According to reports, vigilance inquiries have been initiated against Satnam Singh, chairman and managing director of state-owned Power Finance Corp. Ltd (PFC), India’s largest lender to the power sector, at a time he is being considered for an extension after his present term ends on Wednesday.
Vigilance inquiries against Power Finance Corp chief Satnam Singh
According to documents reviewed by Mint, the thrust of the complaints against Singh pertain to loans extended to wind-turbine maker Suzlon Energy Ltd, which received around Rs.800 crore from PFC to refinance existing debt, and toVideocon Industries Ltd. Another complaint has also been made by an entity called PFC Officers Association.
The Central Vigilance Commission (CVC) has asked the power ministry to investigate the allegations, said four people familiar with the development.
“There are vigilance inquiries against Satnam Singh. He is due for extension,” said a power ministry official who requested anonymity.
To be sure, the launch of inquiry itself is no evidence of any wrongdoing.
While Singh declined to comment, Keshav Rao, a director at the commission, in an emailed response, said that CVC has received a report from the power ministry on Singh and sought further clarifications. “Request for vigilance clearance in respect of extension of tenure of Shri Satnam Singh has been received in the Commission,” he wrote in the email. “Commission has asked the Ministry to approach the Commission after bringing complaints/cases against Shri Satnam Singh to a logical conclusion.”
In the case of reappointments, the parent ministry (in this case, the power ministry) sends its recommendation to the appointments committee of the cabinet (ACC) through the department of personnel and training and asks CVC, which oversees the work of state agencies and companies, for a fresh background check on the candidate. The Public Enterprises Selection Board oversees hiring for state-owned firms.
“It couldn’t go to the ACC. Since the CVC clearance is awaited, a proposal has been moved for giving him (Singh) a three-month extension,” said another power ministry official, who also didn’t want to be identified.
Singh began his five-year term as chairman and managing director of PFC on 1 August 2008. In the last fiscal, PFC, which has a loan book of Rs.1.6 trillion, sanctioned Rs.75,147 crore and disbursed Rs.45,151 crore.
An 18 June complaint made to the power ministry alleges illegal funding of Videocon Mozambique’s Rovuma 1 offshore block, which is said to be the largest gas discovery off Africa’s east coast with estimated recoverable reserves of 35-65 trillion cubic feet.
The complaint alleges that Videocon Mozambique was lent Rs.1,000 crore to acquire “so-called oil and gas assets that will help power sector”, and that the loan was to “only enable Videocon India to further borrow based on these funds and multiply by trading its stake for speculative gain”.
PFC has refuted the allegations and is of the opinion that while a rupee term loan of Rs.2,200 crore was sanctioned to Videocon Industries for development of hydrocarbon assets in Mozambique, Brazil and Indonesia, the sanction was approved by the board and not just Singh. Also, the loan documents are yet to be executed and no money has been disbursed.
“Not even a single rupee has been disbursed. It is a malicious complaint to scuttle his (Singh) chances of getting an extension,” said a person aware of the enquiry requesting anonymity.
This comes in the backdrop of plans by state-run ONGC Videsh Ltd and Oil India Ltd to buy Videocon Mauritius Energy Ltd’s 10% stake in Mozambique’s Rovuma 1 offshore block for $2.47 billion (around Rs.14,770 crore).
In a 3 July office memorandum to the power ministry that was reviewed by Mint, CVC said, “It is understood that M/s Suzlon Energy Ltd. is facing liquidity crunch and has requested lenders to refer their case for re-structuring to CDR (corporate debt restructuring) cell. It is not known as to what has been decided in case of PFC as lender if this loan was mainly for refinancing bank loans. It is not clear who is the counterpart. If banks are the counterparts to the extent money that has been refinanced out of Rs.800 crore, the same should be secured. If not, then PFC would have to be part of re-structuring package.”
“The complaint regarding loan to Suzlon Energy Ltd is that such a loan is not in our policy,” said the person cited above. Mint could not ascertain the date of the original complaints pertaining to the Suzlon loan. Lenders agreed on 24 January to recast Rs.9,500 crore of Suzlon’s debt as part of a CDR programme. Suzlon is also India’s biggest convertible bond defaulter. “There is a policy for equipment manufacturer and debt financing. It was clubbed together,” said the person quoted above.
“While the anonymous allegation is that it is an unviable loan, there are 18 banks including a majority of state-owned banks,” the person said. “SBI Caps (SBI Capital Markets Ltd) was the lead. There should not be an issue. Technically, Suzlon is not a defaulter.” The same person discounted the allegations of impropriety made by the so-called PFC Officers Association, saying no such entity existed. “The name of the real association is PEA (PFC Executive Association),” the person said.
A Suzlon Energy spokesperson declined to comment, citing the so-called “silent period” a company must observe prior to its first quarter earnings announcement. Queries emailed on Friday to Diana Fernandes at Planman Consulting, who handles public relations for Videocon, remained unanswered.
Under CDR, bankers typically extend the repayment period, cut lending rates and sometimes agree to forego a part of the money that’s owed to them. Banks may also offer a repayment holiday. A CDR is approved if at least 75% of the banks by value of the loan and 60% by number agree to recast the debt.
“The scheme to reimburse the assets already created by any corporate is prone to great risk and the funds can be misutilised by corporate by either diversion or funding their losses,” CVC said in the office memorandum, asking the power ministry to “furnish requisite information in case if there exits such a board approved policy”.
The first power ministry official quoted above said the inquiries into the allegations against Singh were not unusual. “This is a normal practice at the time of a PSU chief’s extension, when numerous anonymous complaints start to pour in. We are awaiting CVC’s approval,” the official said.