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LAVASA CASE STUDY Introduction It's good to have ambition. The bigger you dream, the bigger are the challenges you come across while fulfilling 'lE'lTl. "Lavasa City" is about a person who dreamed of buding the firstever human-made city in India from scratch. This is also a story of how a largescale infrastructure project can go wrong? How ignoring things can turn a heavenly place into hell? How a blion dollar project can lead to bankruptcy? How the dream place of so many people can become desolate? Background Two decades past, thenbillionaire Ajit Gulabchand who was Managing Director of HCC Company went to Italy, where he visited a city named Portofino. He was so fascinated by the city that he decided to build India's 1st planned trill city and 1st privately managed city, which would have no government interference. The city known as Lavasa, modeled on the cottoncandy harbor of Italy's Portofino, was planned. He also wanted to incorporate world-class standards in India such as luxury hotels, top universities, stadiums, etc. After coming back to India he started his search for a location where he can establish a township. Portofino is popularly known as a jewel of the Italian Riviera and is famous for its beautiful harbor, clear waters, and spectacular coastal scenery. Mr. Gulabchand wanted a city in a hilly region that has water bodies surrounding it similar to Portofino. Finally, his search of the location came to an end with the place named Mulshi, in the Western Ghats of India. Mr. Ajit Culabchand's Company HCC in 2000 incorporated Pearl Blue Lake Resorts, later its name was changed to Lake city corporation. Later in 2000, it was again renamed Lavasa Corporation. To turn his dream into reality, architects were hired at HDK. He hired creators of LaCuardia's Airport [Central Terminal B} in New York as well as the Barclays world headquarters in London. It would be India's 1st privately designed and managed town, absorbing settlers from the hinterlands trying to find opportunities in urban areas. No additional govemment bureaucracy. The total cost of the project will be in Billions of dollars. HCC Hindustan Construction Company Limited or HCC Limited was known as a construction company that had its headquarters in Mumbai, India. The businesses include the sectors of Engineering & Construction, Real Estate, Infrastructure, Urban development & Management. The HCC group of companies comprises HCC Ltd. and its subsidiaries which include HCC Real Estate Ltd., HCC Infrastructure Co. Ltd., Lavasa Corporation Ltd., Steiner AG in Switzerland, and Highbar Technologies Ltd. The Industrialist Seth Walchand Hirachand was founded in 1926. HCC Ltd. executes large-scale civil engineering and infrastructure projects such as hydel power plants, nuclear power plants, etc. HCC is found to currently serve the infrastructure sectors of transportation, power, and water. HCC holds the pride of being the first construction company in India to be certified ISO 9001, ISO 14001, and OHSAS 18001 for its quality, environmental, occupational health, and safety management systems. The company is guided by Mr. Ajit Gulabchand chairman & managing director (CMD) and Arjun Dhawan (CEO) Project Description Lavasa City was planning to spread township across the 7 hills of Mulshi valley. It is just 65kms from Pune and 200kms from Mumbai. The city was designed on the principles of new urbanism and was said to have world-class infrastructure, industries, and international education institutions, exciting avenues of leisure and tourism, and homes for comfortable living. The beautiful environment will help you live, work, learn and play in harmony with nature. About 25,000 lakeside apartments and villas with about 50,000 employment opportunities should be available in Lavasa. It also provides some wonderful housing options for permanent residents. Planned economic drivers of the city were- Research centers . Hospitality and tourism . Education Residential properties . Healthcare The city was tied up with various names in the respective sectors to develop the required hard and soft infrastructure. These include-Apollo Hospitals, Accor Developers, Christ University, Symbiosis, Mercure Hotels, ITC Ltd, Novotel, Starwood, National Institute of Hotel Management, Manchester City, Hockey Australia, Sir Steve Redgrave, etc. Jobs were to be provided under various initiatives which should make the best use of local expertise and potentials. The project also aimed to open avenues in terms of employment, schooling, transportation, etc. which would lead to the overall development of the population of nearby villages. Lavasa had only access by road from Pune or Mumbai. Being hilly region roadsdeveloped have steep inclines in some places. Also as per publicly available data, no air connectivity was planned for the city. Lavasa City was planned to be built in four stages. The initial part of the project, viz. development of Dasve village, was to be made available by 2010-11. The actual work of Lavasa town started in 2W4. By ED'EI, the road network, water, and sewage material treatment plant were completed. The planned dam was designed and built and also the water pipeline network within the town was laid down. The electricity distribution system and substations were in situ. LCL was able to tap electricity from the Maharashtra State Electricity Board {M5EB} transmission line that passes through the neighboring areas. The corporate has additionally entered into a power purchase contract with Tata Power for the availability of electricity. The Dasve village was currently below the nal stages of development, whereas the second village of Mugaon was launched in 2012. Lavasa City's Glimpse Apollo Hospital {operational} Novotel Lakeside Apartments Promenade Project Financing Lavasa was one of the biggest residential projects in India. It was promoted by the Hindustan Construction Company (HCC) and consortium under the subsidiary registered as Lavasa Corporation (hence the name Lavasa for the city and the project). With an investment projected at Rs. 30,000 Crores, the consortium planned to generate a revenue stream of Rs. 147,000 Crores by 2020. HCC was the major stakeholder in the project (i.e. Lavasa Corp.) with a 65% stake, while Thapar Group and Venkateshwara Hatcheries were the other big partners with 15% and 12.5 % stakes respectively in the project. The remaining 7.5% stakes were held by two smaller entities. The corporation had raised funds for development through a mix of equity options (from promoters), debt, private equity, and joint ventures. The banks and financial institutions holdover 11% of the shares through convertible debentures. Lavasa Corp. planned to make the project financially self-sustainable once Phase I is complete. The revenues from the sale of the property (developed during Phase 1) and the Rs. 2000 Crores raised through IPO (Initial Public Offer) were the options available with the corporation. Exposure of the Financial Institutions. HCC was the biggest equity stakeholder in the Lavasa Corp. Besides HCC, nine Indian banks and one foreign bank were involved in this project. Among these, a minimum of 8 banks subscribed to deep discount convertible debentures of Lavasa Corp. Notable among them are ICICI bank's exposure of Rs. 250 Crores, Axis bank's Rs. 225 Crores and Bank of India's Rs. 150 Crores. The equity pattern and the share of banks in the project are depicted in the graph displayed below. Venkateshwar a Hatcherles others 13% 7% HCC Avantha Group Avantha Group HCC Venkateshwara 15% 65% Hatcheries Wothers Figure 1: Holdings in Lavasa Corporation150 100 500 Allahabad Bank 225 Indusind Bank 250 Union Bank of India Deutsche Bank Singapore 500 250 Central Bank of India ICICI Bank Andhra Bank 400 Axix Bank 500 Bank of India 500 J& K Bank Figure 2: Relative Exposure of Banks in Lavasa Project (in crores) Rocky Road to Lavasa The Lavasa project was envisioned by Ajit Gulabchand after visiting Italy's Portofino. A four- hour drive from Mumbai, Lavasa was to be the first privately developed city in India. Going forward on this Lavasa even got Special Planning Authority (SPA) status around the year 2007, SPA powers help them to control all aspects of the normal life of everyone - power, water, gas, security, roads, waste collection, traffic... etc. However, this was revoked in May of 2017 following multiple complaints by the residents regarding the misutilization of powers granted to Lavasa Corporation. Environmental damage An investigation was carried out by the Ministry of Environment and Forests under which it was found that the city has caused environmental damage since Lavasa is built "in the beautiful hills of the Western Ghats, which was a UNESCO World heritage site known for its evergreen tropical forests that shelter 325 species of vulnerable or endangered animals, birds, and fauna." Resulting on June 10, the Union Environment Ministry had asked the Maharashtra Government to take necessary action against the Lavasa Corporation, as a part of its construction has been undertaken without a green nod. Following this, Environment Minister Sanjay Devtale instructed his ministry to start preparing documents to file a case against Lavasa Corporation for violating Environment (Protection) Act 1986 which they did on Jun 15th, 2011.Once the review of the project was done, the ministry provided clearance to Lavasa with specific conditions, such as a cessation of hill cutting activities, building of a sewage treatment plant, and antipoverty CSR measures aimed at the local population on 9 November 2911. Starling of construction Lavasa project occupies about 5,999 hectares along the edges of seven hills in the Sahyadri range of the Western Ghats. Construction work at Lavasa was going on at a rapid rate till November 25, 2919, when the Union Ministry of Environment and Forests ['MoEF] intervened and issued an order to stop work immediately as the project had violated many Environmental laws. With the increasing population and industrialization, the environment has been adversely affected. Natural calamities have become so frequent and inevitable that proper care and concjem are needed for every new human intervention in new areas. In this term paper, we will mainly be focusing on the violation of Environmental laws i.e. Environment Protection Act 1985, Environment Impact Assessment [EIA] which was in 1994 including the haphazard or unsystematic cutting of hills. To be convinced by the claim, the first thing readers need to know is about the government and bureaucracy which normally move at a snail's pace in our country. But contradictory to this, the speed of the Lavasa project was at its peak. Initially, it was under scrutiny from the Environment Ministry and construction stayed pending scrutiny of irregularities in sanctions granted to the project. Within months of its application of purpose, clearance was given, indeed even before the application was submitted to the concerned departments and ministries. The second thing one needs to remember is that according to Lavasa's environment impact assessment [EIA] report, prepared by NEERI {National Environmental Engineering Research Institute}, 50% of the area is covered by vegetation, 23.39% by forests. Construction of such a large lake town, and a population of 299,999 during peak time, will lead to an impact on the area's ora and fauna. The report states that 43% of the ora in the study area consists of medicinal plants. It does not propose any impact mitigation or preservation plan. Mulshi and Velha valley, where the project was about to start, experiences some of the heaviest rainfall in the world. The area is rich in tropical vegetation and it is imperative that considering the fragility of the Western Ghats, it should he left undisturbed. The construction activity world drastically alters the natural landscape, opening the valley and entire Ghats region leading to environmental degradation. The rainfall patterns of the area will be impacted by this in the long term. Lavasa was found to be violating the rules and regulations by the Ministry of Environment and Forests under the Environment Protection Act 1936. According to Mo EF, LCL [Lavasa Corporation Ltd) is in violation of 1) The EIA Notification, 1994 2) The EIA Notication, which was amended in 2994 3} The EIA Notification, 2995. In the past, the Adarsh housing society in Murnbai was ordered to be demolished under Section 5 of the Environment Protection Act. The same law also applies to Lavasa. But, LCL has denied charges of violating environmental laws. In March 2004, the final clearance was given by the Environmental department of Maharashtra to LCL under the Maharashtra Hill Station Regulations of 1995. The company didn't apply to the Centre through the EIA notification of 1994 mandated clearance from MoEF for tourism-related projects between EDDm and 500m of high tide line and for projects at an elevation of more than l,EI|EIm from sea level, that involved an investment amount of over Rs 5 crore. Since a total area of about 58 hectares of Lavasa City was above 1,0(1 Elm height and the cost of the project was more than Rs 5 crore, LCL ought to have applied to the Centre for clearance. Further, the mandatory public hearing and assessment of EIA report and environment management plan by Elf-LC were bypass ed. The state, in fact, misled the Centre on the applicabity of EIA notification on Lavasa. In July EDDIE, MoEF had written to the Maharashtra environment department saying the project at'h'acts provisions of EIA notification and asked it to ensure all clearance processes are followed. All the Standards bypassed The regulation didn't permit cutting of mountains; set a ceiling of 2,0012] ha for adding to a hl station city; did not allow construction on slopes more extreme than 1:5 {each ve-meter separation meets onemeter stature} and PSI of private plots was constrained to 3-D percentages with the height of two stories. These were changed at LCL's command. 1What are a couple of immaterial guidelines when venture promoters have intense power and support? [Guidelines only for common and powerless people} Yet again, as on account of Adarsh, principles were changed over and over and once more, to make the unlawful lawful. On May 30, Eill, the Maharashtra government canceled the upper limit of 2,0[l ha in the hill station policy, permitting Lavasa to take as much land as it wished. The following day, the state urban advancement office changed the territorial all-inclusive strategy of Pune to permit the hill station to be formed in the Sahyadri's [Pune was one of the first regions to change its local groundbreaking strategy after the adjustment in hill station approach}. Then the Maharashtra government provided requests that IE- towns in Mulshi and Velhe talukas of Pune would be announced hill stations. Within three weeks, LCL, which was then called Lake City Corporation, was allowed on a fundamental level to build up the hill city. In the first regional plan, the range was reserved for afforestation. EIA notications euted. The organization guaranteed the changed Environmental Impact Assessment ['EIA} Notification of 2004 also did not make a difference to the project. The notice said, "All new development ventures", including townships and communities implied for more than 1,000 persons or including speculation of more than Rs 50 crore, require the Center's environment clearance. 'When this necessity was pointed out in court, LCL argued that the task was not I'another undertaking\" on the grounds and that it had adequately advanced by 2004 when the notice was issued. However, the records put together by LCL to the service demonstrate the organization acquired the first authorization for development only inAugust 200?. A letter by Pune's assistant director of town planning, dated November 2008, and illuminated that Lavasa quaJified as a new construction project. The investment made by the organization as on July .7", 2004, was under 25 percent of the expense, a condition for a modern task to be viewed as \"a new construction project\The Cover- Up The Maharashtra Pollution Control Board {MPCB} gave Lavasa "approval to build up" in May 2002, much before the venture got environmental clearance. In typical circumstances, the approval is given after the undertaking gets environmental clearance. A letter by member secretary of MPCE, to the Union environment service, dated July 15, 2005, says the work on the venture had begun in January 2003 with a statement to the collector that le undertaking got environment clearance only in 2004. The pollution board endeavors to pass over the illegalities at Lavasa which did not have any significant bearing for environment clearance. The letter says, "Since the task location is situated benea] the height of 1,000meter, EIA notice of 1994 was not appropriate to the undertaking and since work started in 2003, ELA warning of 2004 was not applicable." The letter also guarantees that the pioneer was "circumspectly looking after the environmental management plan and completing environmental monitoring as prescribed by NEEEI in its EIA. The pollution board also issued an allowance for stone crushing of 1,500 tons a day in April 2004. This has brought about largescale stone quarrying in te fragile regions of Western Ghats. A 2009 interval report by the People's Commission of Enquiry, a commission of legal advisors and activists set up by nonbenefits to check land dealings and relocation of human population in the light of the projects in the Sahyadri's, says different government departments allowed an aggregate of 31 clearances in a brief time between 2002 and 2003. The bureaucracy moves at a very slow pace in India. But the way the government fasttracked Lavasa was quite amazing. The Way Ahead As of 2010, Lavasa was an incomplete shell providing housing to 10,000 people, a symbol of the excesses gripping the world's secondmostpopulous nation. As India's central bank forces either lenders to restructure debts quickly or take defaulters to the bankruptcy court, Lavasa Corporation maybe is in its final reckoning. In November of 2020, the Government invited bids to take over this financially stressed project and return money to the lenders. Companies like Dber'oi Realty, Haldiram Snacks, Punebased builder Animddha Deshpande and US fund Inter Ups were the primary contenders for the project. However, bidders are in talks about opting for a joint bid on the project also