CHAPTER 5
MINISTRY OF COAL

Bharat Coking Coal Limited

5.1.1    Loss of Rs.17.28 crore due to lack of proper control and inefficient operation of washeries

Bharat Coking Coal Limited failed to maintain the guaranteed ash content in the washed coal as per MOU with SAIL and suffered a loss of Rs.17.28 crore by way of despatch of coal above the guaranteed ash content during 1998-99 to 2001-2002.

The MOUs signed between Bharat Coking Coal Limited (Company) and Steel Authority of India Limited (SAIL) during 1998-99 to 2001-2002 for supply of washed coal envisaged the guaranteed ash percentage of 18 per cent to 19.5 per cent for individual washeries of the Company with provision for bonus and penalty for every 0.1 per cent decrease/increase ash percentage up to 1.5 per cent above the average guaranteed ash percentage fixed for each individual washery. It was also envisaged that supply of washed coal beyond the guaranteed ash content limit i.e. between 19.5 per cent (18 + 1.5 per cent) to 21.0 per cent (19.5 + 1.5 per cent) would be classified as unwashed and SAIL would pay the value of raw coal.

In order to determine the quality of washed coal MOU was initially signed between the Company, SAIL and Central Fuel Research Institute (CFRI) in November 1996, extended up to 1998-99, according to which CFRI was required to analyse the washed coal produced at the Company’s washeries and supplied to SAIL at loading point. The result of the sampling and analysis was binding on both the parties. Subsequently, for the years 1999-2000 to 2001-02 tripartite agreements were signed between BCCL, SAIL and Mineral Exploration Corporation Limited (MECL) for determination of quality of washed coal by MECL on rake to rake basis at loading point. The analysis of MECL was binding on both the parties.

The maintenance of quality of washed coal depended on a host of parameters namely washability test of raw coal, adjustment of gravity of the washing equipment based on quality of raw coal, proper maintenance and operation of the equipment to avoid leakage, inter mixing and ingress of chemicals in the washed coal, which required constant supervision, quality control, proper maintenance and operation of equipment in the washeries.

However during period 1998-99 to 2001-02 the washed coal supplied by the washeries of the Company exceeded the ceiling limit over the guaranteed ash percentage and in process the Company had to sustain a loss of Rs.17.28 crore on despatches of 2.11 lakh tonne of washed coal which was classified as unwashed and valued as raw coal.

The contention of Management (April, June and October 2000) that quality slippage was mainly due to deterioration in quality of raw coal and technical problems of washeries is not tenable as the tolerance limits decided by Management while entering into MOUs with SAIL presumably took into consideration the problems of washeries. Besides, neither had any investigation been carried out to identify reasons for slippage so that corrective actions could be taken nor had any reasons for slippage been recorded, except in a few cases where the Project Officers were pulled up for quality slippage.

While accepting the facts Ministry stated (June 2002) that Management has failed to match the quality of coal mentioned in the MOU signed with SAIL mainly due to the age of the plants and lack of modernisation and renovation. The views of Ministry are not maintainable on the ground that Management while entering into MOU with SAIL must have duly considered these factors. Besides, the Chief of the Washeries had issued a letter in December 2000 stating that ‘Area General Manager has been made exclusively responsible for maintaining quality of raw coal, arrangement of raw coal input to Washaries and also for maintaining strict quality parameter of washed coal produced’. The fact that the quantity of washed coal classified as raw coal had come down during 2001-02 with existing plant and equipment goes to show that the slippage on quality of washed coal was not on account of age of the plant but because of the apathy and lapses on part of the Area General Manager of the washeries by not carrying out effective and proper monitoring and quality control.

Thus, lack of proper quality control and in-efficient operation of washeries resulted in loss of Rs.17.28 crore to the Company between 1998-99 to 2001-02.

5.1.2    Blocking of funds of Rs.13.87 crore on construction of quarters and loss of interest of Rs.9.15 crore thereon

The Company constructed 852 miners quarters at Karmatand Township in October 1996 for shifting/rehabilitating workers from Tirsa area, which was earmarked for mining. The construction, which commenced in January 1991 and was scheduled to be completed in April 1992 at a cost of Rs.6.66 crore, could finally be completed only in October 1996 at a cost of Rs.13.87 crore.

The quarters, however, remained unoccupied till July 2002. The liability of the contractors to rectify defects free of cost expired in October 1997.

Management stated (June 2001) that immediately on completion of the work the quarters were allotted for occupation of employees. However, local villagers obstructed the occupation claiming more employment from the Company. Attempts were made to get them occupied but the efforts failed. Management further stated that some headway was being made and quarters may be occupied by 2001-2002.

The contention of Management is not tenable. Although, the construction was completed in October 1996, the allotment of quarters had not been done until November 1999. The agitation of local villagers had started even before the construction commenced in January 1991. A special task force, constituted in June 1990 to process the case for offer of employment, had recommended extending employment to 100 persons, which were agreed to by Management. Management made little effort after that to find a permanent solution to the problem. A Land Committee Cell was constituted only in July 1997, which deliberated the issue for six months with no result. Thereafter till 2001-02 no tangible efforts were made by Management to sort out the problem and get the quarters occupied.

Thus, the decision of Management to commence the project was not based on sound and realistic assessment of its capabilities to solve the local problem. Hence the decision to invest money on such a venture was not prudent. The utilisation of these quarters remains uncertain. The expenditure of Rs.13.87 crore, which did not meet the objective of shifting/rehabilitating employees from Tirsa area, remained blocked with consequential loss of interest of Rs.9.15 crore (@ 12 per cent on Rs.13.87 crore) from November 1996 to March 2002. Besides, the annual wear and tear of the quarters and the expenditure of Rs.11.58 lakh paid towards security charges up to March 2002 made the position even worse.

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

5.1.3    Avoidable payment of royalty of Rs.5.30 crore

Coal received from the Moonidih mines of Bharat Coking Coal Limited since 1997-98 was found to be below the declared grade based on analysis at washery end. The declared grade was neither revised nor the grade slippage arrested resulting in avoidable payment of royalty of Rs.5.30 crore.

Royalty on coal is paid on the basis of the grade of coal declared at the beginning of each year by the mining companies in pursuance of the Colliery Control Order, 1945. Accordingly, the Company, at the beginning of each financial year, declared grade of working seams in its collieries.

Moonidih mines of the Company had been supplying coal directly through conveyors to its Washery. The declared grades in respect of these mines were Steel Grade II, Washery Grade II and Washery Grade IV. However, as per analysis done at the washery from June 1997 onwards, based on the weighted average of maximum ash percentage of each grade of coal, there were recurring grade slippage. Although the washery head, in January 1999, advised Management of the Moonidih mines to review and revise the grade declaration of coal to avoid payment of royalty at a higher rate than the actual as per analysed grade, it neither revised the grade declaration nor took any step to stop the recurring grade slippage. This resulted in avoidable payment of Rs.5.30 crore as royalty on declared grades during the period from 1997-98 to 2001-2002.

While accepting the facts, Ministry inter alia stated (March 2002) that possibility of separately stacking and transportation of coal of ST II ‘Grade’ by changing/modifying the existing transport layout was being explored.

As the grade slippage was occurring consistently since 1997-98 Management should have initiated steps either to review the grade declaration each year or to change/modify the existing transport layout. Management, however, did not take any steps to stop the recurring grade slippage.

As a result of non-revision of grade of coal based on analysed results Company made an avoidable payment of Rs.5.30 crore as royalty.

5.1.4    Infructuous expenditure of Rs.3.87 crore on a suspended project

Coal India Limited (CIL), based on recommendations of the Company, approved a project in August 1991 for extraction of coking coal from Block III under open cast mining system for Rs.45.97 crore.

The Company issued a notice in December 1996, to Director General of Mine Safety (DGMS), besides others, to open Block-III open cast project at Phularitand Colliery and commenced the project in January 1997. As the extraction was of an already developed area by underground mines, permission/exemption of DGMS was mandatory before extraction of developed coal pillars by open cast method. Accordingly, the Company sought the permission/exemption of DGMS under regulations 100(1) and 98(1)(3) of the Coal Mines Regulation, 1957 in June 1997 and again in May 1998. DGMS refused to grant permission in July 1998 and stated that the Company had commenced work on the project before applying for permission. The work on Block III was suspended in June 1999.

Consequently expenditure of Rs.3.87 crore incurred by the Company on the project towards removal of overburden, from commencement of the project in January 1997 until its suspension in June 1999, became infructuous.

The Company decided in August 2000 to keep the project in frozen list of monitoring and in October 2000 to amortise the expenditure in three years commencing from 1999-2000.

Management stated (April 2001) that the project was commenced based on the project report, which indicated solid barrier between eastern and western side of developed coal seams. But after excavation started the solid barrier was found to be doubtful as it could expose eastern side to the fire of western side. The project has been frozen until the fire is controlled and the cost incurred on removal of overburden should not be treated as infructuous.

The contention of Management is not tenable, as it was injudicious to proceed with the project without the approval of DGMS since the extraction was of an already developed area by underground mines and involved extraction of developed coal pillars by open cast mining method. Even after refusal of permission in July 1998 the Company continued with the project till it was suspended in June 1999.

Ministry in its reply (September 2002) reiterated the stand taken by Management and stated that in normal course during formulation of a project and commencement of extraction of coal, approval of DGMS was not required. It further stated that Management was trying to control the fire for which Rs.5.78 crore had been sanctioned to restart the project

The contention of Ministry is not tenable. The project involved extraction of developed coal pillers by opencast method from an already developed underground mine for which permission of DGMS was required. Fund sanctioned by the Department of Coal is for control of underground fire, which had to be stopped for reasons of safety. Whether the project could be restarted would depend on its feasibility after the undergroung fire is controlled and subject to approval of DGMS.

As the project stood frozen and the expenditure had been amortised, the expenditure of Rs.3.87 crore incurred on removal of overburden had become infructuous.

5.1.5    Wasteful expenditure of Rs.1.04 crore due to payment of idle lease rent on vacant quarters at Sindri

With the object of shifting workers from the coal bearing areas as well as the endangered areas, of Jharia Coalfields, the Company entered into three separate Memorandums of Understanding (MOUs) with Fertilizer Corporation of India Limited (FCIL) from December 1995 to November 1997 for hiring of 1032 quarters for five years on ‘as is where is basis’ with license fee varying from Rs.302 to Rs.632 per month and water charges from Rs.15 to Rs.25 per month The payments of license fee and water charges were of fixed nature depending on the type of the quarters subject to revision of lease. Electricity charges were payable separately as per actual consumption. From the MOUs, it was seen that the quarters were not immediately habitable and required extensive repair. Out of 1032 quarters, the Company took over 1007 numbers of quarters. Of these, only 683 have been occupied, 267 quarters have been repaired but not occupied, 33 quarters are still under repair and the balance 24 are irrepairable.

In entering into MOUs with FCIL for taking over the quarters on “as is where is basis”, Management, in effect, committed itself to payment of lease rent from the date of taking over of these quarters though they were not habitable. The repair of these quarters was taken up in phased manner as per availability of funds. It was seen that of the 683 quarters occupied by the employees, the time taken for occupying them ranged from 1 to 34 months from the date of completion of the repairs. Moreover, even after repair, a large number of quarters could not be occupied. Hence the delay in occupation of the quarters, non occupation of the quarters even after repair, delay in getting quarters repaired and non surrendering of ir-repairable quarters resulted in wasteful expenditure of Rs.1.04 crore by way of payment of idle rent (March 2002).

While accepting the facts, Management stated (July 2001) that the quarters were not in a habitable condition and that repair work was taken up in a phased manner as per availability of funds and that efforts would be made to complete the occupancy within the current financial year. The return of 24 quarters, which were ir-repairable, was in process. It was further stated that expenditure on repair and lease rent would not be infructuous after the quarters were occupied.

The contention of Management is not tenable. The quarters were taken on lease to shift the employees from endangered areas on emergency basis as well as to shift workers from coal bearing areas. As the quarters were not habitable the decision to take over these quarters on ‘as is where is basis’with commitment to payment of lease rent from the date of taking was essentially a flawed decision. Further, fund constrains also required that only the basic essential repairs were undertaken. Eventually, Management could not even ensure the occupancy of all the quarters, which were repaired. In summary, the delay in occupation of the repaired quarters, non-occupation of quarters even after repair, delay in repair of some quarters and non-surrendering of the irreparable quarters not only defeated the purpose of lease and expenditure on repair but also resulted in a wasteful expenditure of Rs.1.04 crore on payment of idle rent and water charges (March 2002).

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

Central Coalfields Limited

5.2.1    Idle investment of Rs.92.32 crore on railway siding and rapid loading system of Piparwar Project

The Piparwar integrated mine-cum-coal beneficiation project of the Central Coalfields Limited (CCL) was approved by the Government of India at an estimated cost of Rs.542.43 crore in September 1989, revised to Rs.838.27 crore in 1993, on a turn-key basis with the foreign exchange component of the project cost covered under Australian credit. The project envisaged inter alia a railway siding at Piparwar so that beneficiated coal could be loaded into railway wagons by a mechanised loading system and dispatched through the railway siding.

The construction of railway siding Phase I (14 kms) was awarded to Indian Railway Construction Company Limited now IRCON International Limited (IRCON) in March 1990 for Rs.13.42 crore (revised to Rs.27.09 crore in March 1995), even before initiating any steps for acquisition of land, to facilitate IRCON to prepare the design, engineering drawings, and get it approved from the Railways. The time frame as initially envisaged was 3 years for the completion of the Project i.e. it was to be completed by March 1993. The construction of Phase II (17 kms) of railway siding was awarded to IRCON in March 1995 at an estimated cost of Rs.41.24 crore to be completed within 3 years i.e by March 1998. The work is still incomplete (September 2002).

The applications/requisitions for acquisition of forest land, tenancy land and GMK (Gar Majarua Khas) land were made only between June 1990 to January 2002 even though Ministry had in May 1988 directed the CCL to take all necessary action on top priority basis for obtaining environmental clearance, acquisition of land and for development of other infrastructure like construction of railway siding. The forestland had been transferred to CCL in February 1995. Though notifications under the Land Acquisition Act for acquisition of most of the tenancy land had been issued between November 1992 to February 1994 little effort was made by Management to get the physical possession of entire land. Requisitions for some tenancy land were issued as late as October 2000. Even the transfer of entire GMK land has not been completed (September 2002).

As a result, even though the major components of the integrated project such as development of open cast mines, Coal Handling Plant (CHP), & Coal Preparation Plant (CPP), became operational in April 1997, the railway siding work has been bogged down due to the total apathy shown by the Company in the matter of land acquisition as brought out in the preceding paragaph.

The outcome was that washed coal of the project was being despatched to consumers by engaging private transporters through a nearby railhead, Bachra (8-9 kms) and in the process CCL had to absorb the unrecovered portion of transport cost of Rs.8.14 crores for the period from 1998-99 to 2000-2001.

Management stated (May 2001) that the siding was likely to be completed in March 2002. Ministry while accepting the fact of delay in possession of land had inter alia stated (January 2002) that obstruction created by the villagers would be cleared by January 2002 provided land constraints were removed.

However till date (September 2002) physical possession of land required for construction of the railway siding had not been obtained. Thus, due to improper project management in awarding the work before acquisition of land, inordinate delay in initiating the process of land acquisition, and lack of effective follow up action with the State/District administrative authorities for the physical possession of the land, the railway siding which was initially scheduled for completion in March 1993/March 1998 could not be commissioned. Consequently, the RLS which was completed in April 1997 at a cost of Rs.4.31 crore was lying idle and the investment of Rs.92.32 crore on railway siding had also yielded no benefit; besides CCL was absorbing unrecovered cost of Rs.8.14 crore for 1998-99 to 2000-01 on transportation of coal through private transporters.

5.2.2    Avoidable payment of power factor surcharge

CCL buys power from Damodar Valley Corporation (DVC) to meet the needs of its collieries and washeries. In December 1994, DVC decided to levy surcharge from the consumers with effect from April 1995 in the event of average monthly power factor ( Ratio of power consumed to power drawn through an electrical installation) falling below 0.85. Every fall in power factor by 0.01 would attract surcharge at one per cent of normal tariff.

The power factor recorded at Kathara Area of CCL had been lower than 0.85 since November 1994. It was, therefore, imperative on the part of Management to install capacitors to maintain the power factor at the prescribed level to avoid payment of surcharge. With a view to maintain the prescribed power factor, CCL engaged (March 1995) M/s. Andrew Yule & Company Limited (AYCL) for design and installation of capacitors at a cost of Rs.67.53 lakh. The capacitors installed in March 1999 failed during the commissioning. The defective capacitors had neither been replaced till date (November 2001) nor had the work been entrusted to another party at the risk and cost of AYCL as the agreement between CCL and AYCL did not contain any such clause. As a result, CCL had not been able to maintain the prescribed power factor and continued to pay power factor surcharge. During the period 1995 to 2001 CCL paid surcharge aggregating Rs.1.60 crore due to the failure to maintain the power factor at the prescribed level. Even assuming that a period of one year (from April 1995 to March 1996) was needed for design and installation of capacitors, the payment of power factor surcharge aggregating Rs.1.18 crore for the period from 1996 to 2001 was clearly avoidable.

Management stated (May 2000) that AYCL could not install the capacitors due to some technical defects. Further, Ministry, inter alia, stated (November 2001) that the issue was taken up (August 2001) with AYCL for immediate completion of the job. It also stated that AYCL was selected due to the complex nature of work and termination of contract with them for getting the work done by some other agency, in the context of completion arising out of repeated failure of capacitors, was not considered prudent.

Although the Company initiated action for installation and commissioning of capacitors over five years ago, it had been unable to commission them till date (November 2001). This led to avoidable payment of surcharge of Rs.1.18 crore.

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

Eastern Coalfields Limited

5.3.1    Extra expenditure of Rs.2.39 crore on a Dumper damaged in fire

Eastern Coalfields Limited (Company) commissioned one Dumper (445E Dump Truck) in December 1993. In March 2000, while working in the project, the control panel of the Dumper caught fire and was severely damaged. The Dumper had worked for only 15175 hours (38 per cent) as against the expected life of 40000 hours and its depreciated value was Rs.85.86 lakh as on the date of fire. It had not been insured as per normal practice of the Company.

Management decided (February 2001) to repair the Dumper and procure spares worth Rs.2.39 crore from the original supplier (Bharat Earth Movers Limited). The repair work was in progress (August 2002).

The Director General of Mines Safety (DGMS) in his report (October 2000) stated that improper maintenance of the equipment and lack of proper training of operating people to deal with the fire resulted in huge damage to the equipment. The DGMS in his report recommended installation of ‘Automatic Fire Protection System’ and loud alarm.

Management stated (December 2001) that Automatic Fire Suppression System was initially provided but the same did not last because of weak structural parts. They further stated that fire took place at a place far from garage/parking place and it took some time to arrange for suitable fire extinguisher, by which time fire engulfed the Dumper and it was under regular maintenance and there was no maintenance lapse. Thus, Management’s contention was that the entire damage was due to carelessness and negligence on the part of the operator. Ministry inter alia stated (July 2002) that a sudden leakage may occur inspite of optimal maintenance practice.

Management as well as Ministry’s reply is untenable in view of the fact that independent enquiry conducted by the DGMS pointed out that deficiencies in proper maintenance of equipment and inadequate training to operators to deal with fire were the major reasons for the damage to the equipment.

Had Management been more careful to provide proper maintenance to the Dumper and arranged for proper training to operators to deal with fire, the damage to the Dumper as well as extra expenditure of Rs.2.39 crore to repair the same could have been avoided. Management had also not insured the Dumper against the risk of fire and other damage.

Neyveli Lignite Corporation Limited

5.4.1    Infructuous expenditure on relaying of railway siding

Neyveli Lignite Corporation Limited (Company) had a metre gauge railway siding of 15.749 kms for rail movement of their products. The Company shifted the loco shed to a new location due to Thermal Power Station I Expansion Project. The Company had to dismantle a stretch of 2 kms railway track and relaid the same in metre gauge. The rerouting started in March 1996 was completed on 31 December 1997 at a cost of Rs.3.17 crore.

Scrutiny revealed that after rerouting, the siding had been used for just seven months and had transported only a meagre 34385 tonne of material. The Company had not synchronised the work with the gauge conversion programme of Southern Railway who opened to traffic the Chennai-Trichy broad gauge line on 1 September 1998. The metre gauge line which includes the relaid stretch of 2 kms will necessarily have to be converted to broad gauge line for rail transportation when Southern Railway completes gauge conversion work on the Salem-Cuddalore line which would connect the Company’s railway siding to the Chennai-Trichy broad gauge line. Thus, the entire expenditure on rerouting the metre gauge line was rendered infructuous.

Management stated (July 2001) that shifting of railway siding was necessitated by Thermal Power Station I Expansion Project and that when the work on shifting of railway siding was started in March 1996, there was no firm commitment on gauge conversion of the Chennai-Trichy line. They further added that as the relaid line was with broad gauge standards, conversion of the same to broad gauge could be done with minimum cost. Ministry (December 2001) endorsed the views of Management.

The reply is not tenable as the necessity for dismantling a portion of the existing line is not the issue. Also the broad gauge conversion of Chennai-Trichy line was taken up by Southern Railway in 1992 and completed in 1998. The Southern Railway reported physical progress on conversion up to March 1996 as 29 per cent. Therefore, the Company’s decision in March 1996 to relay the dismantled siding again in meter gauge was not correct. The line after rerouting was used for only seven months and there was no traffic movement since August 1998 to date (July 2002). Further on conversion to broad gauge of the Salem-Cuddalore line by Southern Railway at a later date, the entire railway siding including the relaid line will have to be dismantled again which would necessarily involve additional cost, even if retrieved material is put to use.

Thus, the Company’s injudicious decision to relay the line without synchronising the same with the gauge conversion work of Southern Railway did not yield any benefit to the Company, and resulted only in an infructuous expenditure of Rs.3.17 crore.

5.4.2    Avoidable payment of interest due to short payment of advance tax

Incorrect estimation of income and consequent short payment of advance tax by Neyveli Lignite Corporation Limited resulted in avoidable payment of interest amounting to Rs.2.76 crore under Income Tax Act.

As per Section 208 read with Section 211 of the Income Tax Act 1961 (Act), every Company is required to pay advance tax of not less than 15 per cent /45 per cent /75 per cent on due dates in quarterly instalments (15 of June/September/December) in such a way that the entire tax payable for the assessment year is paid by 15 March for the respective year. As per Section 234 C of the said Act in the event of short payment, the Company is liable to pay interest at the rate of 1.5 per cent per month on the unpaid amount of advance tax.

The Act further stipulates that, if the advance tax paid by the Company on its current income on or before 15 June or 15 September is not less than 12 per cent and 36 per cent respectively of the tax due on the returned income, then it shall not be liable to pay any interest on the amount of shortfall on those dates.

The Company paid advance tax during the first three quarters for the financial year 1997-98 (assessment year 1998-99) and second quarter of financial year 2000-2001 (assessment year 2001-2002) which fell short of limits as prescribed in the Act. As a result, the Company paid interest of Rs.1.88 crore for the year 1997-98 and Rs.1.65 crore for the year 2000-2001 under Section 234C of the Act.

While certain items of exceptional nature such as receipt of arrears of subsidy from FICC (Fertilizer Industry Co-ordination Committee) (Rs.23 crore) in the financial year 1997-98 and disallowance of part of VRS (Voluntary Retirement Scheme) compensation (Rs.35.38 crore) as deduction in the financial year 2000-2001 could not be foreseen, there were certain other elements which should have been included in the computation of taxable income. They were as below:

1. The Company had estimated and accounted for additional income (Rs.7.32 crore) on account of re-commissioning of LEP units in the accounts for the year 1996-97. However, such income (Rs.7.18 crore) was not estimated and spread over all the quarters but included only during finalisation of the accounts for the year 1997-1998, pending Tamil Nadu Electricity Board (TNEB) approval.
2. Hike in revenue due to provisional increase in tariff (Rs.8.97 crore) as per Power Supply Agreement in vogue, was not estimated and spread over all quarters but included only in the year end.
3. Generation of power was consistently exceeding the target right from the first quarter of financial year 1997-98 but additional revenue (Rs.56 crore) was not estimated and included in all quarters but only in the third quarter.

Management stated (February 2002) that all the above items were exceptional and could not be foreseen in the first three quarters.

The reply is not tenable as these items were not casual and non-recurring. While for the first two items the Company was aware of accrual of additional revenue, the estimate for the third item could have been made with reasonable accuracy based on past experience and spread over all quarters.

As regard financial year 2000-2001, assessment year 2001-2002, the Company stated (February 2002) that the Power Tariff Agreement for Thermal Station-I with TNEB was firmed up on 9 March 2001 and that income tax reimbursement by TNEB was firmed up in the third quarter. The Company further stated that pending finalisation of the agreement, it had reckoned only provisional figures relating to sale of power excluding tax reimbursement of Rs.115.96 crore. As the recognition of tax liability goes along with recognition of income, the Company should have reckoned the revenue including the grossed up tax reimbursement also.

Despite availability of cushion in the payment of advance tax viz. 3 per cent in first quarter and 9 per cent in second quarter for shortfall in payment, the Company had not determined the advance tax accurately. Failure on this account resulted in avoidable payment of interest of Rs.2.76 crore. Apparently Company’s tax planning machinery was not up to the mark.

The Company had filed petitions for waiver of interest under Section 234 of the Act with Income Tax Department in respect of financial years 1997-98 and 2000-2001 and the case was yet to be decided by Income Tax Department (September 2002).

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

5.4.3    Loss due to under-insurance

Consequent upon a major fire in May 1998 an expenditure of Rs.5.98 crore was incurred towards restoration of the Process Steam Plant. Under-insurance of the assets resulted in loss of Rs.2.58 crore.

Process Steam Plant (PSP) of the Company caters to the steam requirement of Fertilizer Plant and Briquetting and Carbonisation Plant. The PSP was insured at 100 per cent of the original cost duly inflated by the RBI Index except during 1997-98 and 1998-99 when insurance was made ‘based on the risk’ in order to reduce the burden of premium payments.

A major fire broke out in PSP on 28 May 1998 causing extensive damage to the instrument control panels, cables and control room. The PSP was not fully covered by Fire and Explosion Policy with the sum insured being only Rs.63.57 crore against the full value of Rs.168.77 crore. An insurance claim was lodged (February 1999) for a sum of Rs.6.35 crore, being the estimated expenditure for restoration activities after the fire accident. The actual amount incurred on restoration of PSP was Rs.5.98 crore.

The Company stated (April 2002) that under-insurance in respect of equipment at Process Steam Plant during 1998-99 was as per method followed for thermal units in that year. They further added that against the claim of Rs.6.35 crore an amount of Rs.1.22 crore was expected to be realised.

Against the said claim the insurance Company proposed (February 2002) to settle Rs.1.18 crore only to NLC. Apart from certain disallowances for Rs.1.77 crore towards improvements, salvage etc. the major amount disallowed was on account of under-insurance, which stood at Rs.3.03 crore.

The premium payable for the period (1997-98 and 1998-99) by the Company for the full value of assets in PSP amounted to Rs.72.23 lakh. The Company paid Rs.27.20 lakh due to under-insurance of the PSP and saved Rs. 45.03 lakh. The saving in premium was meagre as compared to the loss suffered by the Company due to rejection of claim on account of under-insurance. Thus, as a result of the injudicious decision to under insure the risk, the Company had to bear the expenditure of Rs.2.58 crore (Rs.3.03 crore minus Rs.45 lakh) resulting in loss to that extent.

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

5.4.4    Infructuous expenditure on effluent treatment plants

Effluent treatment plant constructed for treating phenolic effluent could not achieve the prescribed standards even after 3 years of commissioning resulting in infructuous expenditure of Rs.54.49 lakh.

Tamil Nadu Pollution Control Board (TNPCB) issued (December 1995) a show cause notice to the Company for discharging the effluents without proper treatment from the Briquetting and Carbonisation (B and C) Plant and warned of severe action for failure to take remedial measures. The Company promised to comply with the TNPCB standards by 31 March 1997 by upgrading the existing effluent treatment system.

The Company issued an express press tender (October 1996) to install systems on turnkey basis to upgrade and augment the existing Bio-Technological Plant for treating phenolic effluent and for treating Spent Caustic Lye. The work was awarded (March 1997) to M/s. Aqua Chemicals and Systems (MFG) Limited, Chennai (Party) at a cost of Rs.1.61 crore, with the stipulation that the systems should be commissioned to the satisfaction of TNPCB’s requirements by September 1997. The said systems were commissioned in December 1997.

It was seen that the systems did not stabilise even after three years of commissioning and the relevant clearance certificate from TNPCB was not obtained. The Party had no concrete proposals to achieve the standard norms of the effluent as per the terms and conditions of the contract. Although National Environmental Engineering Research Institute, Nagpur (NEERI) was prepared to conduct field study, render consultancy/technical services and requested (August 1999) to depute the Company’s officers for further discussion, the Company did not utilise the services at the risk and cost of the Party but continued to issue notices to the Party to complete the work by 31 January 2001. Meanwhile, production in B and C Plant was suspended from 4 April 2001 due to heavy financial loss. This had rendered the expenditure incurred on pollution control systems futile.

Management admitted (February 2002) failure of Phenolic Treatment Plant and Spent Lye Treatment system and stated that they had recovered from the contractor an amount of Rs.1.07 crore by way of bank guarantee, liquidated damages and non-payment of balance amount. It also stated (February 2002) that the contract was awarded after ascertaining the Party’s ability and track record, conforming to the notice inviting tender. But this should be viewed against the Company’s professed lack of expertise to spell out the detailed scope of work indicating technical specifications and to judge the claims of various suppliers in the field to ensure that the effluents conform to the TNPCB standards. The Company, though recognising the need to appoint an independent consultant to study and design a suitable system, chose to give itself very little time and was constrained to award the work on turnkey basis to the Party in March 1997 against the deadline for completion of work by March 1997. Thus, due to delay of over one year to take action after receipt of TNPCB’s notice, the Company was under pressure to show TNPCB that some action had been initiated which ultimately resulted in infructuous expenditure of Rs.54.49 lakh.

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

South Eastern Coalfields Limited

5.5.1    Avoidable loss

Due to non-recovery of electricity charges from its employees in contravention of the terms and conditions of the Wage Agreement, the Company suffered a loss of Rs.219.77 crore.

The wage structure and terms and conditions of service including fringe benefits of the employees in the Coal Industry are regulated by the recommendations of the Central Wage Board for Coal Mining industry as accepted by the Government of India. National Coal Wage Agreements-V and VI (NCWA) inter alia provided that in the coalfield areas, where the employees were provided with residential quarters by Management and also electricity from the bulk supply obtained from the Electricity Boards, they would be entitled to a free consumption of 30 units (KWH) per residential quarter per month on a uniform basis. It further provided that for any consumption beyond this, they would be required to pay at the same rates at which the electricity supply undertakings charged the coal companies.

Audit scrutiny revealed that the consumption of electricity by the employees was in excess of the limit stipulated. However, no recovery of charges for excessive consumption was made from the employees in contravention of the terms and conditions of the NCWA. The amount of electricity consumed by the employees between April 1999 to March 2002 in excess of the above limit worked out to Rs.219.77 crore.

Although the case of non-recovery of excess electricity charges amounting to Rs.3.37 crore from the employees of one area (Jamuna and Kothma) of the Company was reported in the para 15.3.1 of the Report of the Comptroller and Auditor General of India No. 3 (Commercial) of 2001, no action had so far been taken to recover the excess charges from the employees of the Company.

Management stated (June 2000) that electricity charges were not being recovered from the employees due to non-installation of meters in their residential quarters and that the matter had been taken up with Coal India Limited for keeping this issue in view while finalising the ensuing NCWA-VI. They also stated that the excess consumption of electricity also included the consumption on general services.

Ministry endorsed (August 2002) the reply of Management, which stated (February 2002) that as the issue involved was common to all the subsidiaries of CIL, the matter was referred to CIL for necessary action.

The reply is not tenable since installation of meters was not an insurmountable problem. In fact, non-installation of meters would encourage employees to resort to indiscriminate use of electricity for their energy needs. Even in the NCWA-VI finalised in December 2000, no corrective action had been taken by CIL. Further, consumption of electricity on general services was very nominal as compared to the total consumption in domestic area.

Thus, due to non-recovery of electricity charges from the employees in contravention of the terms and conditions of the NCWA, the Company suffered an avoidable loss of Rs.219.77 crore during the period April 1999 to March 2002.