Power dept. paid excess amount of INR 22 crore — CAG (Part I)

Our Correspondent
Kohima, Feb. 21 (EMN): The department of Power, Nagaland made an excess payment of INR 22.50 crore to contractors and suppliers involved in six projects.

This was revealed in the ‘Economic Sector’ of the Comptroller and Auditor General (CAG) of India reported for the year ended March 31, 2018.

As per the report, it was found out that the department made excess payment of INR 17.20 crore to M/s Techno Power for a single project; INR 1.89 crore to M/s Shyama Power India Ltd., Dimapur for a project; and INR 3.41 crore to M/s National Power Systems, Dimapur for four projects— totalling an excess payment of INR 22.50 crore. 

Chiephobozou sub-station

In 2012, the North Eastern Council (NEC) sanctioned INR 68.58 crore for the “construction of 220/132/33 kV substation at Chiephobozou (Part-II), Nagaland” on 90:10 sharing basis (NEC INR 61.72 crore and government of Nagaland INR 6.86 crore), to be completed by July 2015.

Three firms had submitted quotations for the project and M/s ECI Engineering and Constructions Company Ltd., Hyderabad submitted the lowest quote for INR 52.61 crore. Further scrutiny, however, revealed that work for supply and erection was awarded on turnkey basis to another firm, M/s Techno Power Enterprises (P) Ltd., Dimapur for INR 52.61 crore which had not even participated in the bidding process.

Examination of records revealed that NEC released INR 55.00 crore to the state; and the government of Nagaland also released INR 5.22 crore to the EE (Transmission) Division Kohima. The department had incurred an expenditure of INR 59.88 crore for the project. Out of the expenditure of INR 59.88 crore, the department paid INR 31.81 crore for the procurement of five transformers and five different electrical items.

Cross-examination of records with the tax invoices of the manufacturers and waybill/consignment note of transporter submitted by the supplier to the Taxes department revealed that the actual price of five transformers and five different electrical items was only INR 8.62 crore excluding taxes, freight and transportation charge, etc. This indicated that the supplier (M/s Techno Power Enterprise Pvt. Ltd.) had procured the transformers and the electrical items from the manufacturer at the price INR 8.62 crore and paid the taxes, freight and supplier’s margin on the actual cost of the transformers and the electrical items.

After considering the supplier’s margin and transportation charges allowed by the department on the basis of cost assessment submitted by the supplier and payments of the mandatory taxes such as Central Sales Taxes (CST), freight, cess, Value Added Tax etc., the admissible cost of the transformers and the electrical items worked out to INR 14.61 crore.

This clearly indicated that the department did not exercise due diligence to satisfy itself of the reasonableness of the prices of the transformers and electrical items, which resulted in procurement of transformers and electrical items at an exorbitant rate, it stated.

Thus, the department paid INR 17.20 crore over and above the admissible cost after admitting the transportation charges and the supplier’s margin along with payment of mandatory taxes ‘with a malafide intention to commit fraud and to misappropriate government money’, it reported.

On being pointed out in audit, the government stated (December 2018) that the department had evaluated the tendered price for the work on the basis of engineering, procurement and construction (EPC)-turnkey contract as a single package for the project as a whole, and not on individual item-wise rates, which was approved by the State Purchase Board duly constituted by the state government.

It stated that the reply of the department was not acceptable as bidding price and award of the contract was done by segregating the item of works. The contention that the work was taken up on turnkey/EPC mode, was also not pre-defined in the work order.

Chümoukedima sub-station

The project of ‘up-gradation of 66/33/11 kV Chümoukedima sub-station from 10MVA to 30 MVA’ for INR 4.94 crore was sanctioned in January 2012 by the NEC to be completed by July 2013. The department in July 2012 awarded the supply of materials, erections and civil engineering design work for INR 4.94 crore to M/s Shyama Power India Ltd., Dimapur, on turnkey basis. However, advertisement of the tender enquiry as required under Rule 150 of the GFR 2005 was not available on record, the report stated. 

Examination of records revealed that NEC released INR 4.45 crore to the state; and the government also released its share of INR 0.40 crore to the EE (Electrical) Transmission Division, Dimapur. The project, inclusive of purchase of 20 MVA transformers, was reported as complete (April 2014) after incurring an expenditure of INR 4.85 crore. It was observed that the supplier was paid INR 3.95 crore (exclusive of VAT) for procurement of 20 MVA transformer.

However, when cross-examined, the actual price of the transformer was found to be only INR 1.21 crore. This indicated that the supplier had procured the transformer from the manufacturer at the price of INR 1.21 crore and paid taxes on the actual cost of the transformer, the CAG reported.

After considering the supplier’s margin and transportation charges allowed by the department on the basis of the cost assessment submitted by the supplier and the payments of mandatory taxes such as Central Sales Tax, freight, cess, Value Added Tax etc., the admissible cost of the transformer worked out to INR 2.06 crore.

Thus, it stated, the department paid INR 1.89 crore over the admissible cost after the transportation charges and the margin of the supplier ‘with a malafide intention to commit fraud and to misappropriate government money’.

The government, had in December 2018, stated that the observation made by the audit was based on the basic ex-works price of the transformer without considering the technical and commercial related components.

However, the CAG stated that the reply was not acceptable as the cost of the transformer plus supplier’s margin, transportation charges, and taxes allowed by the department works out to only INR 2.06 crore. Thus, there was an excess payment of INR 1.89 crore over and above the admissible cost, which needs to be investigated.

Kiphire-Tuensang-Mokokchung transmission (line phase I)

In January 2012, the NEC sanctioned INR 4.99 crore for ‘up-gradation of 66kV to 132kV S/C Kiphire-Tuensang-Mokokchung Transmission Line, Phase-I’ to be completed by December 2014. The work for supply and erection for INR 4.49 crore was awarded to M/s National Power Systems, Dimapur in June 2012, on turnkey basis. However, advertisement of the tender enquiry as required under Rule 150 of the GFR 2005 was not available on record, the CAG stated. 

Examination of record revealed that the NEC released INR 4.49 crore to the state; and the government released INR 4.94 crore (including state share of INR 0.45 core) to the EE (Transmission) Division Mokokchung. The contractor completed the work in December 2014 and was paid INR 4.25 crore.

It was observed that the department, out of payment of INR 4.25 crore, paid INR 2.15 crore for five electrical items. However, cross-examination of tax invoices of the manufacturers and waybill/consignment note of transporter revealed that the actual price of five electrical items was only INR 0.50 crore. This indicated that the supplier had procured the electrical items from the manufacturer at the price of INR 0.50 crore and paid the taxes on the actual cost of the electrical items, it stated.

After considering the supplier’s margin and the transportation charges allowed by the department, the admissible cost of the five electrical items worked out to INR 0.85 crore.

Thus, it stated, the department paid INR 1.30 crore over the admissible cost after admitting the transportation charges and the margin of the supplier along with payment of mandatory taxes with a malafide intention to commit fraud and to misappropriate government money. 

In December 2018, the government replied that it considered the price offer as a whole package; and that the audit had not considered technical facts and commercial related components into account.

The reply of the department was also not acceptable as the cost of the electrical items supplier’s margin, transportation charges, and taxes allowed by the department worked out to only INR 0.85 crore, it stated. Thus, there was an excess payment of INR 1.30 crore over and above the admissible cost, which needs to be investigated, the CAG reported.

Kiphire-Tuensang-Mokokchung transmission line (phase II)

The project ‘up-gradation of 66kV S/C to 132KV SC Kiphire-Tuensang-Mokokchung Transmission Line, Phase-II’ estimated at INR 5.83 crore was sanctioned in September 2016 by NEC to be completed by September 2018. The department had awarded the work for procurement of materials, erection and civil works for INR 5.24 crore to the same firm M/s National Power Systems, Dimapur, who had executed phase I, on a turnkey basis, without going for open tendering, according to CAG report.

It was observed that the department, out of payment of INR 2.77 crore, paid INR 1.99 crore for three electrical items. However, cross-examination revealed that the actual price of three electrical items was only INR 0.82 crore. This indicated that the supplier had procured the three electrical items from the manufacturer at the price of INR 0.82 crore and paid the taxes on the actual cost of the three electrical items, according to the report.

After considering the supplier’s margin and transportation charges allowed by the department on the basis of the cost assessment submitted by the supplier and the payments of mandatory taxes such as Central Sales Tax (CST), freight, cess, Value Added Tax etc., the admissible cost of the three electrical items worked out to INR 1.39 crore.

Thus, it stated, the department paid INR 0.60 crore over the admissible cost  after admitting the transportation charges and the margin of the supplier along with payment of mandatory taxes with a malafide intention to commit fraud and misappropriate government money.

The report further stated that the selection of the firm was irregular as open tendering was not practised, which violated Rules 137 and 150 of GFR, 2005; and the adoption of such an unauthorised course of action resulted in lack of competition and transparency in selection of the supplier.

The department had, in December 2018, responded that the conclusion made by the audit was based on the basic ex- works price of the electrical materials without considering the technical facts and commercial related components into account. 

Yet, the CAG maintained that the reply was not acceptable as there was no competitive bidding and the contract was awarded without ascertaining the ‘reasonableness of prices in relation to the prevailing market rates/manufacture’s price, which led to excess payment made to the supplier’.