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India

Tax evasion scam linked to wind

An alleged wind power tax evasion scam in India involving an estimated $52 million has put the country's entire wind industry under suspicion. The major player unearthed so far is the REPL Engineering group, allegedly working together with 23 finance companies. REPL, worth $79 million and with interests in aluminium packaging and telecommunications, diversified into wind farms five years ago. Tax authorities have alleged the tax evasion was to raise money for ambitious growth programmes planned by REPL.

A series of shady dealings are alleged, the main one being fraudulent tax depreciation claimed for turbines that never existed. Mr N.P. Sahni, income tax director, told a national business magazine: "We see a pattern in the method of tax evasion through 100% depreciation claims. In many cases we suspect the collusion of finance companies. It is hard to believe that finance companies financed assets without verification. If they are not party to the racket, they have been duped. Either way, they will have to pay taxes according to revised assessments."

The tax authorities are also criticised for failing to investigate why a large number of finance companies should suddenly have gone into wind farming. The scam came to light after REPL submitted paperwork showing wind turbines as purchased from its group companies with loans from finance companies. REPL then leased the fictitious turbines on the basis of records provided and tax depreciation claimed.

REPL's chairman and managing director, Homi Patel, has admitted that 112 turbines reported as installed by the company in the last 18 months existed only on paper. In total, loans for 48 wind turbines, reportedly imported, were provided by 23 finance companies. The machines were valued at $53 million on a sale and lease back arrangement. REPL claimed to have installed the turbines in Porbander and Saurashtra in Gujarat. The Gujarat Energy Development Agency, however, says it did not issue a single clearance certificate to any of the 23 finance companies.

Alleged fraudulent financial transactions have also come to light in the financing of wind plant and machinery worth $800,000 in 1993. According to Mahesh Thakkar, president of the Association of Leasing and Financial Services Companies, the chances of the government recovering its lost revenue from REPL are remote.

Poor timing

The REPL scam has come at an inauspicious time for the Indian wind business, already suffering from the country's economic slow down and a shortage of foreign credit. But the industry remains optimistic about better times ahead and insists the scam will not have a long term detrimental effect. Mr S. Annamalai, director of the Pioneer Asia Group, a long time wind developer, says the scam has not put off the serious customer and has helped "in getting the fly-by-night operators out." Raj Kumar, director of the National Energy Processing Company, which formally partnered Micon, comments: "This is a part of a scenario of settling down. We have finally come to a stage in India when only the best will survive."

Nonetheless, there is fear in the industry that wind turbines could lose their privileged tax status as a result of the scam. Kumar says this is nothing to worry about. "A project that costs $237,000 generates a $45,000 return every year," he explains. "In five-and-a-half years the project has paid for itself without the need for tax depreciation. Those serious about wind energy need not worry."

A greater concern, according to Annamalai, is the lack of foreign credit. "Investments are down in the country and the industry is limping along. There is also a great deal of undercutting as many manufacturers are getting anxious to dispose of their surplus stocks." By the end of this month, Pioneer Asia will have installed only four 250 kW turbines over a one year period, he says.

Kumar, however, believes the industry is so robust that it will win through. "People think the Indian market is written off. But despite existing in a scenario of drastically reduced investments, at least 40 MW is still going up in March. That shows the potency of the Indian market and its ability to survive," he says.

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