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A Case which made World Bank Legally Accountable
On February 27, a year has passed since the Supreme Court of the United States ruled in a 7-1 judgment that World Bank does not enjoy absolute immunity. The judgment shook the foundations of the financial world, which hitherto enjoyed absolute immunity for whatever consequences their lending led to. It’s not business as usual for them anymore.
It empowered the communities around the world, who have always been at the receiving end of lending to big projects – be it big dams, mining, plantations, energy or infrastructure projects. Already two cases – one from Honduras against the private sector arm of the World Bank, the International Finance Corporation (IFC) and another from China against the World Bank – are currently being considered by different courts in the US.
First, a recap of the case, which led to this landmark judgment.
IFC lend $450 million to Tata Mundra (Coastal Gujarat Power Ltd) – a coal-based thermal power project in Kutch, Gujarat in 2007. The fishworkers, who are severely affected by the project construction as well as the effluence from the project, were not even considered as project-affected, let alone any compensation for their loss. Not just the fishworkers, thousands of farmers, salt pan workers and cattle herders were neither considered, nor compensated.
The affected communities, under the aegis of Machimar Adhikar Sangharsh Sangathan, approached the accountability mechanism of IFC, the Compliance Advisor Ombudsman (CAO) in 2011. After two years of investigation into the violations of IFC’s policies, CAO confirmed nearly all concerns raised by the people in their complaint, holding IFC responsible for the violations and oversight.
Instead of taking it as an opportunity for course correction, IFC chose to ignore the findings first, when pressure was mounted on them from far and wide, they engaged different agencies to conduct a series of studies, which should have done before the project was approved. The findings of those studies were never made public.
The Government of India allowed CAO to visit the project site only once post the report. Their requests for permission to visit the project to monitor the progress of compliance of the policies where declined time and again. Sab ka saath, Sab ka vikas slogan is preserved for the privileged. Riding on the immunity claim of IFC and a government that loathes any independent assessments of projects or situations like in Kashmir, the company continues to ignore people’s concerns.
Having given the project in a platter by the government in 2006 under the newly planned Ultra Mega Power Projects, this project every sop, until Indonesia, from where the coal was procured, revised their coal tariffs. It took the financial viability of the project for a tailspin. In January this year, the company wrote to the Power Ministry that they could not run the project beyond the end of February because of losses. Earlier this week, they wrote to the states who have a Power Purchasing Agreement with them – Gujarat, Haryana, Rajasthan, Punjab, and Maharashtra – that they won’t supply power to them unless the tariffs are revised.
While the company is keen to mitigate the loss by all means, the loss of the people and of many generations, caused because of their project, continued to be meted with indifference and arrogance.
In 2015, the fishworkers and farmers approached the US court – the DC Circuit Court, to hold IFC liable for the livelihood loss their lending caused. IFC claimed immunity from court cases. The Circuit Court and thereafter, the Appeals Court upheld IFC’s claim. Finally, the Supreme Court took it up for an oral hearing and ruled that IFC and its parent body, the World Bank, do not enjoy absolute immunity.
The judgment was meted with disbelief by both sides – obviously for different reasons! Having engaged the best legal batteries to lose the case was beyond IFC’s comprehension. That the Davids can take on the Goliaths even today was a revelation to the communities in Mundra, and around the world.
Having settled the immunity issue, the case in US returned to the DC Circuit Court for hearing on the original petition of IFC’s liability. Again, trying to dodge responsibility for the damages they caused, IFC raised issues of jurisdiction and other legal technicalities. A week before the first anniversary of the immunity case, the Circuit Court ruled in favour of IFC, opening up the road for a long legal battle.
Meanwhile, the condition of the people on the ground went from bad to worse. Because of the effluence, the fish catch went down drastically. Fly ash and coal dust falling on the crops and grazing land made agriculture difficult and animals sick. The intake channel and the continuous dredging of it, expanded the land affected by sea ingress, turning large tracts of agricultural land barren.
A part of what IFC has been paying to its lawyers for defending and covering up their violations would have helped restore people’s livelihood. World Bank Group, a leader amongst the multilateral development banks across the globe, has failed in this case to ensure that people are not left to perish while pushing “prosperity for all”.
Joe Athialy is a social activist based in New Delhi ∞
US Federal Court Rules in Favour of IFC in Tata Mundra Case: Fishworkers and Farmers to Challenge Decision.
IFC hides it shame & guilt behind technicalities of jurisdiction
Kutch, Gujarat / New Delhi: The fishworkers and farmers of Mundra affected by the Tata Mundra Power project will challenge the ruling from a federal judge in the District of Columbia, United States, that the International Finance Corporation (IFC) – part of the World Bank Group – is immune from being sued for damages inflicted as the commercial activity was not carried on in the United States. IFC has been granted immunity for lack of subject matter jurisdiction.
In a long legal battle to hold IFC liable for the social and environmental damages caused by the Coastal Gujarat Power Ltd (Tata Mundra) co-financed by IFC, which started in 2015, the community won a decision from the U.S. Supreme Court last year that the IFC does not have “absolute” immunity to all lawsuits. On Friday evening, United States District Judge John D. Bates again granted the IFC’s motion to dismiss, finding that the IFC is immune under the facts of this case.
The court took a narrow view stating that, “the mere fact that someone in the United States approved a letter that defended IFC’s approach to environmental and social risk management for the Tata Mundra project and announced that IFC will consider certain suggestions raised by the CAO is not sufficient to establish that plaintiffs’ complaint is based upon conduct carried on in the United States”.
It is not only unfortunate but also unethical and legally liable, that in spite of causing irreversible damage to the fragile ecosystem of Mundra coast, destroying the livelihood of thousand of fishworkers, farmers, saltpan workers and cattle grazers IFC gets to hide behind the technicalities of law. When there is growing documentation on IFC’s failure in upholding their own safeguard policies, which was confirmed by its own accountability mechanism – the Compliance Advisor Ombudsman (CAO), the courts have provided immunity on technical grounds.
Budha Ismail Jam, a plaintiff in the case said, “We are disappointed by the decision, but are determined to take this fight ahead. To save our livelihoods and protect our environment for future generations, we do not see any other way. We know we are up against a wealthy and powerful institution, but we are determined to make our voices heard. We will continue to seek justice.”
“The IFC refuses to be held accountable for the damages this plant is inflicting upon farmers and fishers in Gujarat, but no institution is above the law,” added Richard Herz, Senior Litigation Attorney at EarthRights, who pleaded the case. “Even the IFC’s own accountability mechanism criticized the IFC’s role in the project, finding myriad failures. The IFC has not denied causing harm, and it is unconscionable that it would claim immunity when it harms local people.”
Tata Mundra Power project has been a complete failure. Recently, Tata power had announced to the Union Ministry of Power that Tata Power might be forced to stop operating its imported coal-based Mundra ultra-mega power project. From the violation of national laws to the failure to apply the environmental and social safeguards, from environmental and social destruction to financial disaster, to failed policies of energy security, this project is a case study of what should not be done. IFC has been an active participant in this story of financial failure and environmental and social damage by rejecting the findings of its own compliance mechanism. Instead of hiding behind the safety of technical aspects of law, IFC’s focus should be on using its resources to restore the environment and livelihoods of those negatively affected by this power plant.
For background & more information: https://www.cenfa.org/projects-in-focus/tata-mundra-ultra-mega-project/
Dr Bharat Patel
Machimar Adhikar Sangharsh Sangathan
+ 91 94264 69803
Centre for Financial Accountability
+91 98711 53775
Tata Mundra Ultra Mega Power Project: A decade of disemPOWERing communities
Almost a decade after the construction for the Tata Mundra Ultra Mega Power Project and eight years since the operations of the project started, a revisit to Mundra tells the story of the destruction of livelihoods, environment and disempowered communities. The project was envisaged as India’s first ultra mega power project that would add two percent to total generation capacity in India and provides power to 16 million people in five states. It would also supply cost-competitive power to manufacturing industries and services. What was not assessed was how the project would impact the most marginalized communities in Mundra whose life and livelihood were based on Mundra’s unique biodiversity and ecology.
The Project is a 4000 megawatt (MW) power station, comprising five 800MW units, in Gujarat, India. The plant was commissioned in 2012-2013 as part of the Government of India’s ambition to develop large capacity projects at the national level of 4,000 MW capacity each under tariff-based competitive bidding route using super critical technology on build, own and operate basis. A consortium of Banks including multilateral agencies and Exim Banks invested in this project, which costs US $4.14billion. Both the International Finance Corporation(IFC) and the Asian Development Bank(ADB) have put US$ 450 million each. The project since its inception has been marred with environmental and social concerns.
In 2011 the fishworkers affected by the project filed a complaint with the accountability mechanism of IFC regarding the violation of IFC’s operational guidelines. A similar complaint was filed with the accountability mechanism of ADB in 2013. Despite reports by accountability mechanisms confirming the concerns of the community of largescale social and environmental damages due to the project, largely the management rejected the reports and a flawed remedial action plan was drafted; which till now has not been implemented properly. In April 2015 the fishhworkers, represented by Earth Rights International, filed a suit against IFC in federal court in Washington D.C., where the IFC is headquartered. In July 2015, the IFC filed a motion to dismiss the complaint arguing that it is entitled to “absolute immunity” from suit in US courts under the International Organization Immunities Act(IOIA). In February 2019, in a historic 7-1 decision, the U.S. Supreme Court decided that international organizations like the World Bank Group do not enjoy absolute immunity, giving hope to the community to go ahead in their fight to hold IFC responsible for the damage caused to them.
Ten years since the project’s construction was started, and after eight years of its operations, the fishworkers of Tragadi bandar (harbor), Kothadi bander, and Navinal, (who were impacted by the in-take and outtake channels of the project) are left on the verge of poverty. With the consistent decline in fish catch due to hot water discharge from the outlet channel, destruction of mangroves and creeks, the fishworkers are now finding it very difficult to maintain their basic living standard. During a conversation with fishworkers on Tragadi gaon, most fisworkers complained of the debt cycles they were caught in. One of the fishworkers, Jam Buddhabhai said, “We used to take loans earlier as well from the merchants who come to buy our fish but we were able to pay the loans in one fishing cycle (9 months) but for the past 3 years the cycle has been unending.” Most fishworkers have also started looking for daily wage work on days they are not fishing which is difficult for them to find as their skill and knowledge both are is of the world of the sea.
Another important change has been the death of pagadia (on foot) fishing. With creeks blocked and mangroves destroyed the fish closer to the sea have almost become negligible. Most of pagadia fishworkers have started working either as wage labour worker for people who own boats. Prawns and lobsters, which were found close in the creeks and mangroves, have declined drastically. Even for fishworkers who had been fishing on boats now don’t find much fish catch near the coast. They recall that in 2010 they would catch fish to capacity in a boat twice and did not have to go beyond 2 to 3 kilometers in the sea. Today, they have to venture at least 8 to10 kilometers in the sea to find fish. This has increased the input costs and the risk they have to endure for fishing. From increase in diesel cost, to having to stay put on the boat for days and not come back to save costs of fuel, risk of fishing gear damage by ships, with endless wait to find the fish catch, past ten years have left the fishworkers struggling to make their ends meet.
Women, the Most Affected:
This decline in fish catch has left the women from fishing families in a worse condition. Women were mostly engaged in sorting, grading and drying fish once men bring the fish catch. They would also sell the certain small fish in the local market, which would contribute to their personal income. This has totally stopped. With the decline in fish catch, there is just enough for household consumption and selling to the merchants who sell for export. In Tragadi village, the fishworkers families traditionally went to Kotadi bander to stay during the fishing season. Once the in-take channel of the project was built the access route to the bander became longer. They no longer accompany menfolk to the bander now. With an increase in travel costs, the decline in fish catch and men having to be in the sea for days together to catch fish, it became difficult for women to stay at bunder. In a conversation with fishworker women in Tragadi village they feel helpless that they can’t contribute to the work or income and keep sitting at home the entire day. The quality of life, personal expenditure, movement and economic independence have all been affected. One of the girls form the community who is now 18 years old, Asifa told us, “we remember a time our mother gave us money when they would come back from markets. We all had piggy banks and our small savings, it’s been long since I have seen that in any home now.”
Farmers & herders:
The situation of the farmers and cattle rearing community is not any better. The years of operation of the plant, with in-take channel bringing seawater deeper into the land has resulted in the drastic increase in the salinity of water. This has severely affected the agriculture in the area. In our conversation with farmers from Navinal, Mota Kandagara and Siracha, with the groundwater turning saline, the farmers have to rely on rains as bore well water is no longer fit for irrigation and where people are still using bore well water for irrigation, the quality of crop has turned bad. This has not only made farming unpredictable because of uncertainty of rains but has also changed the traditional agricultural. Crops like peanuts and chiku can longer be grown. Even for crops, which are grown traditionally like cotton, dates, bajra the production has reduced and the quality deteriorated. Many farmers have just left farming, as it is no longer bringing any income. Many have just left their fields unattended and now seek daily wage labour work. Apart from that the coal dust and fly ash that settles on the crop deteriorates its quality specially cotton which becomes black in colour and dates (coal dust and fly ash allow water to settle on it which ruins the fruit). This has resulted in a steep decline in the market value of these crops. The farmers in Navinal said that, “Once our cotton crop used to fetch the same value in the market as Bhuj cotton but today, the story is different. We are paid less than half of what Bhuj farmers will get for cotton but its understandable ours is black in colour.”
The situation of the cattle rearing community is no different. With grazing grounds having been acquired for the project, they are left with no other option but to buy fodder for their cattle. Tata and Adani (both having acquired land for the power projects) both are providing some fodder daily for cattle but that is much less than what is required. Most of the fodder has to be purchased. Also, whatever little grazing land is available has become barren due to increase in salinity of ground water. Also, fodder which is bought from local farmers and a few grazing lands are covered with coal dust which when eaten is resulting in increased cases of cattle falling sick. Premature births, increase in mortality rate and skin infections in cattle have become common. Now in desperate situations, cattle rearers have started migrating with their cattle to other talukas (blocks) in Kutch for grazing.
Air Pollution & Effluents:
The operations of the project and the conveyor belt have resulted in increase in air pollution in the region. Respiratory disorders have become common. The air pollutant display machine outside the plant is always switched off in spite of it being mandatory for them to display pollution levels at all times. Fishworkes also have to face severe skin infections. Chemical water discharge from outlet channel has caused severe skin infections in fishworkers due to long exposure chemical hot water discharge. Salinity increase has also impacted the drinking water, which has also become saline. Even though Tata provides tankers at Tragadi bander and an RO plant in Navinal village, this is not sufficient. Most people have to buy water from tankers or if they cannot afford it they mix ground water with little drinking water that is provided to meet the water requirement. Cases of kidney stones and joint pains have become common among the population consuming water with such high salinity levels.
Given this situation of the communities impacted by the project, it is only ironic that on its official page, IFC states that, “CGPL’s community outreach initiatives focus on improving education and healthcare, increasing access to safe drinking water and energy, natural resource management, and infrastructure improvement. The initiatives also focus on improving income generation and livelihood opportunities, empowering women, enabling access to government development schemes, and strengthening community based institutions.”
After pushing people to poverty, depleting and destroying their livelihood, damaging the marine environment, being responsible for increased pollution levels and taking away the economic independence of women these claims seem nothing but disingenuous. This project is a classic example of a failed due diligence and economic assessment with the project also running into losses. With enough measures for the rescue to the company, it is the project-affected community that has been at the receiving end of the forced development.
For Immediate Release
Villagers Celebrate The Historic US Supreme Court’s Verdict Which Ended The Immunity of the IFIs
MASS welcomes the US Supreme Court’s Decision to Hear the Case Challenging World Bank Group Immunity
For immediate release
For more information:
After a Judge declared World Bank immunity cases “wrongly decided,” the communities affected by the Tata Mundra project approach US court to review “absolute immunity” doctrine
Communities harmed by Tata Mundra coal power plant in India continue to seek justice from World Bank Group’s International Finance Corporation
July 26, 2017, Washington, D.C., and Mundra: After a federal judge in US declared that the cases giving the World Bank Group an “absolute immunity” from lawsuits were “wrongly decided,” the communities affected by private-lending arm of the World Bank Group have filed a petition asking the full D.C. Circuit Court of Appeals to revisit its immunity doctrine.
In June, a three-judge panel of the D.C. Circuit, in the case Budha Ismail Jam v. IFC, had ruled that the International Finance Corporation (IFC), the private-lending arm of the World Bank Group, could not be sued for its role in the controversial Tata Mundra coal-fired power plant, which has devastated fishing and farming communities in Gujarat.
In its June ruling, the panel, citing the legal precedents, concluded that the IFC is immune from suit in this case. Justice Nina Pillard, however, wrote a dissenting opinion criticising those decisions as “wrongly decided” and suggested that the full D.C. Circuit, which has the authority to change the law of the Circuit, should revisit those cases.
“The panel’s ruling gives international organisations like the IFC an unparalleled immunity, insulating them from legal accountability regardless of how much harm they cause,” said Richard Herz, senior litigation attorney at ERI, who argued the case for the plaintiffs. “Such sweeping immunity, which is far greater than the privileges enjoyed by sovereign foreign governments, is inconsistent with multiple Supreme Court precedents, and is contrary to the IFC’s development mission,” added Herz.
“We will not give up our struggle for justice,” said Budha Jam, a plaintiff in the case, after the verdict.
“This decision tells the world that the doors of justice are not open to the poor and marginalised when it comes to powerful institutions like IFC,” added Gajendrasinh Jadeja, the head of Navinal Panchayat, a local village involved in the case. “But no one should be above the law.”
It is noteworthy that the plaintiffs filed suit against the IFC in April 2015 over the destruction of their livelihoods and property and threats to their health caused by the IFC-funded plant. The IFC recognised from the start that the Tata Mundra plant was a high-risk project that could have “significant” and “irreversible” adverse impacts on local communities and their environment. Despite knowing the risks, the IFC provided a critical $450 million (Rs 1800 crore) loan in 2008, enabling the project’s construction and giving the IFC immense influence over project design and operation. It failed to take reasonable steps to prevent harm to the local communities and to ensure that the project abides by the required environmental and social conditions for IFC involvement.
The plant has destroyed the local marine environment and the fish populations that fishermen like Jam rely on to support their families, and vital sources of water used for drinking and irrigation. Coal ash contaminates crops and fish laid out to dry and has led to an increase in respiratory problems.
The IFC’s compliance mechanism, the Compliance Advisor Ombudsman, issued a scathing report in 2013 confirming that the IFC had failed to ensure the Tata Mundra project complied with the conditions of the IFC’s loan. Rather than follow CAO’s recommendation for remedial action, rejected most of its findings, and ignored others. Plaintiffs had no other recourse but to sue IFC. In its ruling last month, the panel recognised the “dismal” situation of the affected communities, noting IFC did not deny that the plant had caused substantial damage and yet found IFC could not be sued.
The harms suffered by the communities are all the more regrettable because the project made no economic sense from the beginning. In fact, in the past month, Tata Power, which owns the plant, has begun trying to unload a majority of its shares in the project for 1 Rupee because of the losses it has suffered and will suffer going forward.
On appeal, the plaintiffs argued that IFC has waived immunity because this suit promoted the IFC’s mission, which includes the goals of reducing poverty without harming its projects’ neighbours. The IFC interestingly argued that it is not bound by its own mission.
“The court’s judgment supports the arrogance of lenders like IFC, who disregard the law, their own safeguard policies, and even the findings of their accountability mechanisms,” said Dr. Bharat Patel of Machimar Adhikar Sangharsh Sangathan (Association for the Struggle for Fisherworkers’ Rights), which is a plaintiff in the case. “This sends the wrong message to institutions like IFC – that you can continue to lend money to bad projects, causing irreversible damage to people and environment and no law will hold you accountable.”
The plaintiffs are optimistic that the full D.C. Circuit will reconsider the case.
By Joe Athialy
Like India once had a Ministry of Disinvestment, it’s time she has a Ministry of Loss Making. How else can one understand government’s eagerness to buy out all loss-making projects, whether in coal, hydro or steel sectors, collectively a few lakhs of crores of rupees worth?
Thermal power projects of about 25,000 MW are on sale, a report says, while there are not many buyers in the market. The government jumps in and offer to buy some of them. Last month after a meeting with leading bankers Power Minister Piyush Goel said that the Centre is designing a new plan where public sector banks will buy off stressed assets or projects which are running on losses, and the state-owned National Thermal Power Corporation (NTPC) will operate it.
What magic could turn these loss-making projects profitable by buying them off from private corporations who, despite subsidies and other incentives given by the centre and state governments, failed to make their projects economically viable? If one looks at the fate of Air India today, one wonders if the government could convert loss-making sectors to profit-making ones, why did they fail in saving Air India!
This buy off undermines the effort Reserve Bank of India (RBI) is doing to recover nearly 25% of non-performing assets (NPAs), listing down 12 stressed accounts through the Insolvency and Bankruptcy Code and cast a shadow on the tall claims of curbing the menace of NPAs.
The other day, nine thermal power projects (TPP), run by private corporations were shortlisted for bank takeover. Three of the major ones are said to be Jindal’s Derang project in Odisha; RattanIndia Power (erstwhile Indiabulls Power) plant in Nashik, Maharashtra; and Lanco Infratech’s Babandh power project in Odisha, with a combined capacity of 6660 MW.
A study, which looked into TPPs which are 1000 MW and up, and which secured environmental clearance between 2005 and 2015, said that over Rs. 6 lakh crore was lent out by national and international financial institutions, banking and non-banking, for 125 projects, with a capacity of 2.4 lakh MW. Of which, 89%, or Rs 4 lakh crore was lent by national institutions. The above three projects are part of the 125 projects considered for the study, and they borrowed from national banks as well as non-banking institutions like Rural Electrification Corporation and Power Finance Corporation, for a combined cost of Rs. 27,255 crores.
But where did all this start? The coal sector is reeling under heavy financial stress with more and more companies trying to shed their liabilities off. Expansion of coal-based power sector a decade back was devoid of any sense or reasoning. How else would one justify approvals of over 700 GW of power projects by 2011, with nearly 85% of the coal-based projects, when the Integrated Energy Policy of the Planning Commission was projecting a power requirement of only 230 GW by the year 2032? One could trace back today’s financial stress of the sector to that mindless expansion, into which companies which hitherto was only making/dealing with compact disks, electronic items and running newspapers jumped into to make quick bucks.
Coastal Gujarat Power Ltd (Tata Mundra) and Adani Mundra plants are other two projects, which sought government bailout in the recent past due to mounting losses.
One of the first Ultra Mega Power Projects, Tata Mundra has been the poster-boy of TPP in India. A 4000 MW, $4 bn project, financed by every major financier one can things of – World Bank private sector arm, International Finance Corporation, Asian Development Bank, Korean Exim Bank, BNP Paribas, India Infrastructure Finance Corporation Ltd, HUDCO, State Banks of India, Bikaner and Jaipur, Hyderabad, Travancore, Indore, Vijaya Bank and Oriental Bank of Commerce.
Claiming to be using supercritical technology, and hence less pollutant, they procured coal from Indonesia, prices of which trebled within a few years making the project more non-viable.
The colossal environmental damages, loss of livelihood and a host of social and environmental issues recognised as serious impacts by accountability mechanisms of IFC and ADB – the Compliance Advisor Ombudsman and Compliance Review Panel – were never counted in the costs, nor tried to compensate or mitigate.
Since the time of its commissioning, the Mundra project has been a drag on the financials of Tata Power.
Adani’s 4260 MW coal based power project in Mundra, a neighbour to the Tata project, has been reeling under growing stress the past many months. Adani Power recently reported a consolidated net loss of ₹4,960 crore in Q4 of FY17 compared to a net profit of ₹1,085 crore in Q4 of FY16. Last month, Adani Power had discontinued 1,250 MW power supply to Gujarat Urja Vikas Nigam Ltd. (GUVNL), a Govt of Gujarat entity, mainly due to the inviability of imported coal to run its power plant at Mundra.
In April, Supreme Court had disallowed any relief to Adani Mundra plant (and Tata’s Mundra plant, both located at Mundra) in a five-year-old contentious issue of compensation due to the unforeseen increase in imported coal prices for their power plant.
Economic and Political Weekly, in a recent investigation, found out how the NDA government amended rules related to Special Economic Zones to favour one company – Adani’s Mundra Power, benefiting the company with Rs. 500 crores by giving it an opportunity to claim refunds on customs duty, which it never paid. It says:
In August 2016, the Special Economic Zones Rules, 2016, were amended by the department of commerce, to insert a provision on claims for refund under the Special Economic Zones Act, 2005. The SEZ Act under which the SEZ Rules are framed did not initially provide any provision for refunds of any kind before this amendment was introduced. According to reliable information received by the authors of this article, the amendment was made to specifically provide Adani Power Limited (APL) an opportunity to claim refunds on customs duty to the tune of ₹500 crore. The APL has claimed that it has paid customs duty on raw materials and consumables—that is, coal imported for the generation of electricity. However, documents leaked to the EPW indicate that the APL had not, in fact, paid the duty on raw materials and consumables amounting to approximately ₹1,000 crore that had fallen due at the end of March 2015. It appears at face value that by amending the SEZ Rules to insert a provision for companies to claim refunds on customs duty, the department of commerce is allowing the APL to claim refunds on the duty that has never been paid by it in the first place!
How will a project plagued with controversies, with possible legal and certainly financial liabilities, be of any good for a public sector undertaking?
NPAs stand at a staggering Rs. 7.6 lakh crore at the end of March, or 9.3% of the gross advances by the banks – a rise of 135% in last two years. Public sector banks account for almost 88% of these loans, which have now exceeded these banks’ combined market value.
It’s a double blow to the public – first their deposits in the banks have been turned to NPAs, and then their tax paying money is used to bail out the ones who turned their assets to NPAs.
The bailout of corporations by the government sends a wrong message to the banks and regulators and takes away the confidence in the public that the government is serious about tackling this issue. It’s a simple case of privatisation of profits and nationalisation of losses.
Without putting bold and long-term measures to tackle the issue of NPAs, piece-meal measures of bailing out selective corporations will only lead to the ripping off of the banking system. The long-term measures could include a moratorium on corporate debt restructuring and non-transparent debt write-offs, blacklisting willful defaulters and preventing them from further borrowings, and stringent measures to recover from defaulters.