Congress MP Naveen Jindal's Jindal Group was given a stake in all upcoming power projects in Arunachal Pradesh by Congress state govt of Arunachal Pradesh. Look at the amount of manipulations done by Jindal Group to gain stake in state power projects - Congress(I) should seriously consider Navin Jindal as Finance Minister under UPA-III. Arunachal Pradesh scraps power deal with Naveen Jindal Group NEW DELHI/ITANAGAR: Arunachal Pradesh, the epicentre of hydel power in India, has decided to reverse its contentious decision in 2009 to give 49% equity in its hydro-power corporation to the Naveen Jindal Group. The decision, taken last month, came after a backlash from government departments and other companies having hydel projects in the state against the joint venture, which was a departure from precedent as it effectively gave the Naveen Jindal Group a stake in every upcoming hydel project in Arunachal. "The (Arunachal) cabinet has decided to ask the Jindal Group to return its shares," Arunachal Chief Secretary HK Paliwal told ET. Sometime in 2009, the cabinet of the Congress government, led by Dorjee Khandu, had cleared the sale of 49% in the Hydro Power Development Corporation of Arunachal Pradesh Limited (HPDCAPL) to the Naveen Jindal Group. The state, through HPDCAPL, had committed to 11-26% equity contribution in every hydel project coming up in Arunachal, including those of other private players, adding 38,600 mw by March 2009. And Jindal's 49% ownership of HPDCAPL would have effectively given it ownership in every project. "This (the arrangement) looked peculiar," says AV Kameswara Rao, executive director, PricewaterhouseCoopers, a consultancy. "There are models where a state-owned body gives out equity. But this creates a strange situation. A state company holding equity in other projects cannot have a third party holding equity in it," says AV Kameswara Rao of PricewaterhouseCoopers. As companies squirmed at the idea of an uninvited private player holding equity (indirectly) in their power projects and looking into their books, the state backed down and decided to subscribe to its equity share directly, and not via HPDCAPL. "The (state) government is signing direct agreements with companies instead of going through this route," Sanjay Kumar Saxena, the state's current power secretary, told ET in December 2012. How the state decided to award equity in HPDCAPL to a private player in general and Jindal in particular, is not clear. "The decision was taken by the (then) cabinet," says Paliwal. "I do not know why it was taken. I also do not know on what basis Jindal was chosen." Tumke Bagra, who was the state power secretary when the decision was made, declined comment. "I am no more the power secretary. Please contact the present secretary who has access to department records," he said in an SMS. According to Jayant Kawale, MD of Jindal Group's hydel and renewables business, the initiative to reverse the transaction came from them. "Recently, when we noticed discomfort on part of the Arunachal government to carry the transaction to its logical legal conclusion, we on our own offered to sell the stake back to the government," he says. Kawale says the company bought 49% in HPDCAPL because it did not want another firm doing the same. "We had offered to pick up a stake in HPDCAPL because the state government wanted to monetise its investment in the corporation, and we were not comfortable with a third party becoming our partner." Also, he adds, it wanted to ensure Jindal's own hydel projects did not suffer for want of equity. Jindal is setting up three hydel projects as a joint venture with HPDCAPL, whose equity share will be 26%. According to Paliwal, Arunachal will need Rs 13,000 crore to meet its 26% equity commitment in all the hydel projects coming up in the state. So far, this north-eastern state, whose total annual budget in 2012-13 had a size of Rs 3,535 crore, is yet to invest anything in any of the projects. With Jindal holding 49% in HPDCAPL, the latter had to bring in less. "Their liability for equity comes down since a part of the equity is supplied by us. And the project would not fall short," says Kawale. "We agreed to this arrangement as it makes it easier for us with both the state and the Centre." But this arrangement not only gave Jindal greater equity control over its own projects, but also minority control in the projects of other players. According to a senior official in the state power department, the special purpose vehicle running the HPDCAPL-Jindal JV had four directors. "One was to be the managing director of HPDCAPL, the other three were from Jindal." RV Shahi, the former Union power secretary who now advises several hydro companies, prominently Athena Power, on their hydel projects, points out that a private player holding 49% in HPDCAPL gave it several rights in other companies - for example, directorship - and can make it "a force". "If a part of the equity in the company is with financial institutions, it can work with them to create a bloc on the board," he says. A senior official of Lanco Power, which has hydel projects in neighbouring Sikkim, where Athena has a similar stake in the state's Sikkim Power Development Corporation, says since such a company is investing in the project at its inception, it will get equity cheaper than what another external player might have had to pay. "No developer will get such a chance to invest in a project at face value," he says, not wanting to be named. Further equity issuance could complicate matters, adds Shahi. "This company will have a headstart as it indirectly holds equity in this project proponent," says Shahi.