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CAG opens new front against govt

CAG opens new front against govt
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First Published: Wed, Nov 16 2011. 01 13 AM IST

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File photo
Updated: Wed, Nov 16 2011. 01 13 AM IST
New Delhi: The government’s auditor has come down hard on irregularities in the government’s policy on so-called ultra mega power projects, or UMPPs.
The report of the Comptroller and Auditor General of India (CAG), parts of which have been seen by Mint, is with the power ministry for its comment, and could cause further embarrassment for the government.
The UMPPs were showcase projects of the government that were meant to generate 4,000 megawatts (MW) each and help bridge the country’s yawning power deficit.
File photo
The auditor, besides reiterating its objections to the government’s decision to allow Reliance Power Ltd to divert surplus coal (mentioned in its earlier report), has objected to the government’s decisions to allow bidders to develop more than one UMPP; permit Tata Power Co. Ltd and Reliance Power to acquire more land than was required, and effect changes in the bid norms after the project had been awarded. The government’s decisions were taken by an empowered group of ministers (eGoM) headed by power minister Sushil Kumar Shinde.
The report is a follow-up to an earlier review of the special purpose vehicles (SPVs) of Power Finance Corp. Ltd (PFC), the government body appointed by the power ministry to award the projects.
The government wants to set up 16 UMPPs; four of these have been awarded—at Mundra in Gujarat to Tata Power, and Sasan in Madhya Pradesh, Krishnapatnam in Andhra Pradesh and Tilaiya in Jharkhand to Reliance Power.
The auditor also censured the government for the way it dealt, in 2007, with the consortium of Lanco Infratech Ltd and Globeleq Singapore Pte after it was discovered that they had misrepresented details in their winning bid for Sasan. “Instead of forfeiting the bid bond of Rs120 crore furnished by the bidder, a token penalty of Rs1 crore was levied on the bidder,” CAG pointed out. Following the disqualification of Lanco and Globeleq, the project was awarded to Reliance Power.
A Lanco spokesperson didn’t respond to queries emailed to the company on Monday.
Competition
In its report, the auditor criticized the government for setting a ceiling of three UMPPs for a bidder and said this is not “the proper parameter to assess capacity of the developer to execute the project on time”.
Reliance Power has been the most successful company in terms of contracts to develop UMPPs.
CAG further said that a review of the projects awarded to Reliance Power showed delays. The auditor pointed out that in the case of Sasan, the commissioning date of the first unit has been extended by 14 months from the revised deadline of December 2011, and that in the case of Tilaiya, Reliance Power has not achieved financial closure even two years after the transfer of the SPV resulting in the possibility that the first unit will not be commissioned by May 2015 as scheduled. “A proper bid criterion was not laid down to assess the capability of the developer to execute the project in time,” the auditor said.
A Reliance Power spokesperson said in an email: “There has been no delay in the execution of Sasan UMPP. The project is being constructed ahead of its bid schedule of May 2013 and will become operational by January 2013. The entire capacity will become operational in 2014, two years ahead of bid schedule.”
While denying any wrongdoing on its part, a top PFC official, who spoke on condition of anonymity, said: “No one had imagined that one company would bid so aggressively and get a majority of the projects. The bid criteria was a process of evaluation. The criteria was to judge experience.”
Land acquisition
According to the auditor, land measuring 2,634 acres was acquired in excess of the requirements of Coastal Gujarat Power Ltd (the SPV set up for the Mundra project) and Coastal Andhra Power Ltd (Krishnapatnam) against the Central Electricity Authority’s (CEA) norms. This, CAG argues, happened because the government proceeded to award the projects even before CEA finalized its report on land requirements for these projects. It was “avoidable and the land could have been utilized for other ‘public purposes’”, CAG said.
Tata Power declined comment saying that all decisions on land requirements were taken by PFC.
A.S. Bakshi, chairman of CEA, said: “The process for fixing land norms were on. We keep on doing it from time to time. After 2007, we did it again in 2010.”
Bakshi said he would specifically comment on the auditor’s observation after reviewing his records; he subsequently could not be reached.
Coal diversion
Objecting to the decision to amend the commercial terms after the award of the UMPP to allow diversion of surplus coal, the auditor maintained that this had resulted in losses to the exchequer. It pegged the losses on this account of diversion of coal for Reliance projects at Sasan and Tilaiya at Rs1.2 trillion. “The permission to use excess coal subsequent to execution of the contract agreements vitiated the sanctity of the bidding process,” CAG said.
An official at the government’s auditor, who is directly involved in the audit process and who spoke on condition of anonymity, said: “The changes in the contract at this point seem to be in violation. The audit scrutiny suggests the eGoM decision may have been based on incomplete information. We are further scrutinizing the ministry books.”
A spokesperson for Reliance Power denied that there was any loss to the exchequer and said that the company did not receive any “undue benefit”.
“No commercial conditions were changed subsequent to the award of projects to Reliance Power,” the spokesperson said in an email.
Mint reported on 28 September that the government’s auditor was studying a decision of a ministerial group to allow the diversion of surplus coal by Reliance Power from the captive coal mines associated with the Sasan UMPP to another project of the company.
Original UMPP norms required that coal meant for use by the project could not be used for other projects owned by the company.
However, the ministerial group, which also included then finance minister P. Chidambaram, then law and justice minister H.R. Bhardwaj, then science minister Kapil Sibal and deputy chairman of the Planning Commission Montek Singh Ahluwalia, permitted the company to divert surplus coal meant for Sasan. Tata Power, one of the losing bidders for the Sasan project, challenged the decision and has appealed to the Supreme Court after the Delhi high court upheld the government’s decision.
Apart from the power plant at Sasan, Reliance Power is also developing the 4,000MW plant at Chitrangi, also located in Madhya Pradesh. The firm has committed to sell power generated at Sasan at Rs1.19 a unit, while it plans to sell the power generated at Chitrangi at Rs2.45 a unit.
The auditor has also recommended that “the permission to use excess coal in other projects should be reviewed as no benefit on this account was passed to the customers”.
While Shinde declined comment, a senior power ministry official, requesting anonymity, said: “The CAG report is about PFC’s performance. We had sent them an initial reply to their initial query. We will be sending them another detailed reply soon about the points that they have raised in their follow-up.”
To be sure, after deciding to allow the use of surplus coal meant for the Sasan project for another project of the developer, the ministerial group sought to make this the new norm applicable to all UMPPs. It asked the coal ministry to issue necessary instructions to the effect, but this is yet to happen.
Reliance Power has sued HT Media Ltd, publisher of Mint, in the Bombay high court over a 12 May 2010 front-page story in Mint that it disputed. HT Media is contesting the case.
appu.s@livemint.com
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First Published: Wed, Nov 16 2011. 01 13 AM IST
More Topics: CAG | UPA | Congress | Land Acquisition | UMPP |