CAG sees faulty bids, undue benefits to Reliance Power

CAG said the company unduly benefited from a government decision allowing the power producer to use surplus coal from its captive block for another project it was not meant for.

FP Staff August 17, 2012 14:32:56 IST
CAG sees faulty bids, undue benefits to Reliance Power

Three crucial CAG reports on coal block allocation, implementation of public-private partnership at Delhi's IGI Airport and ultra mega power projects were tabled in Parliament today.

The CAG report on power accuses the government of favouritism and benefiting companies like Tata and Reliance Power.

The CAG report on Ultra Mega Power Projects found that permission for the use of excess coal by Reliance Power from the three blocks allocated to the Sasan UMPP not only vitiated the bidding process but also resulted in undue benefits to Reliance Power.

CAG sees faulty bids undue benefits to Reliance Power


CAG said the bidding process was vitiated by allowing Reliance Power to use excess coal from three blocks allocated to the Sasan project. This excess coal use dispensation to Sasan UMPP resulted in a financial gain of Rs 11,852 crore to Reliance Power.

"Audit has estimated the financial benefit that will accrue to the project developer on the basis of comparison of tariff of Sasan project (Rs 1.196/unit) with that of Chitrangi (Rs 2.450/unit for Madhya Pradesh and Rs 3.702/unit). The overall financial benefit to Reliance Power due to impact of difference in tariff works out Rs 29,033 crore with a net present value of Rs 11,852 crore,'' the report said."

Reacting to the news, Reliance Power tanked around 6.5 percent . In reply to the CAG report, Reliance Power, in a filing with the BSE, said the company had no role in coal reserves allotment to Sasan UMPP.

The report said the bid evaluation was faulty while awarding all three projects to Reliance Power as the company did not meet the technical expertise clause.

"The permission to use surplus coal in other projects of the bidder after award of the contract based on acceptance of the lowest tariff, vitiated the sanctity of the bidding process which would result in post bid concessions to the developer having significant financial implication," it said.

CAG said it was not clear how Power Ministry in October 2006 came to the conclusion that two initially allocated blocks for the Sasan project (Moher and Moher Amlohri) would be inadequate to fire the 4,000 MW plant.

"The basis on which Ministry of Coal was prevailed upon in October 2006 itself to allot an additional block (Chhatrasal) of coal to Sasan ultra mega power project by de-allocating it from the public sector NTPC is not clear," it said.

Taking stock of the misuse, CAG recommended reviewing the allocation of the third surplus coal blocks to Sasan UMPP owned by Reliance Power.

The report says that to ensure fairplay, a level playing field and transparency of bidding process for future developers, the allocation of the third coal block - Chhatrasal - be appropriately reviewed.

The report further said that the appointment of the bid process consultants Ernst & Young was faulty as ICRA had submitted the lowest bid. It added that the bid documents were not vetted by the department of legal affairs and that they were altered several times. Moreover E&Y was awarded the contract at a higher price on the ground that they had advised a Bangladesh project on bid process management.

"The consultancy work for the Tilaiya Project was also awarded to E&Y without inviting bids. Thus, the principle of equity in public procurement laid down in the General Financial Rules of the GoI was not followed while awarding consultancy assignments to E&Y. Later, PFC (Power Finance Corporation) debarred them for three years for their lapses in bid evaluation."

Third, the normative availability for UMPPs was reduced from 85 percent to 80 percent on the suggestion of PFC, said CAG, while the base was reduced from 80 percent to 75 percent for levy of penalty before receiving financial bids. "Audit observed that since the UMPPs were meant to have higher operational efficiency, this reduction in normative availability and penalty base was not in the interest of operational efficiency of UMPPs."

Moreover, fixing lower net worth requirements for bidders at 5 percent of the project cost against 15 percent fixed by the finance ministry for PPP projects involved unwarranted risk for the UMPPs.

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