that the continuous criticism and opposition to the project from local communities and public interest groups might have pressurised the regulatory agencies into conformity with the order of the High Court. The MOEF, however, failed to review the project clearances within the three month period stipulated, as directed by the Court. A massive letter petition was initiated by Janajagriti Samithi and 'thousands of letters were sent to' MOEF from Dakshina Kannada region, and elsewhere, urging the Ministry to comply with the 'direction of the High Court' particularly in reviewing the clearance decision based on the NEERI, Sagar Dhara and DANIDA reports (Saldanha, 1999, 11).

When no action was taken despite this widely supported campaign, Janajagriti Samithi appealed to the Supreme Court, pointing out the continuing contempt of the High Court direction. It also appealed against the decision of the High Court, which refused to quash the clearances in view of the evidence produced. The matter was heard during February 1998 by a 'Supreme Court Bench consisting of (then) Chief Justice Mr Punchi, Justice Mr Kirpal and Justice Mr Saghir Ahmed, who decided not to admit the appeal. This, despite a fighting argument by Senior Advocate Ms Indira Jaising (who pleaded) that the environmental clearances granted be set aside till such time, in the very least, the comprehensive EIA on the project' is prepared by MPC (Janajagriti Samithi, 1998).

Significantly, no compliance followed even after the Supreme Court upheld the High Court decision inspite of the Samithi's continued representation of its concerns to the Government of India directly and through elected representatives. Environment Support Group (ESG) supported this pressure campaign by sending an appeal to over 70 independent 'Experts of the MOEF' (ESG, 1999).

This campaign seems to have had an effect, at least with the experts and the Environment Minister, Suresh Prabhu. Mr Prabhu wrote to ESG on 3rd February 1999, stating that he would forward the representation 'to the concerned Division for necessary action' (Prabhu, 1999). One of the Experts on the Thermal Power Projects Appraisal Committee, Mr Y S Murthy, however, responded to ESG's petition some time later, and revealed that he 'was not in a position to express ... views on the matter (as he had, scandalously one might think, not seen the'( R )EIA - prepared by the project proponents – (or the) reports of NEERI, DANIDA and the views of Sagar Dhara' (Murthy, 1999). From the Minister's response, it would appear that the 'concerned' Experts who should have been consulted, were, in deep political fashion, overlooked and not even approached in any meaningful manner.

A further letter by Dr Nanditha C Krishna, also an Expert on the Thermal Power Plant Appraisal Committee, expresses deep frustration at the manner in which the Cogentrix-MPC project had been passed:

'Unless there is transparency, I am afraid that the Ministry of Environment and Forests will have to bear the criticism for the destruction of the environment in the forest-rich region of the west coast' (Krishna, 1999, emphasis by authors).

Other possible deep political concerns have also been raised. MPC, in seeking approval and necessary clearances for its project proposal, had officially claimed in 1996 that 75% of the project's debt component was primarily being covered by two key lenders, the US Exim Bank and the UK's Export Credit Guarantee Department (The Economic Times, 1996). However, as one of the authors discovered after meeting with US Exim officials in Washington in January 2000:

'It was clarified that the US Exim Bank had not committed itself to financing the Mangalore Power project of Cogentrix, contrary to repeated claims made to this effect (by MPC) in press reports. In fact, it was confirmed that no application for funding had even been submitted to date. This is a very revealing fact, for the line that Cogentrix had advanced over the years is that the project is financially backed by Exim, and press reports have suggested that this was to the extent of US $ 700 million or more ... Participants in this meeting involved three very senior officials of the US Exim bank and Doug Norlen of the Pacific Environment and Resources Center (PERC), Claudia Saladin and Emilie Thenard of the Center for International Environment Law (CIEL)' (ESG, 2000, 1).

Subsequent information, however, would appear to confuse matters even further. Were senior members of Exim bank correct in making the above clarification? According to a report in Hindu Business Line, a Memorandum of Understanding (MOU) appears to have been signed - in December 1997 - between US Exim-Bank Vice-Chairman, Jackie Clegg, and Ron Somers and representatives of Cogentrix and CLP concerning the project (Hindu Business Line, 2000). If this was the first MOU signed between the respective parties, this would still tend to suggest that assurances made by Cogentrix prior to this date were possibly questionable.

18. The Exit of Cogentrix from MPC

It needs to also be appreciated that deep political stances by MPC, politicians and government authorities have continued, even after Cogentrix announced, in December 1999, that it was pulling out of the MPC project due to 'needless'and excessive delays (Business Standard, 1999, 1). The Chief Minister of Karnataka, Krishna, has confirmed that the government is still engaged in negotiations with MPC - via the CLP and Tata group - to try and finally provide clearance for the project. Krishna, for instance, is on record as indicating that:

'the CLP and the Tatas[56] - who are the (new) partners in the MPC - are a formidable combination and have a good reputation ... Although Cogentrix had deserted the project, he said, the clearances were in the name of CLP and there are no legal problems' (Prasad, 2000 , 5).

However, according to Mehta, such official assurances serve to mislead the general public over the matter, for they fail to alert the citizen that these initiatives - which are clearly being heavily backed by the Chief Minister - are set to actually breach the law as it stands. As Mehta notes, MPC's MOU clearances and agreements with the government do not state that Cogentrix can assign the project to anyone else (i.e. CLP, as had been suggested by the Chief Minister):

'As per the MOU (whilst Cogentrix has been) allowed to enter into a partnership with a third party to execute the project with permission of the Government of Karnataka, it is to be understood that the partner can come along with Cogentrix and not without them. Moreover, in the MOU, there is no mention that Cogentrix can assign the project to anyone or its successor can execute the project. The MOU is specific to Cogentrix, USA only, and not transferable to anyone' (Mehta, 2000, 1).

On the issue of the counter-guarantee agreement, 'the understanding of the Government of India (wa)s to give (it) to Cogentrix, USA, and not its assignee, successor' (Mehta, 2000, 3). According to Mehta, even the PPA which was signed between MPC and KEB clarified (under Clause 2.2) that the agreement would only stand if Cogentrix, as the major partner, remained at the helm of MPC for a period of at least 10 years:

'In case they (Cogentrix) walk out of the project (which has been the case) then the MOU, FIPB[57], PPA and all agreements are null and void both legally and contractually' (Mehta, 2000, 3).

Mehta further confirms that FIPB approval - which was given to Cogentrix in 1993, and restated in subsequent letters up to 18th June, 1999 - clearly mentions that:

(a) 'The FIPB approval is in the name of Cogentrix Inc, USA - All letters are addressed to Cogentrix, USA;

(b) FIPB permits Cogentrix, GE Capital and CLP to bring foreign equity in the project;

(c) Cogentrix, for purposes of executing the project in India, (can) incorporate a company by name, Mangalore Power Company (MPC). The FIPB clearance is then transferred in the name of the new company to facilitate them to execute the project on the express understanding that it is the arm of Cogentrix (who will hold major equity) and (will) execute the power project through them. The letter and spirit of the transfer ... was to consider MPC as Cogentrix's arm or vehicle to execute the MPC project. Any change in this philosophy or understanding amounts to subverting the rule/law to allow back door entry by other people in the project' (Mehta, 2000, 1-2).

19. Conclusion

The above analysis would appear to suggest that deep political and corrupt actions of various kinds have certainly been undertaken. Whilst some points and issues remain speculative in nature, there can be no doubt that several corrupt, deep political interventions have taken place in order to promote the project. Despite mass protests, thousands of representations, campaigns, investigative reports and findings and a number of petitions which have exposed the above issues in the High Court of Karnataka and the Supreme Court of India, as well as in the public domain, the deep political system in India has, nevertheless, been able to scandalously side-step and ignore public health and safety concerns, and calls for a more democratic polity. The above findings would also appear to directly contradict claims by Ron Somers, MD of MPC, that:

'It's just not possible to add 1000MW to a 3000MW grid without complete transparency ... No short cuts and no false promises' can be made by MPC (The Hindu, 1995e, The Hindu, 1995a).

In the case of the MPC power project proposal, what makes the issue even more pressing is the massive economic, social, environmental and public health cost which is set to take place, as people stand to be forcibly relocated and have their lifestyles altered for them, and consumers are forced to buy power at exaggerated rates. Several projected environmental impacts of the plant are also simply not being given the due concern and consideration they deserve from the Government or MPC.

This study would appear to indicate that State and Union Government departments and representatives are, to a disturbing degree, prompted by 'deep political' and corrupt liberalisation linked 'development' agendas and considerations. It is also clear that undemocratic 'disinformation' and 'targeting' programmes and campaigns have been undertaken in order to counter 'dissident' initiatives and public protests against 'corruption-ridden' projects.

The findings of this study would therefore appear to suggest that 'liberalisation' backed initiatives of the 'model' MPC kind have merely served to corrupt governmental and judicial systems further, and sought to constrict those very democratic spaces which, in the past, have provided at least some theoretical measure or opportunity for redress of public grievances. In the case of the MPC power project, in the opinion of Agarwal and others, millions of dollars in kickbacks appear to have been injected into the deep political system. This viewpoint, however, remains a subject of heated debate. The Supreme Court, for instance, has rejected this assessment. What remains clear, however, is that corrupt, deep political actions of other definable kinds - not connected to debates concerning bribes amounting to several million dollars - have certainly been undertaken. The democratic rights of citizens to expect more 'open' government have been frustrated through a range of corrupt and deep political interventions that have clearly been undertaken to favour the MPC project.

The exit of Cogentrix from the MPC project provided an opportunity for the newly appointed Congress Government in Karnataka, headed by Chief Minister Krishna, to address several of the key types of problems and concerns which have been identified in this paper and in a range of other articles and commentaries which relate to the state's power sector. A high power committee of experts, headed by Deepak Parekh, Chairman of the Housing Development Finance Corporation, was appointed to probe into some of the systemic problems which confront Karnataka's power sector and to suggest remedies.

Following two months of investigations and interactions with various agencies and IPP's, the Parekh Report submitted, on 26 February 2000, that no escrow cover should be extended to IPP's, as the State Electricity Boards were not in a position to absorb the risk. The Parekh Committee cited factors such as 'poor finances of KPTCL, poor finances of the State Government to provide rural subsidy to KPTCL, poor operation, metering, billing and collection of KPTCL and anomaly in tariff due to low tariff for agricultural sector', as reasons why Karnataka Power Transmission Corporation Ltd (KPTCL, a new name for the State Electricity Board) should not extend escrow cover for IPP's (As quoted by Kurian, 2000). In other words, the Committee prescribed that only those IPP's that are financially viable and capable of raising resources competitively to sustain large power sector investments should be supported. Thus, by implication, it would appear that IPP's, such as the Cogentrix backed MPC, that were promoted on the basis of escrow from the State and Central counter-guarantees, would not qualify.

In a remarkable departure from the past, the Karnataka Cabinet decided to accept the Parekh Report recommendations in toto. Futher, the Chief Minister committed himself to 'maintain 'total transparency' in all areas of the power sector, including power generation and transmission (claiming) the State was the first in the country to have set up such a high-level committee consisting of experts to suggest measures to speed up reforms in the power sector. The recommendation would go a long way in the total transformation and efficiency of the entire power scenario in Karnataka and it would serve as a role-model to other States (Hindu Business Line, 27 February 2000).

This stand was greeted with vigorous opposition from a section of the ruling Congress party, led by former Karnataka Chief Minister Veerappa Moily who demanded escrow cover for the MPC project[58]. As he sought to argue:

'Per the projection of Parekh committee, 3,000-3,500 MW of power is required by the State in the next five years. Out of this, Karnataka Power Corporation Ltd (KPCL) expects to add 1,012 MW at an investment of Rs. 3,442 crores. Central units are expected to account for an additional 800-850 MW, adding up to a total of approximately 1,850 MW from KPCL and the Government. This leaves a gap of nearly 1,200-1,700 MW, which has to come from IPP's. This will happen only if escrow or any other securitisation comfort is given by KPTCL or the State Government to Indian financial institutions or banks which are going to finance these IPP's. Is the Government ready to finance IPP's without escrow? If they are agreeable, then the recommendation of the Parekh committee on escrow can be accepted or it will have to be rejected outright' (as cited by Kurian, 2000).

Environment Support Group (ESG) contested Mr Moily's argument in a release, stating that:

'Mr Moily's argument that no private financial institution will fund IPP's in the absence of escrow cover has been dismissed by one of the most vigorous campaigners for foreign investment in India's power sector, the US Exim Bank. Credible evidence for this is the MOU signed by former MPC Director Ron Somers and representatives of Cogentrix and China Light (CLP) with the US Exim Bank Vice-Chairman Jackie Clegg, dated December 9, 1997. According to this document, the US Exim Bank provides 'financing to creditworthy projects without the need for sovereign, corporate or financial institution guarantees' (Hindu Business Line, 2000a).

Mr Moily did not contest the ESG statement, but it was MPC which reacted, the very next day, claiming that:

'The MOU signed between the US Exim Bank and MPC on December 9, 1997, cannot be construed to mean that an independent power project does not require escrow. The escrow mechanism is effectively a security package required …in order for a project to become bankable. The US Exim Bank and Export Credit Agencies (ECA's) will not finance a project without a bankable security package, which could be escrow by SEB or guarantor by Indian financial institutions. Even the Financial Institutions (FI's) now are not willing to finance the IPP without the escrow.' (Hindu Business Line, 2000b).

MPC's continuing and vigorous demand for escrow cover, in order for it to develop a 'bankable security package' to secure ECA and FI support, seems to be in clear contradiction to the terms agreed in the MOU with US Exim Bank, for instance. Certain clauses of the MOU make this point clear:

'Whereas the Company and the Sponsors anticipate that over $650,000 and Rs. 207,498 Lakh in debt financing will be needed for the Project...the Company and the Sponsors intend to request that the Export-Import Bank (Exim Bank) of the United States provide financing to the Company, on a limited recourse project financing basis, in support of ….. US exports (and given) Ex-Im Bank provides financing in support of US exports in order to foster job growth in the United States (thus) Ex-Im Bank's limited recourse project financing program allows it to provide financing to creditworthy projects without the need for sovereign corporate or financial institution guarantees' ( US Exim MOU, 1997).

The lack of necessity for an escrow cover to finance the project has, more recently, been reiterated by India's Infrastructure Development Finance Corporation (IDFC). IDFC, headed by Deepak Parekh, has proposed 'funding … be done exclusively on a project recourse basis. That means the financiers would have recourse only to the IPP's revenue streams for meeting debt servicing payments. Consequently, IDFC would have to assume a risk on KPTCL, which is the bulk power purchaser (provided a healthy) debt equity ratio of 70:30 is assumed' (Shivakumar, 2000).

This would mean that the IDFC considers the project to be worth financing so long as access to the project's revenue stream is available. Consequently, it dismisses the high risk ascribed to the payments problem of KPTCL, as long as the entity is free from political and 'corruption induced' interventions. Cogentrix, from the very inception of the MPC project, had claimed that KPTCL was an unreliable purchaser for energy supplied, and had, thus, managed to finance for the MPC project on the basis of a shocking 16:1 debt equity ratio, a completely unacceptable scenario in normal financing. It had consequently almost managed to promote an unviable enterprise as being viable. This was primarily possible, due to the extraordinary sops that repeated Governments committed to extend the project, including escrow cover and sovereign counter guarantee.

It is, however, increasingly apparent that deep political interventions continue to favour MPC. The Central Government, for instance, continues to favour MPC by approaching financial institutions and lobbying on its behalf. The Industrial Development Bank of India (IDBI) has even received a 'request'to relax some conditions. As per the relaxed conditions, the 'escrow account, or the new terminology for the same, 'fall back option' for the lenders, is to be activated only 90 days before the commercial date of operations. (Furthermore) export credit agencies of equipment suppliers in Europe had also sought some form of a financial security package for export credits from the Central Government (Shivakumar, 2000b).

It appears that notwithstanding a long process of resistance to one of the most controversial projects initiated under the process of liberalisation in India, deep political interventions continue to influence decisions. These are aimed at pushing through various statutory clearances, backing extremely controversial actions shaped to advance the entrenched interests of a vested few at an enormous and continuing adverse cost to the public at large.


1. Judgement of the High Court of Karnataka dated 27th February 1998 in pursuance of Writ Petition 10696 of 1997, hereinafter referred to as Agarwal v State.

2. For an overview of the differing perceptions on this process, refer to the documentary by Wall, 1997.

3. The Cogentrix initiated MPC power project was identified as one of these 'fast track'projects. See The Hindu, 1999a.

4. For further details of the 'telecom scam', refer to Purkayastha, 1995 and Muralidharan, 1995.

5. For further details, refer to Padmanabhan, 1995, Sridhar, 1998 and Padmanabhan 1996.

6. And here, only when their attention was drawn to it repeatedly by independent experts, Non Government Organisations (NGOs), the media, etc.

7. This is a term used to describe improper, corrupt payments.

8. This represents Peter Dale Scott's definition of what constitutes 'deep political systems'and 'processes'. See Scott, 1996.

9. Saldanha, Fernandes and Mathai, for instance, have argued that MPC has been 'guilty of subverting the process of justice … by making false submissions in the entire process of litigation' (Saldanha et al, 2000, 38)

10. See The Freedom of Information Bill.

11. The authors acknowledge, however, that CBI probes can also be manipulated into 'soft-pedalling'on corruption-linked issues - Refer, for instance, to Gill, 1998.

12. Six legislators from the Dakshina Kannada district jointly addressed a Press Conference opposing the Cogentrix project on socio-economic and environment grounds, and their key concerns are reported in Deccan Herald, 14 August 1996. Soon after, the Dakshina Kannada Jilla Panchayat passed an official resolution declaring unanimously their opposition to the project in a meeting held on 30th August 1996.

13. For an extensive analysis of the local resistance to the project, see Saldanha, 1999.

14. For a discussion of the nature and scope of PIL in India, visit <>.

15. Refer to Fernandes, D, 1996 and Meyn, 1996.

16. See also Ravindran, 1997.

17. Mr Bangarappa is presently undergoing investigation by the CBI on various charges of corruption during his tenure as Chief Minister of Karnataka.

18. Soon after the court directed an enquiry into the Cogentrix deal, Mr Verrappa Moily was the first politician to publicly state that he had not received any pay-off from Cogentrix. The judgement is discussed in the following section of the paper.

19. As acknowledged by J H Patel - cited in Menon, 1995.

20. The first stage of the environmental clearance was indeed accorded on 25 July 1995 by way of granting a 'No Objection Certificate' from the Karnataka State Pollution Control Board, an 'autonomous' body which been repeatedly accused of being subservient to political pressures and complicit with corrupt practices benefiting major decisions of the Karnataka Government.

21. The ECC was then headed by Mr A N Yellappa Reddy, and had rejected the project on environmental grounds. For this Mr Reddy was targetted and he eventually resigned. This instance is discussed later.

22. This figure comes from the 1998 Annual Report of Cogentrix (ESG, 1999, 1).

23. Approximately converts to US $ 1.3 billion at then existing rates.

24 . 1 crore = 10,000,000; Rs. 70 = 1 pound sterling (approx., August 1999).

25. On 30th September 1994 - As detailed in WP 1997, 8.

26. On 11th May 1993 - As detailed in WP 1997, 6.

27. It had no balance sheet due to the fact that it was incorporated as a company with that name (Cogentrix Energy) as of 1993. It claims to have been the legal successor of Cogentrix Inc, which was established in 1983.

28. See also WP 1997, 13.

29. The cost of this review was estimated at US$ 100,000, a part of the amount not used was returned to the State by SAIC, as revealed to the second author by Dr Rohini K Mattu of SAIC, the principal author of the report, in a telephonic conversation during 1996.

30. Part of the responsibility for this report remaining secret could rest with Tata Energy Research Institute of India (TERI). Despite being fully aware of the controversies involved in the project, TERI, in contrast to their stated claims of being a public interest research agency, chose not to publicly reveal the serious concerns raised in the report over the Cogentrix PPA. Express India, official website of the Indian Express Group of newspapers) organised a 'web chat' on 21 September 1998 with Dr R Pachauri on issues related to the power sector. The second author participated in this chat and enquired why TERI had chosen to remain silent about the study findings, especially when it revealed serious threats to the wider public interest involved. Dr Pachauri skirted this issue completely, and offered a rather tame response that 'the Govt. of Karnataka made good use of (our) report…'.

31. The report has only been brought into the public domain as a result of the efforts of the second author of this article.

32. The Special Leave Petition and other related material can be downloaded from the website <>.

33. Hereinafter referred to as State v Agarwal.

34. To provide just some notable examples, which the Justices must surely have been aware of as they made their statement: 'Once (Surendra Jain's) reputation had been established as a friend of ministers, foreign companies started approaching him for 'help' in clinching their contracts with various (government) ministries. He had two interests in thus lending his good offices. One, as per prior understanding he obtained the sub-contract for erection and fabrication work if his intervention fructified. Second, he got his commission for the services rendered. This included a kickback for the concerned minister and officials. For instance, in his famous statement made to the CBI on 11th March, 1995, he explained how he helped (the foreign company) GEC Alshom bag the contract for the Kawas Project in Gujarat. The case was pending with the energy minister, Arif Mohammed Khan, and Jain got orders issued in favour of the company. In return, Jain got the sub-contract … and a commission of Rs. 10 crore. He had the amount transferred to India … and paid Rs. 6.5 crore to the minister out of this amount … The CBI investigation revealed that he had bagged more than 22 contracts for steel and power sectors. It was these contracts and the commission he got from foreign companies which gave him the money to cultivate high political contacts, and hawala was only a means of playing the game' (Gill, 1998, 106). A further 29 page statement by Jain to the CBI on 11th March, 1995, had clearly implicated 'a number of senior Congress ministers and leaders of other political parties'in a range of his corrupt dealings (Gill, 1998, 108).

35. Janajagriti Samithi has successfully resisted the location of thermal power projects in the past as well. During the late eighties, the Karnataka Power Corporation proposed a thermal power plant in the very location where Cogentrix proposes its project; this was successfully opposed. Soon after, the National Thermal Power Corporation proposed to locate a Super Thermal Power Project of 2,400 MW capacity in collaboration with erstwhile USSR. Resistance mounted against this project too, and NTPC was forced to abandon plans despite sinking crores of rupees in investigative studies and housing colonies that lie abandoned today. NTPC, however, blames the failure of its venture on the break-up of USSR and the lack of techno-economic support after this event.

36. Pursuant to WP 28651 of 1996 c/w 790/97.

37. Janajagriti Samithi has collected standards from both developed and developing countries to prove that the standard requirement of land for coal-based thermal power plants, including all environmental protection features, is 300 sq. metres/MW installed capacity.

38. Hereinafter referred to as WP 1996.

39. Also known as the Panchayat Raj and Nagarpalika Acts, they guarantee 'power to the people' by constitutionally empowering local governments in the discharge of certain functions as prescribed in Schedules 11 and 12 of the Constitution of India. 'Urban Planning and town planning', 'Planning for economic and social development', 'Water supply for domestic, industrial and commercial purposes', 'Public Health' and 'Protection of the environment' are some of the items listed for the attention of the local governments.

40. There were doubts expressed if US Corporates related this trip to illegal donations to the Democratic Party. A Washington based group 'Justice Watch' was investigating this aspect. For more details about this, visit: <>.

41. Flue Gas Desulphurisation, also known as Scrubbers, that are employed to remove Sulphur dioxide concentrations from gaseous emissions.

42. Originally, MPC had proposed to utilise the Mulki River water for its plant operations, by proposing to build a dam upstream. This proposal was cleared by the KSPCB but eventually withdrawn by the MOEF, which demanded that the plant use desalinated water for all purposes. Both Cogentrix and MOEF claimed this to be an environmentally progressive intervention, without considering the impact of brine from desalination plant on the marine environment.

43. Originally issued in 1994, this Notification was amended on 10 April 1997 making Public Hearings mandatory for certain highly impacting projects, including thermal power plants above 500 MW capacity. The discretionary clause allowing for Rapid Environment Impact Assessment (a rather preliminary statement based on one season date only) as being the basis for according conditional clearances controversially continued in the 1997 amendment. See the full text of the EIA Notification.

44. In pursuance of I.A.21 of 1996 in W.P. (Civil) No. 664/1993.

45. Their rejoinder statements filed in the High Court in response to the NEERI report are replete with such denunciations.

46. This decision was taken on 1st April 1997 and was widely reported as the main story of the following days newspapers.

47. Even though the verbatim recording of this direction was reported widely in the newspapers on 8th April 1997, the Section Officer of the High Court denied the petitioners a copy of this order claiming administrative privilege. The statement issued in defence of this position is rather abstruse, and is as follows: 'The counsel for the petitioner has filed a copy application in W. P. 28651/96 (i.e. Janajagriti Samithi) for the certified copy of the order dated 7.4.97 (7th April) which is passed by the Hon'ble Chief Justice. On verification of the order sheet dated 7.4.97 in the W. P. No. 28651/96 c/w 790/97 there is no such order passed by the Hon'ble Chief Justice. But there is an endorsement made by the Section Officer of the Board Branch The Hon'ble Chief Justice has again assigned these cases to the Division Bench consisting of the Hon'ble Mr Justice S Rajendra Babu and the Hon'ble Mr Justice B S Sreenivasa Rao for hearing (separate order has been passed by the Hon'ble Chief Justice). On further verification it is found that the order has been passed by the Hon'ble Chief Justice on the Administrative side. Hence, if approved the copy application may be rejected as the Administrative Order cannot be issued certified copy as per High Court Rules'. Thus, it continues to be a mystery as to who slipped this order to the newspapers, when the petitioners even, were denied a copy.

48. As explained in the Gazeteer of South Kanara (later, Dakshina Kannada) district (1973) published by Government of Karnataka, 'during the thirteenth century, there arose in this district a powerful influence of Vaishnavism propounded by Madhvacharya, an illustrious saint and scholar who was the exponent of the Dvaita philosophy (Dualism). His Dvaita school won a number of followers in various parts of the country. He established eight mathas (monasteries, also known as Mutts) and appointed eight of his disciples to be in charge of these to administer the affairs of the famous temple at Udipi in which he installed a lovely image of Krishna, said to have been found by him in a lump of clay (gopichandana) given to him by the Captain of a ship in token of the gratefulness he felt for the Acharya who rescued his ship from distress' (p. 98, 99). The Palimar and Admar Mathas that fall within the proposed area for location of the power plants, are two of the eight mathas, and are over 700 years old and still practice the philosophy in all its glory.

49. 'A peculiar and pronounced feature of the district is its spirit-worship, a kind of propitiation of spirits. Almost every village in the district has its Bhootasthana or spirit temple. There are various kinds of spirits, those belonging to the forest, those that guard the villages, and those that safeguard public health. There are also family spirits and it is not uncommon to find a separate room set apart in many houses for these spirits. The Bhootasthana is usually a small plain structure, without windows and with a thatched roof. In front of the temple are a few T-shaped pillars. The temples of the more popular Bhootas are substantial in structure (South Kanara District Gazeteer, 99).

50. Similar in concept to Bhootasthana, but believes in the symbol of divine power of the snake which 'takes the form of adoration of effigies of snakes (Nagakallu or snake-stones) placed on platforms under the Ashwattha (banyan) trees or in shrines and temples' (South Kanara District Gazeteer, 98, 99) Nagabanas, thus, literally mean Snake Forests (Naga=snake, bana, nee vana=forests).

51. Places where devotional songs are chanted communally, often within the immediate vicinity..

52. Madrasas are schools for scholarship in the Muslim religious texts, often attached to Mosques or proximal.

53. Referring to the Writ Petition 43904/95 in the High Court of Karnataka in the matter of Janajagriti Samithi vs. Union of India seeking a stay against proceeding with the MPC project on grounds that it was socio-economically unviable and environmentally disastrous. Justice Rajendra Babu had dismissed this petition on preliminary hearings, stating that the petition was premature as final environmental clearances had not yet been granted at the stage, in his order dated 8th April 1996. The presently discussed Writ Petition of 28651/96 was filed thereafter, especially when MOEF or the State Government did not consider or respond to any of the concerns raised by the Samithi.

54. Per the EIA Notification, a public hearing can be called only when there is 30 day notice to the public by means of advertisements in at least two widely circulated local dailies, one of which must be vernacular. There was no such advertisement.

55. These are outlined in detail in Saldanha et al, 2000.

56. Or more accurately, the Tata Electric Company (Business Line, 2000).

57. Foreign Investment Promotion Board.

58. It may recalled that Mr Veerappa Moily was Chief Minister of Karnataka, when the original, and most controversial, PPA with Cogentrix was initialled by the Government of Karnataka.


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Writ Petition No 28651 of 1996 c/w 790/97

Writ Petition No. 10696 of 1997

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