SNC Lavalin scandal started with the upgradation plan for the three hydel power stations. Tenders were invited and was finalised to an Indian consortium and a Canadian MNC.The foreign company quoted Rs 2.42 crore per MW, the Indian consortium – BHEL and L&T – sought Rs 1.25 per MW. The contract went to the higher bidder, contrary to normal practice.

The Kerala State Electricity Board (KSEB) signed a memorandum of understanding (MoU) with SNC-Lavalin in August 1995. This time G. Karthikeyan of the Congress Party was the Minister for Electricity. Under the provisions of the MoU, the funds for the renovation were to be arranged by SNC Lavalin from the Export Development Canada (EDC), Canada, and the Canadian International Development Agency (CIDA). The Board did so, ignoring the Central Electricity Authority’s (CEA) recommendation that immediate replacement of the generating units at the Pallivasal power station was not called for as the plant was in fairly good condition. The Board undertook a feasibility study on the proposal only in September 1995, by a retired Chief Engineer of the KSEB, who later became a consultant to Lavalin.

Based on the consultant’s report and further discussions, the Board signed contracts with SNC-Lavalin to provide technical services for management, engineering, procurement and construction supervision in February 1996, to ensure completion of the projects within three years. This time also G. Karthikeyan of the Congress Party was the Minister for Electricity. The consultancy agreements were converted into fixed price contracts for the supply of machinery and technical services as part of the renovation at a cost of 67.94 million Canadian dollars (Rs 169.03 crores) in February 1997. During this period Pinarai Vijayan was the Minister for Electricity.

The CAG found that Lavalin was only a consultant intermediary and not the original equipment manufacturer and that the supply of goods and services was made by other firms at a much higher cost leading to excess expenditure. According to the CAG, the absence of due professional care in negotiating the foreign loan proved to be detrimental to the financial interests of the Board. The Board also could not ensure the quality of renovation work in the absence of technology transfer and training of its engineers. Owing to various technical defects in the equipment, the generation of power could not be maintained even at the pre-renovation level and the Board had to spend on repairs.

According to the CAG, failure to exclude the fee for technical consultancy from fixed price contracts resulted in an avoidable payment of Rs 20.31 crores, and failure to negotiate and exclude the exposure fee from the loan agreement resulted in avoidable payment of Rs 9.48 crores and future liability of Rs 2.21 crores. In the opinion of the CAG, there was also an avoidable payment of Rs 1.20 crores as commitment fee despite there being committed but unavailed advance.

The CAG found that the Government did not receive Rs 89.32 crores out of the grant of Rs 98.30 crores that was promised for the Malabar Cancer Centre.

On 16 January 2007, Kerala High Court ordered a CBI enquiry into the scandal.

On February 19, 2008, the CBI informed High court of Kerala that the investigation was progressing and said that former Electricity Ministers Pinarayi Vijayan and G. Karthikeyan would be examined at the appropriate time.

On 21 January 2009, the CBI filed a progress report on the investigation in the Kerala High Court. Pinarayi Vijayan had been named as the 9th accused in the case.

In the progress report filed before the CBI Special court by the CBI Chennai unit DySP, V Ashok Kumar, it has been stated that Pinarayi Vijayan, the former Electricity Minister should be arraigned as the ninth accused.

Claus Trendl, Senior Vice President of the Canadian firm SNC-Lavalin, has been arraigned as the 11th accused and A. Francis, former Joint Secretary (power) as the tenth accused.

During the course of investigation, Vijayan’s involvement came to light apart from the other accused, CBI said in its report. Vijayan, while serving as Electricity Minister between May 1996 and October 1998, colluded with K. Mohanachandran, Principal Secretary (Power) and joined criminal conspiracy which was already hatched in 1995 by R. Sivadasan, former KSEB chairman and others in the matter of awarding supply contracts of the projects to Lavalin, the CBI stated. Vijayan had led a high level delegation to Canada in October 1996 and held discussions with SNC-Lavalin and Export Development Corporation International Development agency regarding the contract and took a decision in awarding the supply contracts to Lavalin at a fixed rate basis. The main consideration in the award of the contract, which was signed by KSEB on February 10, 1997 without Government approval, was the grant offered for establishment of Malabar Cancer Centre (MCC) at Thalassery in Kannur district.

The E. Balanandan committee, appointed by the Kerala government, in its report had opined that the complete replacement of the machinery need not be carried out for the hydel projects and essential parts alone need to be replaced for which the estimated cost will be around Rs 100.5 crores. This recommendation was overlooked and the supply contract was signed just a week after Vijayan received the report. CBI said Vijayan along with the then Chief Minister, the late E. K. Nayanar and the late Dr. V. Rajagopal, former KSEB chairman, again visited Canada during June 1997 where the grant amount to establish the MCC was decided at Rs 100 crores.

The CBI stated that Vijayan along with the other accused had, ‘fraudulently with dishonest intention’ of showing undue favour to SNC Lavalin, entered into only a ‘non binding’ memorandum of understanding on April 25, 1998 for MCC instead of a legally valid memorandum of agreement which facilitated SNC-Lavalin to back out from the commitment later, thereby ‘cheating the government’. K. Mohanachandran and A. Francis signed the MoU and no Government order was issued authorizing K. Mohanachandran to sign the same, but there was concurrence of Vijayan.

Lavalin, taking advantage of the non binding agreement, backed out of the commitment after spending only about Rs 12 crore through its consultants, thus not financing MCC to the tune of Rs 86.25 crore.

As part of the criminal conspiracy, Vijayan, K. Mohanachandran and A. Francis and others placed a crucial note for approval before the Countil of Ministers on March 3, 1998, after suppressing various facts, including the fact that MoU route was dispensed with the Union Government, full report of the National Hydroelectric Power Corporation was not highlighted and concurrence of Central Electricity Authority, and obtained cabinet approval. Vijayan also had close contacts with SNC-Lavalin officials and by abusing his official position had exerted ‘high pressure’ on the staff of KSEB and thereby favoured Lavalin in their official dealings with KSEB, CBI said. The investigations revealed that the supply contract for renovation and modernisation of the Panniyar, Shengulam and Pallivasal hydel projects was given to SNC Lavalin at an exorbitant rate and the per MW cost for the same was the highest. This caused a loss to the Government of Kerala with corresponding wrongful gain to Lavalin.