CHAPTER 18
MINISTRY OF POWER

Nathpa Jhakri Power Corporation Limited

18.1.1    Gross negligence before putting up DPR for formal approval

Nathpa Jhakri Hydroelectric Project (NJHP) was conceived to generate 1500 MW of power daily during monsoon and to meet the peaking requirement of 3 hours twice a day during lean season. Himachal Pradesh State Electricity Board (HPSEB), the initial executing agency, had prepared detailed project report (DPR) in 1986 based on the data supplied by the Survey of India (SOI) in 1981-82. The DPR envisaged 60.5 metre high concrete gravity dam on Satluj river at Nathpa and a pondage of 457 hectare metre (ham) based upon a reference benchmark at Earth Level (EL) 1526.933 metre.

In May 1988, Nathpa Jhakri Power Corporation Limited (Company) was formed for taking up the NJHP. In the meanwhile, the SOI had revised the benchmark from EL 1526.933 metre to EL 1524.700 metre in 1987. However, before seeking the formal approval of the Government of India (GOI), the parameters of various components of NJHP were not scrutinised by the Company/HPSEB for affirming the veracity of the data and the correctness of calculations. Even the agencies of the GOI involved in approving the NJHP could not detect the error. As a result, GOI approved (April 1989) the capital investment of Rs.1678.02 crore for NJHP, based on the wrongly-assumed level of the elevations of various structures of the dam complex.

Even before initiating the process for invitation of bids for major works, the Company did not take care to verify the details and awarded the works in May 1993 on the basis of the faulty DPR. The Company could find discrepancies only in June 1994 during detailed survey at the time of construction of the dam. The matter was taken up with the SOI, which confirmed (December 1994) that the heights supplied previously were provisional.

The Company informed (June 1995) the Central Electricity Authority (CEA) that the pondage capacity would be insufficient to meet the peaking hour requirement. The CEA observed (September 1995) that there were also mistakes in the computation of storage capacity of the reservoir. When the Company carried out detailed analysis of the various factors, it noticed that the capacity of reservoir had decreased from 457 ham to 165 ham due to an error in the computation at the initial stage (3.74 metre), inaccuracy of the original surveys (2.43 metre) and rockfalls/flash floods (0.43 metre). This, in effect, reduced the peaking availability of power from the originally planned 3 hours to 1.5 hours.

As a result, the project would not be able to generate the envisaged peaking power of 3 hours unless height of the dam was increased by 7 metres. The Government of Himachal Pradesh (GOHP) has not agreed to an increase in the height of the dam on the plea that it would pose a serious danger to the safety of its own power plant located nearby.

Management stated (June 2001) that the effective control of NJHP by the Company had materialised only in February 1992 and the discrepancy was noticed while carrying out departmental survey in June 1994, after the award of the main civil works. They also stated (April 2002) that an expert committee had been constituted in December 2001 to resolve the issue with the State Government.

The reply is not convincing. HPSEB was in charge of the NJHP until the formation of the Company in May 1988. Both the entities, however, failed to detect the mistakes before submitting the DPR for the approval of the GOI and later before commencing the execution of the work.

Thus, due to negligence, mistake in the computation of the capacity of reservoir could not be detected before starting the execution of the works. Had the Company/HPSEB as well as other agencies of the GOI examined the DPR with due care before the formal approval of the GOI in April 1989, the capital investment of Rs.1678.02 crore, which has now increased to Rs.7666.31 crore (at June 1998 prices), could have been scaled down suitably. Even if the project is now executed without increasing the height, it may not give the desired results of 3 hours of continuous peaking power and there would be annual generation loss of 713 million units as estimated by Management. Audit could not obtain any evidence of an inquiry into the gross negligence at the level of the Company, nor could it obtain any evidence of revision in administrative procedures to safeguard against repetition of such costly errors in the future.

The matter was referred to Ministry in April 2001; their reply is awaited (September 2002).

National Hydroelectric Power Corporation Limited

18.2.1    Non-realisation of funds

National Hydroelectric Power Corporation Limited (Company) entered (September 1989) into an agreement with a French consortium for construction of Dulhasti hydroelectric project on turnkey basis. According to the agreement, the Company was required to make advance payment to the consortium and also bear the liability of income tax. Accordingly, a sum of Rs.7.41 crore being the tax deducted at source (TDS) on advances of Rs.107.53 crore was deposited by the Company with the Income Tax Department (ITD) on behalf of M/s. Dumez Sogea Borie (DSB), a member of the consortium.

As DSB suspended the work in May 1992 due to various reasons, the Company signed a Memorandum of Understanding (MOU) with it in June 1994 with the approval of the Government of India. The MOU was regularised by means of a Recession Agreement signed in June 1995, whereby the advances of Rs.107.53 crore were recovered/adjusted by the Company.

The Company, however, failed to include a clause in the agreement for recovery of TDS on the recovered advances, even though this was vetted by their legal advisor. Even thereafter, no action was taken by the Company for almost two years. Only on 27 May 1996, the Company asked the consultant of DSB to take appropriate steps for refund of tax. In March 1997, DSB awarded the power of attorney in favour of a consultant (attorney) of the Company for pursuing the matter with the ITD.

The attorney filed (April 1997) a petition before the Commissioner of Income Tax (CIT) for refund of tax after the expiry of a period of one year from the date of the assessment (December 1993) as stipulated under section 264 of the Income Tax Act. The petition was, however, rejected (May1999) by the ITD on the plea that DSB had already taken credit of this tax in France.

Management contended (March 2001) that the Central Board of Direct Taxes had asked (October 2000) the CIT to intimate the French tax authorities to reverse the credit taken by DSB in France and that the application for refund might be admitted after expiry of the period of one year under section 264(3) of the Income Tax Act. They also contended (May 2002) that after filing the fresh application under section 264 (3), the matter was discussed with ITD and it was presumed that the fresh application had been accepted. Ministry has endorsed (July 2001) the reply of Management.

However, the fact remains that the refund has not been granted so far (May 2002). Further, Management cannot be absolved of its responsibility for taking due care at the time of finalisation of the MOU with a foreign contractor.

Thus, the Company has not realised funds amounting to Rs.7.41 crore for the last eight years due to its failure in ignoring the aspect of recovery of TDS at the time of finalisation of the MOU.

18.2.2    Extra payment of customs duty to a contractor

The Company awarded (June 1999) the work of Chamera Hydroelectric Project (Stage-II) to Indo-Canadian Hydro Consortium on turnkey basis. The civil works were being executed by M/s. Jaiprakash Industries Limited (contractor), a member of the consortium.

According to the contract agreement, the contractor was to arrange all the construction plant and equipment and the cost thereof was to be borne by the Company. The total payment on this account was to be limited to Rs.57 crore for indigenous equipment, US$ 12.70 million for imported equipment and Rs.20.14 crore towards customs duty, port landing, inland transport and insurance on the imported equipment. Any increase/decrease in the customs duty due to variation in the customs tariff and exchange rate was also to be borne by the Company.

The contractor imported (November 1999 to June 2001) equipment valuing US$ 10.16 million and proposed to import some equipment valuing US$ 0.73 million subsequently. Accordingly, against the ceiling of US$ 12.70 million, the contractor would utilise only US$ 10.89 million for imported equipment. For the remaining amount of US$ 1.81 million (US$ 12.70 million minus US$ 10.89 million), the Company allowed (May 2002) the contractor to procure indigenous equipment by converting the prices at the prevalent rate of exchange.

Though the Company allowed the contractor to import equipment for lesser amount, it did not restrict the payment of customs duty in proportion to the actual cost of the imported equipment. Proportionate amount of the customs duty, based on the cost of the imported equipment valuing US$ 10.89 million, worked out to Rs.17.27 crore only. However, the Company paid the total amount of Rs.20.14 crore towards customs duty, etc., besides the variation of Rs.1.33 crore, against the contractor’s claim of Rs.25.93 crore.

The contractor claimed (May 2001) higher amount of Rs.25.93 crore on the plea that the customs duty indicated in the bid was based on the concessional rates under project imports, whereas the customs department had levied duty at the full rates. The Company rejected (July 2001) the claim on the ground that the contractor had never approached it for a Project Authority Certificate prior to a favorable award of Customs Tribunal in some other case. However, the Company restricted the payment of customs duty to Rs.20.14 crore and not to Rs.17.27 crore based on the corresponding amount of imported equipment.

This resulted in an extra payment of Rs.2.87 crore (Rs.20.14 crore minus Rs.17.27 crore) to the contractor, which led to an undue benefit to a private party.

Management stated (June 2002) that the Company was liable to pay customs duty limited to Rs.20.14 crore plus variation in respect of the imported equipment. Accordingly, the amount on this account was restricted to Rs.21.47 crore including the variation of Rs.1.33 crore against the actual expenditure of Rs.25.93 crore of the contractor.

The reply is not tenable as customs duty of Rs. 20.14 crore was payable on the total imported equipment valuing US$ 12.70 million and notwithstanding the actual expenditure incurred by the contractor, the payment of the customs duty should have been restricted to Rs. 17.27 crore based on the cost of equipment imported.

The matter was referred to Ministry in July 2002; their reply was awaited (September 2002).

Power Grid Corporation of India Limited

18.3.1    Mismatch between the transmission system and generation project

The works relating to Dulhasti Hydroelectric Project (DHEP) were awarded by National Hydroelectric Power Corporation Limited (NHPC) to a French Consortium (FC) in September 1989, with the schedule commissioning by July 1994. Originally, the transmission system associated with DHEP was also to be constructed by NHPC. After formation of Power Grid Corporation of India Limited (Company), the construction of the transmission system was assigned to it in 1992. In view of the urgency involved, the Company evolved (January 1992) a contingency scheme for construction of transmission line between Dulhasti-Kishenpur at an estimated cost of Rs.137.69 crore so as to match commissioning of the transmission system with the generation project.

In the meanwhile, the FC suspended the work of DHEP in May 1992 due to geological fault encountered in the tunnel and finally abandoned the related contractual obligations in August 1992. The FC also took up the issue of stoppage of works with Ministry of Power in September 1992. Despite these developments clearly indicating the slippage in the construction schedule of the DHEP, Ministry gave a go-ahead for the contingency plan in December 1992.

The Company failed to ascertain the tardy progress of the generation project and awarded the works relating to associated transmission line in January 1993. In the process, the Company started the execution of the transmission line, whereas the related generation project was lying abandoned.

The Company came to know only in September 1994, when NHPC confirmed that the commissioning of DHEP would be delayed by 5-6 years from the date of re-start of work. The remaining work of DHEP was re-awarded by NHPC only in March 1997. In view of the inordinate delay in commissioning of the generation project, the Company decided (January 1995) to upgrade the 220 KV contingency scheme to 400 KV transmission line. The upgraded transmission line was commissioned in March 2000 at a cost of Rs 195.59 crore far in advance of the generation project, which is expected to be commissioned by December 2003 only. As such, the mismatch between the construction of transmission line and generation system due to lack of monitoring of the progress of the generation project on the part of the Company as well as Ministry has resulted in idling of the transmission line since March 2000.

Management stated (May 2002) that:

1. The Company had been keeping itself abreast of the progress of the generation project. When the work was bogged down due to militancy and NHPC confirmed in September 1994 that the DHEP would be delayed by at least 5 to 6 years, the status of the transmission system was reviewed. However, by that time most of the foundations were cast. Accordingly, the decision was taken to dispense with the contingency scheme by reviving the original system of up-gradation to 400 KV line. Once the execution of transmission project was commenced, it was not possible to fluctuate its scheduled date of completion, even if the generation project was delayed.
2. The Company declared the transmission line commissioned in March 2000 in accordance with the tariff notification of the Government of India (December 1997) and was entitled to tariff from the date of its commercial declaration.

The reply of Management is not tenable due to the following:

1. The work on generation project had already been stalled in August 1992 before award of the work of transmission line in January 1993. Accordingly, the Company should have deferred the process of award of works till the resolution of the problems in the construction of the generation project, especially in light of the fact that the gestation period of the hydroelectric projects is more than that of the transmission system. As such, had the Company monitored the progress of the DHEP, it would not have gone ahead with the award of the works relating to transmission system ab initio. In fact, the Standing Committee of the Planning Commission, while reviewing the time and cost overrun, had also commented (September 2001) on the poor monitoring on the part of the Company.
2. State Electricity Boards were reluctant to pay transmission tariff, as there was no gain to them in such transmission projects. Further, bulk purchase tariff agreements for this project were yet to be finalised with the SEBs. Accordingly, the Company had to bear the interest cost without being able to recover any revenue from the transmission system till the commissioning of the generation project.

Thus, due to its failure to monitor the progress of the generation project, the Company constructed the transmission system, 45 months in advance of its requirement. As a result, the Company had to bear loss of Rs. 22.70 crore on account of interest on borrowed funds, besides expenditure of Rs 3.74 crore towards operation and maintenance of the system from the date of its commissioning till March 2002. Moreover, the Company was also not able to earn annual revenue of Rs. 36.74 crore since April 2000.

The matter was referred to Ministry in June 2002; their reply was awaited (September 2002).

18.3.2    Avoidable extra expenditure on import of insulators

The Company invited (June 1994) global tenders for procurement of line material including 4,34,050 number of 210 Kilo Newton (KN) disc insulators (insulators) for (800 KV) Kishenpur-Moga transmission system (KMTS), against which only two bids were received from foreign firms. Since both the firms expressed their inability to supply such a large order within 24 months, the Company split (10 January 1995) the order between them at an average landed cost of Rs.1643 per insulator.

In the meanwhile, the Company had opened (13 December 1994) another bid for procurement of 210 KN disc insulators for (400 KV) Nathpa Jhakri transmission system (NJTS). The lowest evaluated rate of Rs.982 per insulator received for NJTS was much lower than those received for KMTS. However, the Company did not take cognizance of the lower rate to explore the possibility of reduction in rates before placing the letters of award for KMTS in January 1995.

Thus, by not reviewing its decision for procurement of the insulators for KMTS at exorbitant prices, the Company had foregone an opportunity to save extra expenditure to the extent of Rs. 28.69 crore.

Further, while rejecting the bid of Bharat Heavy Electricals Limited (BHEL) for NJTS on the ground that it did not have the requisite experience, the Company decided (January 1995) to place a developmental order on BHEL for supply of 1,13,800 nos. of insulators at Rs.965 per insulator for 400 KV and 800 KV lines associated with Tehri Hydroelectric Project (THEP). Clearly, therefore, a developmental order could have been placed on BHEL for KMTS also, where the awarded rate was higher by Rs.678 per insulator. However, the Company did not do this.

Management contended (May 2002) that specification of insulators for use in 800 KV lines and 400 KV lines was different and therefore, comparison of prices received from a qualified bidder with those quoted by a non-qualified bidder for different voltage line and having different specification could not be made. They further stated that a contract under vendor development was awarded on BHEL in order to develop them as an indigenous source of 210 KN insulators.

The reply is not tenable because notwithstanding the difference in technical specification, both the foreign firms had quoted almost the same rates for 800 KV line (KMTS) and 400 KV line (NJTS). Further, based on the experience and expertise of BHEL as acknowledged by the Company during the evaluation of bids for NJTS, the developmental order was placed on BHEL at the same rate for 400 KV as well as 800 KV lines of THEP. This establishes that difference in technical parameters did not have any impact on the price of 210 KN insulators.

Thus, failure of the Company in not taking into account the available lower rates before placing the order resulted in procurement of insulators for KMTS at exorbitant price. In fact, Ministry of Power had also commented upon (August 2001) the high cost of these insulators.

The matter was referred to Ministry in June 2002; their reply was awaited (September 2002).

18.3.3    Avoidable burden of commitment charges and interest on foreign exchange loan

The Company entered into an agreement (March 1993) with the International Bank for Reconstruction and Development (World Bank) for loan of US$ 350 million to finance its various transmission projects specified under ‘Powergrid System Development Project-I’ (PSDP-I). According to the agreement, the Company was required to avail the entire amount of loan before June 2000, and could also cancel, at any time before the closing date, all or part of the unutilised amount of loan. The agreement also stipulated payment of commitment charges at the rate of 0.25 per cent per annum on the uncancelled and undisbursed balance of credit.

Audit scrutiny of the records revealed that the Company did not assess the requirement of the funds before commencing the drawl of the loan to avoid payment of interest on the unutilised funds. Nor did it review the utilisation of the disbursed funds so as to ascertain the expected amount of surplus loan to be cancelled to avoid huge payment of commitment charges. As a result, the Company incurred an avoidable expenditure of interest and commitment charges aggregating Rs.5.98 crore as discussed below:

(i)    The Company withdrew an amount of US$ 25 million on 31 March 1993 without assessing the requirement of funds and kept the same in a deposit account of State Bank of India, New York. It started utilising the funds only from 18 August 1993 and could utilise only a meagre amount of US$ 2.48 million till 24 October 1994, leaving a huge minimum balance of US$ 22.52 million in the bank for more than 18 months.

Due to drawal of the funds far in advance, the Company incurred an avoidable expenditure of interest amounting to US$ 1.339 million (equivalent to Rs.4.22 crore) being the excess of the amount of interest paid to the World Bank over that earned on the deposit account.

Management stated (June 2002) that it was the first direct loan from the World Bank. The reply is not convincing and only shows ineffective cash planning on the part of the Company.

(ii)    The Company awarded most of the contracts relating to the PSDP-I by September 1995 and reviewed the utilisation of the funds in December 1996. It estimated a saving of US$ 50 million and decided to utilise the same for a new project. Thereafter, the Company did not review the position for more than two years, even though the remaining contracts were awarded by February 1998 and the financial commitments became known to the Company.

The Company carried out the next review only in March 1999 and assessed that a sum of US$ 111.43 million would be surplus, due to lower prices quoted by the bidders and the appreciation in the value of US Dollar vis-à-vis Indian Rupees. Accordingly, after retaining an amount of US$ 36.43 million to meet capital expenditure on some new projects, the Company requested (March 1999) the World Bank to cancel the remaining amount of US$ 75 million which was accepted by the latter in April 1999.

The World Bank also extended (June 2000) the time limit for utilisation of the remaining portion of the loan till December 2000. As the Company could not utilise the same even during the extended period, the World Bank cancelled (July 2001) the unutilised amount of loan by closing the loan agreement.

Had the Company monitored the utilisation of funds regularly, it would have saved commitment charges amounting to Rs.1.76 crore by surrendering at least US$ 100 million in March 1998.

Management stated (June 2002) that it was felt prudent not to surrender any part of the loan so as to obviate any financial constraints that might be faced due to delay in finalisation of PSDP-II loan. Due to prolonged sanction and delay in effectiveness of PSDP-II, the position was reviewed in March 1999. They further stated that US$ 36.43 million could not be utlilised as out of the proposed five projects, only two projects involving outlay of merely US$ 5.75 million could materialise by July 1999.

The reply is not convincing as there was nothing on record to indicate that the Company had reviewed the utilisation of the loan after December 1996 till March 1999. Further, the World Bank had advised the Company in July 1998 that projects specified in PSDP-II under their financial assistance be continued and assured that the expenditure would be reimbursed under retroactive financing option.

Thus, premature withdrawal of loan and the delay on the part of Company in surrendering the surplus amount of the sanctioned loan resulted in an avoidable burden of Rs. 5.98 crore on account of interest and commitment charges.

The matter was referred to Ministry in June 2002; their reply was awaited (September 2002).

18.3.4    Avoidable extra expenditure

Due to its failure to undertake negotiations with the lowest bidder, the Company incurred an avoidable extra expenditure of Rs 51.77 lakh.

The Company invited (October 1997) bids for transmission line packages for the transmission system associated with Sasaram Project which included supply of 3525 kms of Aluminum Conductor Steel Reinforced (ACSR) moose conductor. As the quantity of conductors was increased to 4710 kms of ACSR moose conductor with additional requirement of 85 kms of ‘AACSR’ (Aluminum Alloy Conductor Steel Reinforced) conductor owing to major changes in the configuration of the transmission system, the Company decided (September 1998) to split the procurement of conductors in two packages i.e. C1 (ACSR-2295 kms) and C2 (ACSR- 2415 kms and AACSR- 85 kms) by issuing corrigendum to the ‘invitation for bids’.

The Company received (October/November 1998) nine bids for C1 package and six bids for C2 package. The offers of M/s. Sterlite Industries (India) Limited (Sterlite) relating to ACSR conductors at ex-works prices of US$ 2976 per km for C1 package and US$ 3026 per km for C2 package, were found to be the lowest and technically responsive individually in both the packages. In fact, the same bidder had quoted, at the same time, different rates with a variation of US$ 50 per Km for similar type of conductors under packages C1 and C2. As both the bids were evaluated simultaneously, the price difference should have caught their attention. It should have been a normal business behaviour of the Company to seek the reasons for such a variation in price (unit rates) of similar types of conductors and seek negotiations with the bidder to answer these variations and bring down the quoted price of package C2 to that of package C1.

However, the Company did not even take cognizance of variation in unit rates and placed (March 1999) supply orders on Sterlite, without negotiating the rates. Thus, the Company had to forego a clear, logical case to save an extra expenditure of Rs.51.77 lakh. (1 US$ = Rs.42.87 as of 4 December 1998).

Management stated (November 2001) that the bids were invited under two separate packages and there was no such condition in the bidding documents that a bidder should necessarily quote same unit rate for both the packages. They also contended that as per the World Bank’s procurement guidelines, negotiation with the lowest tenderer should be resorted to only in case the quoted prices were substantially higher than the pre-bid cost estimates and in this case the awarded prices were lower by 25.22 per cent and 23.90 per cent than the estimated cost.

Endorsing the reply of Management, Ministry added (April 2002) that the Company has recently adopted its new ‘Procurement Policy’ which allowed negotiation with the bidder who happened to be the lowest in different tenders with different rates for similar equipment, only in case the recommended award price was higher than the estimated cost by 10 per cent and thus, there was no lapse on the part of the Company by not undertaking negotiations with the bidder.

The reply of Management/Ministry is not tenable, as the Company evaluated the bids for C1 and C2 packages simultaneously and as such, could compare the rates quoted by the same bidder in two packages. Further, the guidelines of the World Bank did not specifically prevent the buyer from undertaking negotiations with the lowest bidder and the new ‘Procurement Policy’ of the Company was not relevant in this case as the same was approved by the Board of Directors in September 2001 after the award of packages in March 1999.

Thus, by not resorting to negotiation before placing two different orders on the same supplier at the same time for the same items at different rates, the Company incurred an avoidable extra expenditure of Rs.51.77 lakh.

Tehri Hydro Development Corporation Limited

18.4.1    Blockade of funds due to non-adjustment of advance

Prior to the formation of Tehri Hydro Development Corporation Limited (Company), Uttar Pradesh Irrigation Department paid an advance of Rs.10 crore in 1988 under Indo Soviet Inter Government Agreement, to M/s. Technopromexport (TPE), a Russian company for various works to be got executed from them. However, after disintegration of Soviet Union, contracts with TPE were not signed for execution of these works. One of these works was engineering investigation of the Associated Transmission System (ATS).

The Company signed (October 1993) a Memorandum of Understanding (MoU) with Power Grid Corporation of India Limited (PGCIL) and transferred the works relating to the transmission lines and associated sub-stations to PGCIL with effect from 1 August 1993 at a purchase consideration of Rs.8.41 crore i.e. the book value of surplus of assets over liabilities. These liabilities included Rs.2.78 crore payable to TPE towards ATS. In July 1995, the Company noticed that the advance paid to TPE remained to be adjusted against the liability of Rs.2.78 crore transferred to PGCIL and took up the matter with PGCIL for refund of the same. PGCIL requested (November 1999) the Company to provide the investigation/survey report furnished by TPE for further necessary action. Inspite of follow up by the Company, the matter has not been resolved so far (July 2002).

Management stated (July 2002) that assets and liabilities relating to ATS had been transferred to PGCIL through audited accounts as on 31 July 1993 and it had been regularly following up matter with PGCIL for recovery of the amount.

Thus, non-adjustment of advance paid to TPE against the liability transferred to PGCIL resulted in blocking of Rs.2.78 crore since August 1993.

The matter was referred to Ministry in July 2002; their reply was awaited (September 2002).