Regarding widespread irregularity and leakages and consequent huge losses to the public exchequer in the process of engaging of merchant bankers for restructuring and mobilizing for issue of bonds for Rs. 10,000/- Crore under the Central Government’s UDAY Scheme, by the UPPCL.

Sanjay Sharma <tahririndia@gmail.com>	Sat, Jul 15, 2017 at 4:39 PM
To: psecup.energy@nic.in
Cc: pmosb <pmosb@pmo.nic.in>, cmup <cmup@nic.in>, cmup <cmup@up.nic.in>, speou8del@cbi.gov.in, ed-del-rev@nic.in, edhqrs@finance.nic.in, cmd <cmd@uppcl.org>, md@uppcl.org
Date : 15-07-2017 To, Sri Alok Kumar - I The Principal Secretary,Department of Energy Government of Uttar Pradesh,Lucknow - 226001. Sub:    Regarding widespread irregularity and leakages and consequent huge losses to the public exchequer in the process of engaging of merchant bankers for restructuring and mobilizing for issue of bonds for Rs. 10,000/- Crore under the Central Government’s UDAY Scheme, by the UPPCL. Sir,             I am an Engineer, a Social Worker & R.T.I. ( Right to Information ) activist. I am actively associated with various social organizations working in the field of transparency, accountability in public life and protection of Human Rights in India. With respect to the captioned matter, I have to state the following: 1.      That in order to pull out the various power distribution companies, across the country, from the chronic losses, the Government of India, Ministry of Power took a policy decision to launch a scheme under the title-Ujwal Discom Assurance Yojna (UDAY).  An office memorandum was issued on 20.11.2015 laying down the purpose of the policy as also the strategy to be adopted under the policy. 2.      That the UDAY Scheme was optional in nature for the various States. However, keeping in view the advantages associated with the scheme, most of the States saw it as an opportunity to bring a turnaround in their power distribution systems.  Consequently, as per my information, almost all States in the country have adopted the scheme and have signed memorandums of understanding with the Central Government.  Needless to state that the U.P. Power Corporation Ltd has also signed the MOU on 30.01.2016. 3.      That as you are aware, there are five Discoms – DVVNL, KESCO, MVVNL, PSVVNL & PUVVNL, taking care of the distribution work for supply of electricity in the State of Uttar Pradesh under the Uttar Pradesh Power Corporation Ltd. (UPPCL). 4.      That the UDAY Scheme contemplates, inter-alia, taking over of 75% of Discoms’ debts by the participating State Govts. Balance 25% was to be replaced by issue of state govt. Guaranteed bonds.  The modus prescribed for the purpose was that the States would issue bonds in the market or directly to the respective banks/FIs holding the Discoms debts and the proceeds realized from issue of bonds shall be entirely transferred by the State to the Discoms for the purpose of enabling them to discharge their debts owed to the Banks/FIs. 5.      That in the State of Uttar Pradesh, the UPPCL issued a tender advertisement on 10.02.2016, almost immediately after signing the MOU. The advertisement was for inviting tenders from merchant bankers for structuring and mobilizing resources for issue of bonds on private placement basis for an amount of Rs. 13,300 Crore.  As per my information, no party/bidder turned up for the tender and after the last date, the tender was changed, modified and reissued not less them 7 to 8 times.  This was obviously, as would be clear from the facts narrated in the later portion of this letter, to customize the terms and conditions of the tender notice as per the need, or greed, if I may say so, of certain interested persons. 6.      That the finally tender was issued on 03.08.2016 for engaging merchant bankers for mobilization of funds for improvement in financial and operational efficiency of Discoms on private placement basis for Rs. 10,000 Cr. under the UDAY Scheme. 7.      That perusal of the tender notice dated 03.08.2016 would conspicuously point to the following changes introduced by UPPCL in the tender notices issued earlier: (a)     The condition that “the joint bidding or consortium bidding would not be allowed” was done away with; (b)     Minimum commitment requirement for mobilization of funds was drastically reduced from Rs. 13,300 Cr. to Rs. 3,500 Cr. and the dates for fixed portions was also changed to suitably help certain persons; (c)     Lastly, the time frame for mobilizing Rs. 13,300 Cr. within 30 days  was changed to Rs. 3,500 Cr. within six months; 8.      That conspicuously, the tender notice was silent as regards the terms and conditions and also the structure of the tender.  It is obvious that in absence of information regarding the exact terms and conditions and the structure of the tender, several deserving and eligible bankers/FIs refrained from participating in the tender process.  Only one party, which was in fact a consortium of two private bidders i.e. Axis Bank Ltd. and Trust Investment Advisor (P) Ltd., submitted its bid. 9.      That in absence of any competition or rival bid, the consortium bagged the tender and secured the work order.  The consortium, after securing the contract, was itself to design the Structure of the issue in consultation with UPPCL. Accordingly the structure of the bond was manipulated in collusion with the UPPCL and the Govt. officials. This practice, it is well known, was a clear deviation from the long established practices of PSUs for inviting commercial bids. 10.     That needless to state the above mentioned deviation had the effect of blocking much more profitable sources of funds had there been competitive bidding.  The consortium was paid a huge amount, which was one percent of the contract as arranger fee (i.e Rs 100 Cr. approximately). 11.     That it may be relevant to point out that a Tender or Quotation is called by any Public Sector Undertakings (PSU) to Discover for Minimum/Best Price of the Services/Material to be procured by it through a transparent Bidding Process participated by relevant Market Participants; the general market practice followed by almost all the PSUs uniformly in the process of inviting tenders for issuance of bonds is to mention the tenor of the bonds, repayment  periodicity, credit rating, security provided by the sponsoring body, etc.  On the basis of structure/specifications of the bonds, borrower invites quotation through financial bid which comprises – the rate of interest to be offered on the bonds to investors and the one time arranger fee to be charged by the bidder.  Logically, the bidder which quotes the lowest cost after adding up the two components is awarded the contract. Idea behind this procedure is to ensure the best price from a basket of choices. This procedure also ensures transparency. 12.     But in this case i) Financial Bid asked by UPPCL contained only Quotation of One Time Arranger Fee to be charged by the Bidder;  ii) and the rest of the things i.e. Structure or specifications of the Bonds (Tenor of Bonds; Repayment periodicity of Bonds; Credit Rating of Bonds; Security Provided for the Bonds) & Rate of Interest was left to be decided by the successful bidder with the approval of UPPCL, which cannot be treated as a transparent method of Price Discovery of a Major Cost Component. 13.     That in absence of specific terms and conditions on the above noted points, it was a no holds barred kind of a situation for the single bidder who manipulated and was doled the terms and conditions to suit its design. 14.     That at the cost of repetition, I state that the UPPCL deliberately did not specify structure & the terms and conditions of the bonds in order to ensure that there was no competitive bidding and the consortium which came forward with the bid was privy to specific information about structure of the bonds which was manipulated to help him subsequently. 15.     That even if the irregularity in the process of tendering is kept aside, the consortium committed breach of terms and conditions of the contract even subsequently.  In this regard it may be relevant to point out that under the terms and conditions of the contract, Rs. 1,500 Cr. was to be mobilized by 30.09.2016 and subsequent Rs. 2,000 Cr. was to be mobilized by 31.12.2016 and 31.03.2017 for Rs. 1,000 Cr. each. 16.     That however, in the instant case, the consortium was permitted to open the first tranche of bond issue of         Rs. 6,510 Cr. at 8.97% per annum payable quarterly on 17.02.2017 and the second tranche of bond issue of Rs. 3,489.50 Cr. at 8.48% p.a. payable quarterly on 27.03.2017. 17.     That therefore, it is clear that the consortium defaulted in mobilization of initial two tranches as per the stipulated schedule. Despite this, the UPPCL proceeded to allow the consortium to continue with impunity. 18.     That one of the terms introduced after the biding process was over was that the on the instructions of the state govt. the comfort of RBI guaranteed repayment to the investors. 19.     That the RBI comfort at the instance of the State Government at a subsequent stage of the bidding had the effect of upgrading the bond’s credit rating to “AA” which is a very high credit rating.  This was done at a subsequent stage after the bidding process was over.  Had this intention or plan of UPPCL been made known to the Bidders in the Tender Document prior to the Bidding, there would have been much better offers in the process of competitive bidding. 20.     That the selected sole Private Consortium Bidder had the Exclusive Right to Sell/subscribe these Bonds Directly to themselves or their Associates only. 21.     That the UPPCL also helped the Consortium Bidders in Bidding Process for Price Discovery of rate of interest of the bonds by opening a window at BSE site only for 5 mins. Since, neither Electronic Bidding Platform (EBP) was kept open for sufficient time for all other investors nor proper advance information was given to other investors, as required by SEBI. As a result of which Consortium arrangers parked all the Bonds with them or their associates. 22.     As a result of above & in absence of competition, the bonds started selling at a huge premium of Rs. 3 to Rs. 4 in the secondary market. As per the secondary market data, the UPPCL bonds sold at a premium of up to Rs. 6, which was 6%.  This evidently means that the consortium earned Rs. 600 Cr., which could have easily gone to the UPPCL coffers, had there been competitive transparent bidding in the process of issuing bonds. 23.     That it is pertinent to state that the natural and obvious effect of the above manipulation and efforts by the consortium and the UPPCL and Govt. officials, the consortium itself found it expedient to reduce the rate of interest of Bonds in the 2nd Tranche (there being no change in the Debt/Interest market during this period) by 0.49% p.a..  This unequivocally proves that the 1st tranche was issued at a very high rate of interest (which happened due to absence of competitive bidding) 24.     That it has already been noted above that on the instructions issued by the State Government, the comfort of RBI guaranteed repayment to the investors was provided.  Under such conditions, the investors found the bonds so lucrative that they did not shy away from purchasing them even at a premium. 25.     That the entire process of bidding involving a single Private Consortium bidder was fraudulent and was designed and tailor-made for the purpose of siphoning of money from investors at the cost of UPPCL’s exchequer. 26.     That it may be relevant to point out that it is obvious that the entire conspiracy to defraud the UPPCL and the State Government has been hatched by certain officers at the helm in collusion with the promoters/directors of the consortium Bidders. 27.     That it may be relevant to note the fact that one member of the consortium i.e. the Trust Investment Advisor Pvt. Ltd. is a small time player having net worth of around Rs. 150 Cr. only.  It is, therefore, a natural question that where was the occasion for the Axis Bank having net worth over Rs. 10,000 Cr. to have partnered with a non-entity like Trust Investment Pvt. Ltd. 28.     That fact of the matter is that entire embezzlement has been planned by Trust Investment Pvt. Ltd. in collusion with officers of the UPPCL and the State Government. 29.     That even by a conservative estimate, the fraud discussed hereinabove has led to loss of not less that Rs. 700 Cr. to the public exchequer. 30.     Further, as per a clause in the tender notice,  dated 03.08.2016, if the Mandated merchant bankers performance is found to be successful & satisfactory for mobilization of minimum committed amount (Rs. 4,500 crs) at the end of the defined period, the work order may be extended for further 1 year for incremental structuring & mobilization requirement of the Issuer, if mutually agreeable. Therefore, eve the pretence of open bidding has been given go by; 31.     Taking shelter under the above mentioned clause in the Tender Document, it is learnt that UPPCL has also awarded an assignment to mobilize furher Rs. 10,000 crs through Bonds without any Tender/Bidding to Trust Capital & Axis Bank. 32.     Further it is noteworthy that the Bond Issue was launched in the Month of February & March 2017. This was the period when code of conduct for the general elections in the state was operational. Opening of the bond issue for subscription during this period clearly establishes the intentions of the players in the conspiracy, who were in no mood to take chances in view of the uncertainties involved in the election results. 33.     That therefore, an intensive and comprehensive enquiry is required to be ordered in the matter so as to fix criminal as well as monitory responsibility against the concerned persons.             I, therefore, request you to kindly get the matter enquired by an Independent Agency, to cancel the new Work Order awarded to Single Private Consortium without transparent Tender Process, also request you to cancel the agreement with the consortium and recover the losses from all the responsible persons.         Regards,                                                     Yours sincerely,                                               (  SANJAY SHARMA  )     102, Narayan Tower, F Block  Opposite F Block Idgah Rajajipuram Thana Talkatora, Post Office Awas Vikas Colony Lucknow,Uttar Pradesh,India,Pin Code – 226017 Mobile 7318554721, E mail ID tahririndia@gmail.com Copy to- 1.      Sri Narendra Modi, Hon'ble the Prime Minister, Govt. of India, New Delhi. 2.      Sri Aditynath Yogi, Hon'ble the Chief Minister, Govt. of U.P, Lucknow. 3.      Sri Srikant Sharma, Hon'ble the Minister, Department of Energy, Lucknow. 4.      Chaiman, UPPCL, Shakti Bhawan, Ashok Marg,Lucknow. 5.      Managing Director, UPPCL, Shakti Bhawan, Ashok Marg,Lucknow. 6.      Director- CBI, Plot No. 5-B, 6th Floor, CGO Complex, Lodhi Road, Jawaharlal Nehru Stadium Marg, New Delhi, Delhi 110003. 7.      Director, Enforcement Directorate, 6th Floor , Lok Nayak Bhawan,Khan Market,New Delhi – 110 003  (  SANJAY SHARMA  )     102, Narayan Tower, F Block  Opposite F Block Idgah, Rajajipuram Thana Talkatora, Post Office Awas Vikas Colony Lucknow,Uttar Pradesh,India,Pin Code – 226017 Mobile 7318554721, E mail ID tahririndia@gmail.com -- Sanjay Sharma سنجے شرما संजय शर्मा Social Worker & Human Rights’ Activist 102,Narayan Tower, F Block, Rajajipuram, Lucknow, Uttar Pradesh-226017 E-mail tahririndia@gmail.com     Mobile 7318554721