Construction activity at Lavasa, Pune ? being developed by Hindustan Construction Company (HCC) ? has been at a standstill for the last nine months as the stop work order issued by the ministry of environment and forests (MoEF) is yet to be withdrawn.

The ministry is expected to pass its order regarding Lavasa Corporation in a week, according to the indications given by the MoEF lawyer in the Bombay High Court on Monday. The hearing was with regard to PILs filed by several groups against the Lavasa project.

Jayanti Natarajan, the new environment minister, had in a written answer to a question in the Rajya Sabha on August 9, 2011 said that the expert appraisal committee had recommended five pre-conditions before issuing environmental clearance.

The MoEF pre-conditions were that the Maharashtra government had to take action against Lavasa for the violations, then there had to be a written consideration by Lavasa not to repeat violations, it had to demarcate site between state government and forest land, 5% of project cost had to go towards CSR and Lavasa had to set environment restoration fund.

Lavasa has responded to these pre-conditions sent it to the MoEF which was seeking legal opinion on it. The MoEF order would be based on this response that the company has sent them. HCC officials did not want to comment on the content of their response and the pre-conditions.

Lavasa Corporation had then sought environmental clearance for the first phase of 2,000 hectares and the future of the project will depend on what the new order from MoEF will be as and when it comes. A delay in restarting the project is not only hurting the Lavasa project but also Hindustan Construction adversely. The MoEF, then under minister, Jairam Ramesh, issued a show cause notice to Lavasa on November 25, 2010 and issued final directions on January 17, 2011 to stop work. The MoEF on June 10, 2011 had asked the state government to take action against Lavasa under the provisions of Environment (Protection) Act, 1986 for violation of the act.

A clarity on the current situation would emerge at next court hearing and indicate if both MoEF and the company itself is trying to find the way ahead. At the hearing before the HC Bench on July 12, 2011, Lavasa indicated that they could accept the preconditions but they needed the MoEF to issue a final order. Their contention was that the MoEF had just mentioned the preconditions and said nothing about the order.

On January 7, 2011 at an interaction with the media at Lavasa, Ajit Gulabchand, chairman of Lavasa Corporation and CMD of HCC had said the Lavasa project was losing R2 crore a day. At this rate, the loss till date would be close to R500 crore. Gulabchand had said that the investment in Lavasa so far is R2,000 crore.

Lavasa Corporation, 60% subsidiary of HCC, was all set for a R2,000 crore IPO before the ministry orders put plans on hold. The project was valued at about R10,000 before it was caught in the turbulence.

According to Abhishek Sinha, financial analyst with ValueNotes, HCC?s financial position has also deteriorated in the last five years as the debt/equity ratio has increased considerably from 1.72 in 2007 to 2.28 in 2011 and the company took an additional debt of around R900 crore in FY11. ?Lavasa too has a massive debt of R2,000 crore on its books and considering the problems surrounding it and the bearish market conditions, it seems that Lavasa IPO is unlikely to come out in the near future,? said Sinha.

Sinha says if the preconditions set by the environment ministry are met it would imply that construction would be allowed only in the first phase but there was no certainty on Phase II and III. So, although the situation has improved, it?s still not pleasant for HCC, adds Sinha.

According to estimates HCC?s share in Lavasa is valued between R10-12 per share when HCC?s share itself is trading at round R26 so this means that Lavasa alone constitutes around 35% of HCC?s total business value and any further roadblock can cause a significant blow to HCC?s performance, points out Sinha.

HCC?s stock has already lost approximately 68% of its value since July 2010 and on August 19 it touched 52-week low of 25.60 and closed at 26.35 on BSE.

Lavasa Corporation?s net profit fell by 22% in FY 2011 as compared with R209.5 crore in the previous year. It was trading at R27.45 on the BSE on Monday August 22.

Lavasa is one of the largest hill city being developed by HCC across 12,500 acres at Mose valley, 65 km from Pune. HCC Group holds 65.01 % along with Avantha Group (16.25 %), Venkateshwara Hatcheries (12.79 %) the remaining 5.95% is with Vitthal Maniyar. As Lavasa is located in the Western Ghats which is a ecologically sensitive and fragile zone, there were concerns about the impact of the project on the environment.