Is Virbhadra Singh favouring Gautam Adani to get CBI off his back?

QUICK PILL

The conflict

• Virbhadra Singh\'s regime awards a 960-MW hydel project to Brakel in 2006
• High Court finds Brakel guilty of suppressing facts in its bid, cancels allotment
• In August 2015, government awards the project to Reliance
• Brakel demands back the Rs 280 crore advance, paid on its behalf by Adani

The deal

• Finance and energy departments want the Rs 280 crore advance forfeited
• They also want the state to seek damages of Rs 2,700 crore from Brakel
• Law department says it\'s not Brakel or Adani\'s fault, so return the money
• CM may do so in hoping for help with a CBI case against him

When it comes to dealing with unscrupulous corporates, elected representatives are often found wanting. This is mostly because they are beholden to influential tycoons for favours. Himachal Pradesh could be a case in point.

A suspect deal for a power plant entered into by the state's Congress government in 2006 survived the BJP's tenure from 2007 to 2012 and is now back in circulation under the Congress.

A confidential note drafted by the state's power ministry for the cabinet, and accessed by Catch, refers to a project for the construction of a 960-MW hydel power plant.

It discusses recovery of Rs 2,700 crore in damages and forfeiture of the upfront premium of Rs 280 crore from the company the project was allotted to due to its "misdeeds, misconduct and delay".

Project in a shambles

In October 2005, the Congress government of Virbhadra Singh invited bids for the Jangi-Thopan-Powari Hydel Energy Project. In December 2006, the letter of allotment was finally issued to the lowest bidder, Brakel Corporation NV. The state and the firm then began multiple rounds of discussion on various formalities of the deal.

The discussions were still going on when the assembly election was announced in October 2007 and the Model Code of Conduct kicked in, stalling the project.

In December 2007, the BJP government of Prem Kumar Dhumal took power. And the following month, it issued a show cause notice to Brakel for delay in submitting the upfront premium.

In a strange turn of events, the government reviewed afresh the bids for the project but then, after a couple of months, suddenly accepted Brakel's payment of Rs 280 crore as upfront premium.

Incensed, the defeated bidder, Reliance Infrastructure Ltd, went to the Himachal Pradesh High Court. The court found Brakel guilty of "misrepresentation and suppression of material facts" and ordered the government to cancel the allotment.

In its judgment on 9 October 2009, the court observed, "It is apparent that Brakel filed an incorrect Registration Certificate with the bid document. The said certificate contained alterations and erasures that were done with a view to fraudulently mislead the government. It is more than clear that the Standard Bank had never committed to 45% equity participation. The Joint Venture Agreement was signed by persons who were not authorised to sign it."

The state said it'd review the bids but then suddenly accepted Brakel's Rs 280 crore payment. Why?

"We are clearly of the view that Brakel was guilty of misrepresentation and suppression of material facts," the court ruled. "In our view, this by itself was sufficient ground to cancel the allotment in favour of Brakel."

The government did as ordered but forfeited Brakel's upfront premium.

This inevitably raised the question: how come the government didn't know about the misdeeds that the court eventually found Brakel guilty of?

Game of Money

In August 2015, the Congress regime of Virbhadra, who had returned to power in 2012, allotted the project to Reliance on the same terms and conditions as awarded to Brakel.

Brakel, meanwhile, has been asking the government to return the Rs 280 crore premium - not to it, but to Adani Power Limited. In a letter to the chief minister, dated 24 August 2013, Brakel calls Adani its "bona fide investor who has deposited the money with the government" on its behalf. It adds that Adani Power is a "genuine investor and it was not involved at the evaluation and award stage".

Brakel's demand has divided the government. The Directorate of Energy, which is responsible for allotting projects under the power ministry, is unequivocal in its opinion, outlined in the confidential note. It argues that:

• Brakel can't be exonerated from the lapses committed during the course of bidding and subsequent allotment of the project.
• Adani Power was not in the picture when the premium was received from Brakel and this amount is liable to be forfeited.
• Legal recourse should be taken to claim damages from Brakel for causing loss of revenue to the state.

The law department, on the other hand, favours returning the money.

It believes that:

• Adani Power cannot be blamed for the impasse in any manner.
• The state can not retain upfront premium from two different parties.
• The premium of the earlier bidder, therefore will have to be refunded.

It, however, doesn't refer to the high court's strictures against Brakel.

The finance department disagrees, however. Supporting the demand for forfeiting the upfront premium and seeking damages, it says:

• The law department's advice is contrary to the facts of the case and there are several infirmities in it.
• Taking premium as per the terms of a fresh deal doesn't prevent the state from penalising Brakel.
• Adani Power has no legal right to be considered a party to the matter, hence its claim for refund has no merit.

In spite of these difference, the power ministry came around to accept the law department's position. It says the project got "embroiled in litigation" and, therefore, "Brakel cannot be blamed for the impasse in any manner".

Agreeing that "the state can't retain upfront money from two parties", the ministry says "it would be morally and ethically wrong" to forfeit the money deposited by Adani Power on Brakel's behalf.

The note concludes by asking the cabinet to consider these three points while making a decision:

Should the show cause notice slapped on Brakel in March 2014 be dropped?

If not, should its reply be rejected, upfront premium forfeited and the process for recovery of revenue loss initiated?

Or, should the upfront premium be refunded and payment made on receipt of upfront premium from Reliance?

Gautam Adani with Subhash Ahluwalia, Principal Private Secretary to the Chief Minister of Himachal Pradesh, Virbhadra Singh

Is it a done deal?

It seems the Virbhadra government is trying to return the Rs 280 crore to Adani Power, over the objections of two key departments. Not just that, according to sources it's also not inclined to seek damages from Brakel for causing an estimated loss of Rs 2,700 crore to the state exchequer.

A senior official told Catch that it seems the government is "under some kind of pressure" from Adani Power owner Gautam Adani.

Could it be that Virbhadra is helping Adani in expectation of a personal favour?

A state government official who did not want to be named said it's essentially a quid pro quo. The government has done a deal with Adani to return his money from the premium it'll receive from Reliance. In return, perhaps there is an expectation that Adani might use his connections in the central government to dilute the CBI probe against Virbhadra in a disproportionate assets case.

Senior official: it seems the state government is "under some kind of pressure" from Gautam Adani

Others say that this is mere speculation as the CBI is no longer "a caged parrot" but an independent investigating and prosecuting agency. No one should expect Adani to influence it in any way. "Who is Adani in this government? Does the CBI report to him or to the prime minister?" they ask.

The CBI, however, is to file a report in the case to the Delhi High Court later this month. It remains to be seen whether it is delayed or watered down, after the Himachal government readies itself to pay Adani Rs. 280 crore.

If that does indeed happen, it would help clear much of the fog around the blighted project.