The funding agency has threatened to invoke the penalty clause as the State Government failed to award even the consultancy contract for the nearly Rs 1,788 crore project was run into rough weather, following the controversy over awarding the consultancy contract. Sources said the funding agency might invoke a penalty clause against the State Government as the agreement between the donor agency and the centre provides a penalty clause by which the donor can impose a fine of 10 per cent of the contract value.

The project was to commence in 1998. The agreement for this was signed on 1997. The project was to be completed in 2003. The total funding from OECF will be to the tune of Rs 1539.98 crore.

OECF had deposited the money to the account of the Union Government. Though two years havepassed since then no decision has been taken in this regard. The project was to provide fund for five drinking water projects in Thiruavananthpuram, Kozhikode, Kannur, Alappuzha. The State Government had informed that the OECF's insistence on awarding the contract to Pacific Consultants International might lead to allegations of corruption. The OECF director board meeting held in Japan had decided not to heed to Kerala government advise.