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dam-l URGENT! Stop German Gov't from Subsidizing Destructive Maheshwar Dam!!



ACTION ALERT - November 15, 1999

Stop the German Gov't from Supporting Maheshwar Dam in India!!
-----------------------------------------------

Dear Friends,

The German government is considering approval of a $133 million loan
guarantee for the Maheshwar Dam in India. If this guarantee is approved,
construction on the dam may resume. The dam threatens to destroy the
livelihoods of nearly 40,000 people living in the Narmada Valley. We urge
you to write a letter today to the German Chancellor urging him to halt the
guarantee.

The Maheshwar Dam would harm the livelihoods of 40,000 farmers, wage
labourers, fishers and craftspeople and submerge some of the richest
agricultural lands in India. Independent investigations have revealed that
resettlement planning is a shambles and no land is available to provide
land-for-land resettlement.

Opposition to the project is intense. Thousands of farmers whose lives and
livelihoods will be destroyed by the project have in the last 2 years,
taken over the dam site 8 times, barricaded all roads leading to the dam
for three months, and held mass demonstrations and indefinite hunger
strikes opposing the dam. The affected people are determined that they will
never let the dam be built. Because of this resistance, German power
utilities Bayernwerk and VEW Energie bailed out of  the project in April
1999.

Funding problems mean that work on the dam has been stopped. But, if the
Hermes guarantee is approved by the German government, it will be a signal
to other investors and companies to get involved. (Hermes is the German
export credit agency. It guarantees the foreign investments of German
companies.)

Please send a letter today to the German government to express your
opposition to the loan guarantee. More info on the dam and a sample letter
to the German Chancellor is included below.

Thank you for your help!

Sincerely,

Susanne Wong
International Rivers Network

______________

WHAT YOU CAN DO:
Send a letter or fax to the German Chancellor urging him to stop the
approval of a Hermes guarantee for the Maheshwar Dam.

SAMPLE LETTER

November 11, 1999

Chancellor Gerhard Schröder
Bundeskanzleramt
Schloßplatz 1
10178 Berlin
fax: 49-30-40001818 or 49-30-40001819
email: bundeskanzler@bundeskanzler.de

Dear Chancellor Schröder:

I am writing to urge you to stop the approval of a Hermes guarantee for the
$133 million HypoVereinsbank loan to the Maheshwar Dam in India. I
understand that the loan would be used to purchase power equipment from
Siemens. I am outraged that the German government is considering support
for a project which would destroy the lives of more than 40,000 people.

There is a huge mass opposition to the Maheshwar Project. Thousands of
farmers whose lives and livelihoods will be destroyed by the project have
in the last 2 years, taken over the dam site 8 times, barricaded all roads
leading to the dam for three months, and held mass demonstrations and
indefinite fasts opposing the dam. The affected people are determined that
they will never let the dam be built. Because of this resistance, German
power utilities Bayernwerk and VEW Energie withdrew from the project in
April 1999.

It does not make economic sense for the German government to support the
project. Electricity generated by the project is projected to cost over 5
times more than current electricity produced by Madhya Pradesh. The Madhya
Pradesh Electricity Board, which is supposed to purchase power from the
project, is bankrupt and is likely to default on its payments.

In addition, a guarantee for the Maheshwar project would violate the
promise the German government made in its coalition agreement to apply
environmental, social and developmental criteria to its export credit
guarantees.

We urge you to halt the approval of the Hermes guarantee for this
destructive project.

Sincerely,

Your Name


______________
BACKGROUND

NBA Letter on Maheshwar Public Share Issue
Date : 20th October, 1999

To,
The Chairman ,
SEBI (Securities and Exchange Board of India )
Mittal Tower ,
Nariman point ,
Bombay.

Subject: Proposed Public issue of Shree Maheshwar Hydro power corporation
Ltd / S.Kumars / MPEB (Madhya Pradesh Electricity Board) to finance the
construction of the Maheshwar Hydel Project, M.P

Dear Sir,

1. I am writing to you today on behalf of the Narmada Bachao Andolan (NBA)
a broad based, mass movement of farmers, tribals, fisher and boats people
and dalits of the Narmada Valley - struggling for the last 15 years against
the destructive large dams being constructed in the Valley.

The Maheshwar Hydro-electric Project being constructed at village Jalud,
Tehsil Maheshwar, District Khargone on the river Narmada is one of these
large dams. It affects nearly 40,000 people of 61 villages, directly
through submergence, and thousands more through project related activities
and impacts such as waterlogging. For the last 2 years, since early 1997,
the people of the Maheshwar Project impact zone have come together under
the banner of the Narmada Bachao Andolan, and are waging a determined and
successful struggle against this project.

2. The project was privatised in 1994 and handed over to the S.Kumars.
However, because of fundamental flaws in the project and because of mass
resistance on the ground, the project is yet to achieve financial closure.

3. Recently, we have learnt from reliable sources that the Shree Maheshwar
Hydro power corporation Ltd. ( SMHPCL ) or the MPEB ( Madhya Pradesh
Electricity Board ) or the S.Kumars is going to the market with a public
issue - the intention being to raise finances for the Maheshwar project.

4. Having studied the project in detail , we were disturbed to hear this.
We believe that the above mentioned entities will be , during the process
of public issue , concealing very critical information , and the tremendous
legal , financial and political risks associated with the project.

We believe and indeed request you that, as per your guidelines - in the
public interest and for investor protection , the SEBI must ensure that all
risks associated with the project be publicly disclosed. We out line the
risks below , but also are enclosing a detailed paper herewith.

5. Mass resistance to the Maheshwar Project :

There is a huge , mass opposition today to the Maheshwar Project. Thousands
of farmers, Kevats and Kahars whose lives and livelihoods will be destroyed
by the project have in the last 2 years, taken over the dam site 8 times,
barricaded all roads leading to the dam for three whole months, and held
mass demonstrations and indefinite fasts opposing the dam. The affected
people are determined that they will never let the dam be built. It is
because of their resistance, that participating companies German power
utilities Bayernwerk and VEW Energie who were to give 49% of the project
equity -Rs. 308 crores, moved out in April 1999 and now, due to lack of
funds and financial closure - work on the dam has been stopped.

6. Displacement and rehabilitation : Violations and Legal Risks

The homes and livelihoods of nearly 40,000 people will be submerged by the
reservoir of this project. According to the rehabilitation policy of the
Government of Madhya Pradesh, the statutory environmental clearance of the
MOEF and other agreements and contracts, the project authorities have to
rehabilitate the affected people with 'land for land'. Yet till date, not a
single person has been rehabilitated with land. In fact, the project
authorities have not been able to show any land or rehabilitation plan till
now .Their only attempt is to illegally intimidate the affected persons to
sell their lands for cash.

The Madhya Pradesh government constituted Task Force has concluded "..that
at present adequate land area has not been identified to enable allotment
to all affected families." It also said that a fresh cost-benefit analysis
and the establishment of a credible rehabilitation plan has to be made
prior to the construction of the project. The Tata Institute Of Social
Sciences [ TISS ] have also pointed out in their report that the land
claims of the project authorities are all "imaginary and concocted "

Recently, the Ministry of Environment and Forests [MOEF] has also indicted
the project authorities for lack of land and plan .It has demanded land
related information prior to taking "a decision for revocation of
environmental clearance". Clearly, these legal and human rights violations
are the grounds for the determined mass struggle against the project and
also represent enormous legal risks.

7. The Case of Sardar Sarovar - A Precedent

It may be noted that similar legal violations of the oustees were
perpetrated in the case of Sardar Sarovar. As a result ,the World Bank -
the largest funder to the project had to move out in 1993. Subsequently,
the organisation of the affected people - the Narmada Bachao Andolan filed
a petition in the Supreme Court in 1994. From 1995 to 1999, on the orders
of the Supreme Court all work on the spillway section was suspended. In
1999, the Supreme Court allowed a 5 metres rise in height, after which it
has again frozen construction, pending a final decision.

The Madhya Pradesh Government has said on affidavit in Supreme Court that
it has no land to rehabilitate the oustees as deemed by the Narmada Award.
Obviously, then it does not have land for the rehabilitation of the oustees
of the upstream Maheshwar Project either.

It is clear that in Maheshwar too , with the project authorities openly
flouting the policy and with legal violations of the conditions of the
statutory environmental clearance ,the people and their organisation will
have to seek legal intervention .

8. No Hope of Payments : MPEB Bankrupt

The Madhya Pradesh Electricity Board (MPEB),which is the monopoly
purchasing agency for the project power for a period of 35 years as per the
power purchase agreement, cannot recover its payments to the SMHPCL by
selling electricity to consumers because of the high cost of this power.

Nor can it make the payments year after year, from its own reserves because
the MPEB is on the verge of bankruptcy and has negative cash flows as per
the report of the rating agency CRISIL. The report says " There is no
cushion available with the MPEB to even partially meet the financial
obligations of the independent power producers". (IPPS of which SMHPCL is
one) and that the MPEB "is not in a position to support even its own
operations."

Even the MPEB has said in its confidential note of 25-6-1995 to the Madhya
Pradesh cabinet that "the present revenue received is not sufficient to
meet our revenue expenses, the monthly receipts short by approximately Rs.
150 crores."

It is clear that the MPEB will certainly default in its payments and no
counter guarantee from the state will be able to bail the project out year
after year.

That the MPEB has no escrowable capacity has been confirmed by the IDBI in
an affadavit given to the Supreme Court in September 1999 when it said that
"MPEB would not be in a position to lift the contracted capacity of power
from the IPPs under PPA by the year 2003-04 ..."and that this can only
happen when accompanied by " ... steep upward tariff revision" and that "to
the knowledge of FI's/banks the projected upward tariff revision has not
occurred".

It may also be noted that the IPPs of Madhya Pradesh have gone to Supreme
Court due to disputes over escrow cover.

9. Expensive Power : Unviable, unsaleable

The power to be produced by the project is prohibitively expensive -
approximately Rs. 7 per unit at production point. Compare this to present
cost of power produced by the state Electricity Board at Rs. 1.25 per unit.

When this power reaches the consumer it will be priced at Rs.12 to Rs.15
per unit. Clearly, there will be no takers. Even at Rs. 7 per unit it is
unlikely that any one will buy this electricity. Today industry in Madhya
Pradesh is generating its own power - cheaper and more reliable - through
the captive power policy of the State Government. The domestic,
agricultural and small industries sector cannot afford expensive
electricity , and its demand is extremely sensitive to tariff fluctuations.
What will happen if expensive Maheshwar electricity ever feeds into the
grid is disaster - closed irrigation pumps, shut down industries, powerloom
workers on the streets and substantially reduced agricultural and
industrial production, as well as pauperization of large sections of
society.

No wonder then that apart from the affected people a large number of trade
unions and political parties are opposing this privatized project and the
implications of its costly power. In fact even the erstwhile Power Minister
Shri Kumaramangalam has noted in his letter to Chief Minister, Madhya
Pradesh that there are other concrete offer of power at Rs.2 per unit and
that "when compared with the IPPs, it is observed that the tentative tariff
offer far below that offered by any other IPP in Madhya Pradesh".

This underlines the fact that the expensive power produced by the S.
Kumar's will never be able to generate its own revenue. The added situation
of a bankrupt MPEB, a financially shaky State Government, the ambiguous
status of any counter guarantee, and the enormous resistance to the project
both by the affected population as well as many central trade unions and
political parties ,and people all over the state - will ensure that the
Maheshwar Project will never be built.

10. Delayed financial closure : No hope for International funding

It may be noted that the financial closure of the project has been under a
cloud from the very beginning. In 1998 the US power utility Pac Gen backed
out of the project. In April 1999 the two German Power utilities that were
to give 49% of project equity withdrew from the project.

Today there is a grave question mark about the Hermes guarantee for the Rs.
523 crore Hypo Vereinsbank loan that the Siemens has applied for. The
German Development Minister has publicly announced that a Ministry will
oppose the guarantee to Maheshwar Project. Thus it seems very likely that
this guarantee and loan will never come in, and in the present context of
social, environmental and technical considerations no International funding
will be forthcoming for the project. We believe that the Maheshwar Project
is fundamentally flawed on all these above mentioned counts. There is not
even a slender hope of any dividends ever coming back to equity. We think
it is imperative that the SEBI declare all these above risks during the
declaration of a public issue.

We will be glad to share with you any of the document quoted in the
attached risks paper as well as respond to any queries , and hope for an
early reply.

Thanking you,

Chittaroopa Palit
Narmada Bachao Andolan
62, MG Marg,
Badwani
Madhya Pradesh

Phones: 0265-382232, 027290-22464
E-mail: nba@lwbdq.lwbbs.net.in