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‘Incremental’ coal that became RPL’s bugbear

Actually,the third block was allotted in 2006 to Power Finance Corporation (PFC),a public sector undertaking that was appointed by the power ministry to award UMPP projects.

Written by ENS Economic Bureau | New Delhi |
August 18, 2012 1:29:26 am

The government has come in for criticism from the public auditor for overlooking the rule book while allocating three coal blocks to Reliance Power’s (RPL) Ultra Mega Power Project (UMPP) at Sasan in Madhya Pradesh,and the subsequent post-bid concessions that resulted in an overall loss of Rs 29,033 crore to the exchequer.

The Comptroller and Auditor General (CAG) of India in its report tabled in Parliament on Friday said that Reliance Power may not have needed the third block — Chhatrasal to fulfill the energy demands of the project. It was in fact the excess coal from Chhatrasal,which was later diverted to another project of the group in Chitrangi.

Reliance Power in a press statement said,“The decision to permit use of surplus coal from Sasan UMPP coal blocks for power generation has been ratified by the empowered group of ministers (eGOM) on two occasions (in 2008 and again in 2012).”

Actually,the third block was allotted in 2006 to Power Finance Corporation (PFC),a public sector undertaking that was appointed by the power ministry to award UMPP projects. PFC informed the coal ministry in 2006 that the two blocks could only produce 1,200 million tonnes,short of the actual requirement of 1,600 million tones for the UMPP.

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However,according to the CAG,Reliance Power,which reiterated this position of the PFC in its mining plan (submitted to the coal ministry within two months of its plan getting approval) in August 2008,wrote to the coal and power ministries,that “using latest world class technologies” it may now be able to produce more coal than what was submitted in the mining plan; and that Reliance Power be allowed to use “incremental” coal for the Chitrangi project. Incidentally,in 2007,Shivraj Singh Chauhan,the chief minister of Madhya Pradesh had written to Prime Minister seeking diversion of coal to Chitrangi,the report added.

The CAG found Reliance Power’s experience in the sector short of eligibility to be even considered for the award of UMPP. “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.” In the case in point,Sasan UMPP,CAG cites that despite assurance RPL “did not furnish the details before issuance of Letter of Interest on August 1,2007”.

The power ministry in its defence said that the “kind of projects,which are eligible was not specified in the Standard Bidding Document”,hence fixed assets like land,building plant and machinery,vehicle,furniture,electric fittings and appliances form “integral part” of project costs that were taken for evaluation. This view has been contested by the auditor citing that the ministry did not have any independent source of assessment and relied entirely on Reliance Power.

The auditor also said that Ernest & Young (E&Y),a consultancy firm engaged by the ministry,did not carry out independent diligence for evaluation of “experience claimed by the bidders”. E&Y has been debarred for three years by PFC for “omission and commission” and,is facing a legal action by the power ministry.

The CAG recommendation to review the allocation of Chhatrasal coal block may put the government in a spot. It was an eGOM that gave RPL permission to divert coal. This has been challenged by Tata Power,a bidder for the Sasan UMPP that diversion of coal was not part of the bid and that they are wrongly denied the opportunity to better their offer.

RPL has also contested the CAG’s calculation of loss to exchequer over a period of 20 years.

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