CAG slams government over ultra mega power projects

The Comptroller Auditor General's report on ultra mega power projects (UMPPs) has slammed the government for letting project developers dictate terms to it. The report points out that the government’s role has been reduced to merely monitoring the progress of the projects while the developers have been getting away with large scale violations. The report identifies lack of transparency and fair play from the time of awarding contracts and appointment of consultants to the time of execution of these projects, which are ostensibly aimed at providing cheap electricity.

The report has named Anil Ambani-owned Reliance Power Limited which has been allotted three UMPPs—Sasan in Madhya Pradesh, Krishnapatnam in Andhra Pradesh, Tilaiya in Jharkhand, as one of the beneficiaries of government largesse. The report says RPL made profits worth Rs 29,033 crore with a net present value of Rs 11,852 crores as the empowered group of ministers (EGOM) allowed the diversion of surplus coal from one of the three coal blocks allocated to RPL to its other 3,960 MW power project in Chitrangi tehsil of Singrauli district in Madhya Pradesh. The report states that the said coal block, Chhatrasal, was earlier allocated to NTPC and later given to Reliance.

UMPPs employ super critical technology, which involves deriving high steam turbine power in lower steam temperatures. The Ministry of Power (MoP) conceived these projects in 2006. The Power Finance Corporation (PFC) under it identified about 16 UMPPs, and 12 special purpose vehicles (SPVs) were formed as wholly owned subsidiaries of developers. The six pithead sites are: Sasan in Madhya Pradesh, Tilaiya in Jharkhand, Surguja in Chhattisgarh and Sundergarh, Sakhigopal and Ghogarpalli in Odisha. The six coastal sites are: Mundra in Gujarat, Krishnapatnam in Andhra Pradesh, Tadri in Karnataka, Munge in Maharashtra, Cheyyur in Tamil Nadu and Tatiya in Andhra Pradesh.

SPVs invited bids for six UMPPs between March 2006 and March 2012 and awarded three UMPPs to RPL and one at Mundra in Gujarat to Tata Power. One unit of 800 MW of the Mundra UMPP was commissioned in February, this year.

CAG conducted the audit with a very specific mandate. According to CAG report, titled Ultra Mega Power Plants under Special Purpose Vehicles, released on August 16, the audit was conducted to obtain a reasonable assurance on the competitiveness of the standard bidding documents (SBDs), bidding process and to assess whether selection of project developers and consultants was done with objectivity and in a transparent manner. The audit was also conducted to ascertain whether land was acquired and captive coal blocks were allocated to the developers as per their optimum requirement.
 
The first audits began during the entry conferences of PFC in September 2009. The significant issues noticed during the audit were flagged to PFC and MoP in June 2010 and August 2010 respectively. Since a very important role was played by MoP in this, audit was again conducted in August-September, 2011 to assess the action taken by the management of PFC, the power ministry and EGOM, on the issues flagged to them. The draft report was issued to MoP in October-November, 2011 and their response was received in December, 2011 and January, 2012. The exit conference of CAG with the ministry and management of PFC was held in February, 2012.

Power ministry protests audit standards applied  

A day after the report was released on the CAG website, causing a huge uproar in the monsoon session of Parliament, newly appointed Union power minister, Veerappa Moily, said that CAG ignored his ministry’s submissions when the draft audit report was submitted in March this year. The statement issued by MoP on Saturday went on to criticise CAG for using auditing standards used for “smaller” entities such as Delhi Metro Rail Corporation (DMRC) and other private public partnership projects. “Comparison made in the Report with smaller projects like one of the projects of DMRC is not proper as one UMPP involves investment to the tune of Rs 20,000 crore.  Adopting the criteria of net worth (to assess the experience and worthiness of bidders for UMPPs) as in the case of DMRC would have adversely affected the bidding process and limited competition which would result in higher tariff. If the technical and financial requirements of similar organisations like DMRC were adopted as it is into the standard bidding documents of UMPPs as stated by audit, none of the private sector or public sector organisations would have qualified, except perhaps National Thermal Power Corporation (NTPC), which would have throttled the UMPP initiative at that point of time,” the ministry said.

MoP in its response to CAG has upheld the order of EGOM of August 14, 2008, which recommends the use of surplus coal from coal blocks allocated to Sasan UMPP by other projects of RPL. The rider for the use of the incremental coal, incidentally comes with safeguards, such as Sasan UMPP—which is also a part of RPL—will always have the first right and overriding priority over all coal produced from the allocated blocks and the power generated by utilising such coal would be sold through tariff-based competitive bidding.

Private consultant favoured over public company

The report also reveals the violations committed by the appointment of consultants for bidding management of these projects. Ernst and Young (E&Y), a private limited company, was appointed by the bid evaluation committee for consultancy assignments in bid process management despite making a higher bid for two UMPPs (Sasan and Mundra). ICRA Limited, formerly Investment Information and Credit Rating Agency of India Limited, a public limited company, despite having the lowest bid to serve as consultants for bidding process with requisite technical expertise, were not awarded bids. “E&Y were also awarded consultancy assignment for Krisnapatinam UMPP and then for Tilaiya Project; E&Y was awarded the assignment without inviting the bids. These are in violation of the principle of equity in public procurement laid down in the General Financial Rules of GoI,” adds the report. The consultant, according to the report, also played a big role in equity stake of the developers on SPVs from 51 per cent to 26 per cent. Further, the report also found in consultation with developers, E&Y also relaxed the lock-in period for sponsors and developers from 12 years to 5 years. Later, when these issues were pointed by the previous audits, Power Finance Corporation debarred E&Y from consulting in these projects, a charge vehemently denied by the E&Y representative in India.

Developers allowed to retain excess land

CAG audit also found discrepancies in using land resources for two of the projects in coastal areas. Central Electricity Authority (CEA) fixed new norms for acquisition of land for thermal power plants in December 2007. As per CEA’s new norms, land requirement for coastal power plant of capacity of around 4,000 MW is 619.17 hectares (ha). An excess of 622.4 ha and 443.54 ha were acquired for Mundra and Krishnapatnam projects respectively by Tata Power and RPL. EGOM allowed the excess land to be retained by the developers instead of utilising the same for other public purposes.

As the report is being reviewed Parliament’s Public Accounts Committee, it is unlikely that any of these organisations or developers will face the heat of the government. It is clear from one of the recommendations that that the private companies violated the rules right from the bidding process and the empowered ministers now could only monitor the physical progress of these projects. “Taking a larger perspective and as the government is left with the fait accompli of continuing with the bidders since the respective SPVs have already been transferred to the bidders and financial closure has been achieved in two UMPPs, there is a need to closely monitor the physical progress of the projects so as to avoid any slippage in capacity addition programme,” states the recommendation of CAG.

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