Lavasa lands in trouble for flouting green laws

SHOWCAUSE NOTICE: JAIRAM ORDERS WORK TO STOP

THE Union environment ministry has issued a showcause notice to Lavasa Corporation, which is constructing a 25,000-acre hill township near Pune, alleging myriad violation of environmental laws. The company, promoted by a clutch of investors led by Hindustan Construction Co (HCC), will have to stop construction work immediately.
    The notice from the ministry continues a high-profile crackdown on violators of India's hitherto loosely-enforced environmental laws by environment minister Jairam Ramesh.
    The high-profile project described as independent India's first hill city may get away by paying a "hefty penalty", according to sources in the environment ministry. This penalty will have to be paid if the company is unable to explain violations, including construction above 1,000 metre of sea level, and without prior clearance on an area over 20,000 sq metre.
    The second phase of the project is unlikely to receive clearance in the wake of the new findings, they added.
    The move immediately pulled down the HCC stock, and may impact the company's proposed initial public offering (IPO). On Friday, after the news of the showcause notice to Lavasa, HCC shares slipped 19% to close at 40 on NSE.
    The stock had declined 11% and 2.9% on Thursday and Wednesday, respectively, after Lavasa's name cropped up in an unrelated scam involving alleged payment of bribes by a number of companies, largely real estate firms, to bank officials. News broke on Wednesday that the company had used Money Matters, a debt arranger at the heart of the scandal, for some property transactions.
    HCC chairman and managing director Ajit Gulabchand has said these transactions were completely legal.
    The environment ministry had sought a report from the Maharashtra environment department in June after a complaint by an NGO called the National Alliance of People's Movement, whose leaders include Medha Patkar, a well-known activist.
    The state government arm responded in August saying a no-objection certificate by it was later converted into a final environmental nod based on two assumptions. Lavasa project will need fresh approval
THESE were that buildings had been built below 1,000 metre and the proposed construction was limited to an area less than 20,000 sq metre. Both limits have been breached, the state government report says.
    The Union ministry has been able to intervene due to an Environment Impact Assessment Notification issued in 1994 (later amended in 2004), according to which any new industrial estate that had commenced without central clearances under the notification will now be required to do so if construction work had not commenced as on July 7, 2004, or if the expenditure occurred till that date had not exceeded 25% of the sanctioned project cost. According to the report by the Maharashtra environment department, the project cost incurred by the 2004 threshold was only 5.33% of the total cost.
    The project, which has often been linked to Agriculture Minister Sharad Pawar, will now have to get fresh clearances from the ministry.
    Pawar, in a recent newspaper interview, had strongly defended the project saying it was aimed at creating a modern hill station, something that had ceased after independence. He had said he had personally identified the areas where such a hill station might be set up.
    The environment ministry's intervention might affect the company's plan to float an IPO. The company had filed a draft red herring prospectus with Sebi last week, and the market regulator had approved the proposal. The corporation aims to raise 2,000 crore through its IPO.
    A company spokeswoman refused to comment in detail on the showcause beyond saying, "We have received the notice and the senior management is studying the same and contemplating a response."
    HCC owns 64.99% of Lavasa Corporation. Its other major investors include Gautam Thapar's Avantha Group with 16.25%, Venkateshwara Hatcheries with 12.8%, and individual investor Vinay Vithal Maniar with 6%.
    A number of banks have significant exposure to the Lavasa project. These include ICICI Bank ( 250 crore), Axis Bank ( 225 crore), Bank of India ( 150 crore), Allahabad Bank ( 500 crore), IndusInd Bank ( 500 crore), Andhra Bank ( 250 crore), Union Bank ( 500 crore) and Jammu & Kashmir Bank ( 100 crore).
    Earlier this year, an inquiry by the state government suggested the Lavasa deal had deprived Maharashtra of revenues. An inquiry conducted by the state revenue department says Lavasa bought 600 hectare from farmers who were given land by the state. Therefore, Lavasa should have paid 75% of the price of the land to the state. Instead, it just paid 2% to the government.
    But company officials say Lavasa bought 350 hectare, not 600 hectare, as stated in the report. It paid 2% because this was the amount demanded by the collector's office.
    The government report also says Lavasa bought 98 hectare of tribal land without the prerequisite clearance from the government—a charge Lavasa denies completely. The report also finds fault with the state's irrigation department—MKVDC—for leasing 141 hectare at throwaway rates to Lavasa. The government at no point sanctioned this lease and while the market price should have been 20 crore a year, the lease was signed for 3 lakh a year.
    Lavasa argues that the lease signed in 2002 was based on the market rates at that time.