Understand CAG Report Reliance Power Benefit is Loss to Indian citizens Rs. 29,033 crore.

Understand CAG Report Reliance Power Benefit is  Loss to Indian citizens Rs. 29,033 crore.

Comptroller and Auditor General of India (CAG) said that the Anil Ambani-led firm Reliance Power got undue benefit of Rs. 29,033 crore.

How the Alleged Scam Happened and How Indian Citizens Suffered loss of Rs. 29,033 crore.

Reliance Power is developing a 4000 MW project at Sasan in Madhya Pradesh and was allotted two captive coal blocks to fuel this project.

After this Government gave third coal block to Reliance Power for Sasan project.

Then Reliance said that they got extra coal.

[Why Government gave third coal block to Reliance?]

Reliance Power company got one more  project  at Chitrangi in Madhya Pradesh for this project also coal is required.

Reliance got the Coal for the Sasan Project, they got extra coal, [third coal block], and later with government permission, the coal was transferred for the Chitrangi Plant.

Sasan Project and Chitrangi Project with supply power.
Sasan Project supplies power at low prices.
Chitrangi project at higher prices.

Now in this case   Chitrangi Project will use  cheap coal block of Sasan Power Project but the power will not be sold at cheaper rates like   Sasan power project.

As per the minimum technical qualifying criteria  stipulated in RFQ document, the Bidding Company or a Consortium Member (including Lead Member) and Affiliate must meet technical requirement of having experience of developing projects in the last 10 years whose aggregate capital costs must not be less than  Rs. 3,000 crore. Out of these projects, the capital cost of at least one project should be equivalent to or more than Rs. 500 crore. 

Audit observed that in all the three UMPPs which were awarded to the Project Developer, Reliance Power Limited (RPL), they claimed having experience of developing projects based on additions to the fixed assets Rs.3,123.88 crore for Sasan & Mundra,  Rs. 2,137.49 crore for Krishnapatnam and  Rs. 2,254.61 crore for Tilaiya UMPPs) during the last 10 years despite the fact that only capital cost of projects commissioned during the last 10 years was eligible to be counted for project experience.

Three coal blocks viz. Moher, Moher-Amlohri Extension, and Chhatrasal were allocated to Sasan UMPP to meet its coal requirement of 16 Million Tonne per annum.

In November 2007, Chief Minister of Madhya Pradesh requested the Prime
Minister, to allow RPL to use the surplus coal from the captive blocks of Sasan UMPP in the power plant being set up by RPL at Chitrangi tehsil in the vicinity of these mines.

The matter was referred to EGOM and the issue was deliberated in the two EGOM meetings held on 28 May 2008 and 14 August 2008. EGOM recommended that RPL be allowed to use the surplus coal from blocks allotted to Sasan UMPP for its other projects where power was sold through tariff-based bidding.

Accordingly, the permission was accorded.

While this decision resulted in financial benefit of  Rs.29,033 crore with a net present value (NPV) of  Rs.11,85? crore to the Project Developer, a detailed analysis of the chronology of events which took place in granting permission for use of surplus coal at Chitrangi Project from the coal blocks allocated for Sasan Project, also revealed as under:

(a)    Allocation of surplus coal –

(i)  It is not clear how MOP on 9 October 2006 came to the conclusion that
The two initially allocated blocks for the Sasan UMPP would be
Inadequate.

(ii)  The basis on which MOC was prevailed upon in October 2006 itself to
Allot an additional block (Chhatrasal) of coal to Sasan UMPP by de-allocating it from the Public Sector NTPC is not clear.

(iii)  Till March 2009, MOC was taking the stand that coal from two blocks
(Moher and Moher-Amlohri Extension) was sufficient for the Sasan
UMPP and that there is no justification for allocating a third block
(Chhatrasal) to the Developer.

(iv)  In March 2008, RPL maintained that there was no possibility to enhance production beyond 12 million tonne from the two blocks of Moher and Moher-Amlohri Extension.

(v)  However, on 6 August 2008, RPL intimated of their intention to use
latest world class technology leading to increased recovery factor and
higher annual production leading to the mined coal from these three
blocks becoming surplus to the requirement of Sasan UMPP.

(vi)  This indeed was the position which the Chief Minister of Madhya
Pradesh was aware of when he wrote to the Prime Minister in November 2007 itself seeking diversion of the surplus coal to Chitrangi.

(vii)  This revelation by RPL, provided to the EGOM in its meeting on 14
August 2008, led to their deciding that indeed surplus coal would be
available and this could be diverted to other projects.

The permission to use surplus coal in other projects of the Developer vitiated the sanctity of the bidding process since it amounts to post bid concessions to the Developer having significant financial implication as explained below:

The EGOM in its meeting held on 28 May 2008 had sought information
about structure in respect of ownership, mode of sale of power and
tariff of Chitrangi Project. However, without getting this information
from Madhya Pradesh Government, EGOM recommended (14 August
2008) granting of permission for usage of incremental coal.

EGOM in its meeting held on 14 August 2008 had recommended that
power generated by utilizing incremental coal from captive coal blocks
of Sasan UMPP  would be sold through tariff based competitive
bidding.  But RPL was granted permission by MOC (February 2010)  to
use the surplus coal in  Chitrangi Project the tariff of which was already
accepted in May 2008 at Rs.2.45 per unit i.e. prior to the EGOM decision
on usage of surplus coal for Chitrangi Project.

For this purpose RPL had bid along with other bidders citing independent fuel arrangement (from Mahanadi Coalfields Limited/112.22 million tonne of coal reserves in the Rampia and dip-side of Rampia non-coking coal blocks in the state of Odisha).

CAG Conclusion says that

The advice of MOP in October 2006 that Sasan UMPP would require
an additional coal block was based on insufficient data as mining
plan of Moher and Moher-Amlohri Extension was not available

The condition purportedly permitting diversion of surplus coal was
not explicitly stated in the bid document.

The EGOM evidently was not provided accurate information about
adequacy or otherwise of coal availability in the two blocks initially
allocated to Sasan UMPP leading to their decision permitting usage
of surplus coal.

Permission to utilize surplus coal for projects with tariff based
competitive bidding has been violated since tariff for Chitrangi
Project, for which such permission was granted, was already fixed
before the permission was granted.

Permission for use of excess coal by RPL from the three coal blocks allocated to Sasan UMPP after its award not only vitiated the bidding process but also resulted in undue benefit to RPL.

Reliance Power Limited (REGL12
 at the time of bid submission) claimed the following
experiences in its bid responses for the four UMPPs namely Sasan, Mundra,
Krishnapatnam and Tilaiya:
In case of Sasan and Mundra, RPL claimed an experience of  Rs.4416.60 crore (aggregate capital cost) which also included (i) Generation, Transmission & Distribution (T&D) Projects executed by the parent company i.e. REL, (ii) Distribution Projects pertaining to two affiliate companies  and (iii) Augmentation of T&D network of three Odisha Distribution Companies

. In case of Krishnapatnam and Tilaiya Projects, RPL claimed an experience of  Rs.3430.21 crore and  Rs. 3505.41 crore respectively which included Generation, Transmission & Distribution (T&D) Projects executed by the parent company. Audit noted that major part of the experiences claimed by RPL were based on additions to the fixed assets instead of capital expenditure pertaining to projects commissioned during the last 10 years.  RPL did not furnish details of such Projects. Audit also noticed that in the case of Sasan UMPP, despite agreeing (14 June 2007) to furnish the details of the commissioned Projects, RPL did not furnish the details before issuance of LOI on 1 August 2007.

The required details were neither furnished by RPL nor asked for by the various evaluation committees in the case of Krishnapatnam and Tilaiya Projects as well.

The tariffs quoted by RPL for different projects
are given below:

1.
Sasan UMPP  1.196 Per unit in Rs.

2.
Chitrangi Project (for Madhya Pradesh - MP)  2.450 per unit in Rs.

3.
Chitrangi Project (for Uttar Pradesh)  3.702 per unit in Rs.

Comparing the higher tariffs for Chitrangi project to the tariff of the Sasan UMPP, it is seen that the benefit of using surplus coal would not pass on to the consumers in the next 20 years as the tariff for Chitrangi Project had already been fixed as per the bid of RPL. There would, thus, be unintended benefit accruing to RPL based on their projected capacity. The overall  financial benefit to RPL due to impact of the difference in tariff comes to  `  29,033 crore with a net present value of  Rs. 11,852 crore.

Ministry replied (March 2012) that costs and tariff for two projects cannot be compared.

Audit is of the opinion that the comparison between Sasan and Chitrangi projects is
not out of place since both the projects (Sasan and Chitrangi) are

1.    
of 3960 MW capacity;
2.    
located in the same vicinity;

3.    
sourcing coal from the same coal mines.

To conclude, the post-bid concessions extended to RPL in Sasan UMPP resulted in financial benefit to RPL to the tune of  Rs. 29,033 crore with a net present value of  Rs. 11,852 crore.

The bid evaluation process was completed and Letter of Intent issued to
Reliance Power Limited (RPL) in case of Sasan, Krishnapatnam and Tilaiya UMPPs without verifying admissibility of experience claimed by them. Bid Process Management Consultants M/s. E&Y as well as the various Evaluation Committees failed to perform their functions effectively.

Permission for use of excess coal by RPL from the three coal blocks allocated to Sasan UMPP after its award not only vitiated the bidding process but also resulted in undue benefit to RPL.

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 per unit)
with that of Chitrangi Project ( Rs.2.450 for Madhya Pradesh and  Rs. 3.702 for Uttar Pradesh). The overall financial benefit to RPL due to impact of the difference in tariff works out to  Rs. 29,033 crores with a net present value of Rs.  11,852 crore.

Globeleq-Lanco consortium was initially identified as the lowest bidder and was issued the Letter of Intent (LOI).  But, the LOI was cancelled in July 2007 on grounds of misrepresentation of facts and the project was
awarded to Reliance Power Limited who matched the tariff quoted by Globeleq-Lanco consortium.

The bidders who extended the validity of their  bids and submitted revised price bids subsequent to cancellation of LOI initially issued to Globeleq–Lanco consortium.

Reality views by sm –

Saturday, August 18, 2012

Tags – CAG Report Reliance Power  Coal MP