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CHAPTER II
PERFORMANCE REVIEWS RELATING TO GOVERNMENT
COMPANIES
2.1 VISVESWARAYA VIDYUTH NIGAMA LIMITED
RENOVATION AND MODERNISATION WORKS OF HYDEL
GENERATING STATIONS
Highlights
Renovation and modernisation works of Mahatma Gandhi Hydro Electric Station (MGHE) were undertaken without taking into account the cheaper cost of generation at Sharavathi Generating Station and the constraints in evacuation of power at the uprated capacity of 139.20 Mega Watt.
(Paragraphs 2.1.8 and 2.1.9)
Delay in providing winch and trolley to the contractors resulted in 23 months delay in start of work at Shivasamudram Generating Station and consequential loss of generation of 181 million units of power.
(Paragraph 2.1.12)
Leakage of water from the sluice gates 9 and 10 of Tungabhadra Dam owing to lack of maintenance resulted in loss of generation of 14.4 million units per season (July to February) at Munirabad Hydro Electric Station.
(Paragraph 2.1.15)
The Company had foregone interest subsidy of Rs.59.20 lakh (in respect of Shivasamudram) by not drawing the full amount of loan before 31 March 2002 due to delay in taking up the work. The Company paid commitment charges of Rs.68.29 lakh (MGHE and Shivasamudram) by not adhering to the drawal schedule given to Power Finance Corporation.
(Paragraph 2.1.16)
Introduction
2.1.1 The Company has been operating the following Power plants (four hydro-electric and one diesel generating station), transferred by the erstwhile Karnataka Electricity Board (KEB) in July 1999:
- Shivasamuduram Generating station, Shivasamudram (installed in 1902-1938).
- Shimshapura Power House (installed in 1940).
Audit Report (Commercial) for the year ended 31 March 2006
- Mahatma Gandhi Hydro Electric Station, Jog (installed in 1948-1952).
- Munirabad Hydro Electric Station, Munirabad (installed in 1962-1965).
- Diesel Generating Plant, Yelahanka, Bangalore (installed in 1993-1994).
Renovation and modernisation (R&M) of Mahatma Gandhi Hydro Electric Station (MGHE), Shivasamudram Generating Station and Munirabad Hydro Electric Station were taken up by the erstwhile KEB. The Detailed Project Reports (DPR) for R&M works of the three Power Stations were prepared in March 1993, December 1998 and November 1999 and the work started in March 1997, October 1999 and December 2000 respectively. The works were completed between October 2002 and October 2004.
Scope of audit
2.1.2 The performance review conducted during September to December 2005 covers the conceptualization, financing and implementation of the R&M work of MGHE, Shivasamudram and Munirabad Stations and their performance after completion of renovation.
Records selected for detailed scrutiny were based on sample size. The sample size was selected on conventional judgemental sampling method based on financial materiality. Accordingly, 80 per cent packages (by value) of renovation and modernisation in respect of MGHE and Shivasamudram and 100 per cent in respect of Munirabad were covered in audit.
Audit objectives
2.1.3 Performance review of the project was conducted with a view to assess whether:
- the renovation was actually necessary and if so whether the same was carried out after detailed study of various aspects and in a planned manner;
- the works were carried out as contemplated in the DPR, as per schedule, and whether the deviations were justified;
- renovation and modernisation of the three hydel power stations was carried out economically and efficiently;
- borrowed funds were drawn and utilised in an effective manner; and
- the performance of the Stations after renovation was as per the projections in DPR.
Chapter II Reviews relating to Government companies
The details of capacity, cost of renovation and modernisation of the three generating stations are as under:
Installed capacity
Derated capacity
Anticipated capacity after renovation / modernisation
Initial estimated cost (date)
Revised estimated cost
Actual Generating cost station Mega Watt (MW) Rs. in crore
MGHE 120 70 139.20 (^) (March 1993 )33.90 (October 2000)44.66 43.
Shivasamudram Generating Station
(^42 18 42) (December 1998)68.
(June 2001 to October 2003)
Munirabad Hydro Electric Station
28
Only technical problems
28 3. (November 1999) Not revised^ 3.
Audit findings (Project wise) are discussed in the succeeding paragraphs:
Mahatma Gandhi Hydro Electric Station (MGHE)
2.1.7 MGHE (installed capacity of 120 MW) generates power using rainwater during the season and leakage/seepage water from the channels of Linganamakki dam during non-season. The water from the dam also passes through a power channel of designed capacity of 5,500 cusecs (constructed prior to 1964) and an Additional Water Conducting System (AWCS) to Sharavathi Generating Station (situated down stream of MGHE station). The old power channel had developed cracks and damages leading to water leakage (about 200 cusecs) into the Sharavathi river and water also escapes through the gates (50-70 cusecs) of Lingannamakki dam. This water is impounded at Kargal anicut 1 and the same is conducted through a power channel to MGHE through penstocks and is used for generation. The schematic diagram of MGHE is given alongside.
Due to ageing, the powerhouse was derated from 120 MW to 70 MW. A DPR for R&M was prepared and sent to the Central Electricity Authority in March 1993. A joint team^2 examined the same in October 1993. Based on the team’s recommendations, the DPR was revised and approved (June 1995) by the Karnataka Electricity Board for Rs.44.66 crore. The R&M works commenced in March 1997 after a delay of about two years. Out of 25 purchase orders valued at Rs.43.07 crore relating to this Project, Audit reviewed eight purchase orders valued at Rs.36.73 crore, the details of which are given in Annexure -.
(^1) Anicut is bund to stop/rebound water. (^2) Central Electricity Authority, Karnataka Electricity Board, Bharat Heavy Electricals Limited and Power Finance Corporation Limited.
Chapter II Reviews relating to Government companies
penstock protection valves and installation of an ultrasonic over-velocity detection device. The device was designed to automatically trip the valve if high velocity was detected.
It was noticed in audit that though the R&M works were completed by October 2002, supply and commissioning of over-velocity detection devices were not done (April 2006). Consequently, the valve tripping mechanism was not put to use exposing the penstocks to risk.
The Government stated (April 2006) that one penstock protection valve (out of four) installed in March 2001 was damaged due to lightning and the firm had agreed to replace the same shortly. It further stated that the final bill of the firm would be settled after satisfactory replacement. The reply is not acceptable as the replacement is yet to be done and the penstocks continue to be exposed to risk due to non-installation of the devices even after five years.
Shivasamudram Generating Station
2.1.11 Shivasamudram Generating Station had an installed capacity of 42 MW. Due to ageing, the station was derated to 18 MW. Further, the station generated power at 25 hertz frequency. After meeting the local power requirements of 10 MW the balance was converted to 50 hertz (National Standard) and transmitted to Bangalore/Mysore cities. It was decided to uprate the station to its installed capacity and convert it into a station with 50 hertz transmission. A DPR was prepared (December 1998) and works were undertaken in October 1999 with scheduled completion by April 2002. Out of 20 purchase orders valued at Rs.74.06 crore, Audit reviewed eight purchase orders valued at Rs.69.72 crore, the details of which are given in Annexure-8. The schematic diagram of Shivasamudram is given overleaf.
Audit scrutiny revealed the following:
Delay in completion of work
2.1.12 The project was completed in October 2004 after a delay of 27 months. This was due to initial delay of 23 months in taking up the work. Audit scrutiny revealed that the delay was due to failure of the Company to provide 30 tonne winch with trolley for transportation of equipment/materials from surface to powerhouse as per terms of the purchase order.
The Company hired a winch and trolley of 50 tonne capacity at a cost of Rs.12.78 lakh in February 2001. The delay in hiring the winch and trolley resulted in loss of generation of power of 181 million units valued at Rs.18.27 3 crore.
(^3) calculated for 27 months delay based on Tariff Design Energy (10 per cent plant load factor utilisation as directed by State Regulatory Commission).
Delay in providing winch and trolley to the contractors resulted in 23 months delay in start of work at Shivasamundram Generating Station and consequential loss of generation of 181 million units of power.
- Audit Report (Commercial) for the year ended 31 March
- Audit Report (Commercial) for the year ended 31 March
Audit Report (Commercial) for the year ended 31 March 2006
This resulted in loss of power generation of 14.4 million units valuing Rs.79.20 lakh 4 per season (July to February). The Government stated (September 2006) that the Irrigation Department had carried out (April 2006) the repairs. The fact remains that the repairs were not carried out for a period of four years (2002-2006).
Project financing
2.1.16 The Power Finance Corporation Limited (PFC) financed Rs.73.32 crore out of total estimated cost of Rs.116.60 crore of R&M works. The loan was released on submission of supplies and erection bills as per schedule laid down. Further, the Government of India under the Accelerated Generation and Supply Programme extended interest subsidy of four per cent on the loans sanctioned by the PFC. The subsidy was available for drawals upto 31 March 2002 only (end of IX Plan period). The station-wise fund management details are given below:
Estimated cost
Loan sanctioned by PFC
Loan released upto 31.3.
Shortfall in committed drawal before 31.3.
Drawn after 31.3.
Generating Station
Rs. in crore
Date of sanction
Rs. in crore
Date of completion of work
MGHE 44.66 23.50 9.11.1995 23.50 - - October 2002
Shivasamudram Generating station
68.38 48.00 19.4.1999 33.20 7.18 14.80 October 2004
Munirabad Hydro Electric Station
3.56 1.82 22.5.2001 1.82 - - October 2002
TOTAL 116.60 73.32 58.52 7.18 14.
In this connection it was noticed during audit that:
- the Company did not draw the full amount of loan of Rs.48 crore in respect of Shivasamudram foregoing a subsidy of Rs.59.20 lakh relating to undrawn loan of Rs.14.80 crore. This was attributable to delay of 23 months in starting the work as discussed in paragraph 2.1.12. The Government accepted (April 2006) the audit observation.
- the Company did not adhere to the schedule of drawal given by PFC even after two revisions resulting in payment of commitment charges of Rs.68.92 lakh (Rs.41.57 lakh in respect of MGHE and Rs.27.35 lakh in respect of Shivasamudram Generating Station). The Government accepted (April 2006) the audit observation.
(^4) calculated based on Executive Engineer’s (Electrical) letter dated 14.10.2005 to Chief Engineer (Irrigation Department) for 14.40 million units at Rs.0.55 per unit.
Chapter II Reviews relating to Government companies
Performance of generating stations after modernisation
2.1.17 The capacity of MGHE was uprated to 139.20 MWs, the installed capacity of Shivasamudram was restored (42 MWs) and the technical problems in Munnirabad were set right as indicated in the DPR. The table below indicates the year wise details of generation of power in each of the three generating stations during pre-renovation and post-renovation periods:
Average generation during the Station Status Period period (million units) MW Pre-renovation 1990-1997 379 43. MGHE During renovation 1998-2002 98 11. Post renovation 2003-2005 156 17.
Pre-renovation 1990-1999 115 13. Sivasamudram During renovation 2000-2003 58 6. Post renovation 2004-2005 192 21.
Pre-renovation 1990-1999 92 10. Munirabad During renovation 2000-2002 82 9. Post renovation 2003-2005 52 5.
From the table it can be observed that
- the generation at MGHE during the post-renovation period was less than its generation during the pre-renovation period due to evacuation constraints as stated in paragraph 2.1..
- Shivasamudram achieved targets of generation of energy of 180 million units.
- in respect of Munirabad, the generation is based on availability of water after use for irrigation purposes.
Acknowledgement
Audit acknowledges the co-operation and assistance extended by the staff and the Management of the Company and officers of the Government at various stages of conducting the performance review.
Conclusion
Renovation and Modernisation works of MGHE were undertaken without taking into account the cheaper cost of generation at Sharavathi Generating Station and constraints in evacuation of power at the uprated capacity of 139.20 MW. The Company failed to provide winch and trolley in time leading to abnormal delay in completion of works at Shivasamudram Generating Station. Non-maintenance of sluice gates at Munirabad Hydro Electric Station resulted in loss of generation. The Company failed to draw the full amount of loan due to delay in the completion of work and consequently forgoing subsidy.
Chapter II Reviews relating to Government companies
2.2 KARNATAKA STATE AGRO-CORN PRODUCTS LIMITED
MANUFACTURE AND DISTRIBUTION OF ENERGY FOOD
Highlights
The Company set up (1979-1987) five energy food production units in Karnataka to meet the entire requirement of energy food for the children and lactating mothers under the nutritional program of the Government of Karnataka.
(Paragraph 2.2.1)
The actual production decreased drastically from 2003-04 onwards due to diversion of 50 per cent of the requirement of energy food to a private party by Department of Women and Child Development (DWCD). Failure to diversify its product range and the continued dependence on DWCD, which was diverting the orders to a private party, has affected the very existence of the Company.
(Paragraphs 2.2.7 and 2.2.17)
Non-following of the prescribed nutritional formula in the manufacture of energy food and using cheaper ingredients resulted in saving in cost but compromised the nutritional balance of energy food supplied to children and lactating mothers.
(Paragraph 2.2.12)
The Quality control system prevalent in the Company was not effective as the quality tests in its laboratories were carried out by unqualified personnel.
(Paragraph 2.2.16)
Introduction
2.2.1 The Karnataka State Agro-Corn Products Limited (KSACPL) was incorporated in April 1973. The objectives of the Company inter-alia included establishing mills and factories for producing edible and non-edible products.
The Government of Karnataka (GOK) with the assistance of United Nations Children's Fund (UNICEF) introduced (1975) a scheme to provide low cost nutritionally balanced and acceptable formulated flours from indigenous raw materials of high nutritive value for distribution to children and lactating mothers. This supplementary nutritional programme is implemented under Integrated Child Development Scheme (ICDS).
Audit Report (Commercial) for the year ended 31 March 2006
The Company set up (1979 to 1987) five production units at Doddaballapur, Mysore, Chitradurga, Raichur and Belgaum to manufacture the Amylase Rich Energy Food (AREF/energy food). The technical consultancy was to be provided by Central Food Technological Research Institute, Mysore (CFTRI). The GOK had funded the entire cost of the project with UNICEF aid and undertaken to purchase the entire quantity of energy food required for implementation of the project from the Company.
The present activities of the Company are mainly confined to production of energy food, which constitutes approximately 90 per cent of the gross revenue.
The working of the Company was last reviewed and reported in the Report of the Comptroller and Auditor General of India (Commercial) for the year 1995-96. The Report was discussed by Committee on Public Undertakings in September 1997.
Scope of audit
2.2.2 The performance review conducted during August and September 2006 covers the performance of manufacture and distribution of energy food by the Company during 2001-2006. The records of the Head Office and its production units at Chitradurga, Belgaum and Raichur were reviewed.
Audit objectives
2.2.3 The performance review was conducted to ascertain whether:
- the facilities established for production of energy food were utilised to the optimum level and wastages were within the norms;
- the objective of establishing the units for providing low cost balanced and highly nutritive value food was achieved;
- the planning for procurement of raw materials and supply of finished product at competitive rate was adequate;
- the quality of the product was adequate and consistent with the norms of the Government/CFTRI;
- the Company had explored the possibilities for expanding its market share for energy food and diversification, as reported by the Government in response to the earlier report of Comptroller and Auditor General of India (Commercial) for the year 1995-96; and
- the system of supply, billing, recovery and internal controls were adequate;
Audit Report (Commercial) for the year ended 31 March 2006
Company for supply of energy food. The total installed capacity available with the Company is 32,900 MT. The details of actual quantity produced and supplied by the Company to the DWCD during the last five years are given below:
(Quantity produced in Metric Tonnes and capacity utilised in per cent ) 2001-02 2002-03 2003-04 2004-05 2005- Name of the unit
Quantity produced and supplied
Capacity utilised
Quantity produced and supplied
Capacity utilised
Quantity produced and supplied
Capacity utilised
Quantity produced and supplied
Capacity utilised
Quantity produced and supplied
Capacity utilised
Belgaum 7,868 116 6,995 103 2,494 37 3,322 49 3,564 52
Chitradurga 7,623 147 7,954 131 2,799 46 2,307 38 2,725 45
Doddaballpur 7,123 89 7,070 88 3,277 41 3,179 40 2,806 35
Mysore 6,791 112 6,389 106 2,721 45 3,153 52 3,007 50
Raichur 6,859 100 8,618 125 2,731 40 2,210 32 2,907 42
Total 36,264 108 37,026 110 14,022 42 14,171 42 15,009 44
It could be seen from the above details that during 2001-03 the production and supply of energy food was more than the capacity available with the company. Subsequently, from 2003-04 onwards the capacity utilisation declined drastically to 42 to 44 per cent only. The main reason for this decline was the restriction of the role of the Company for supply of energy food to 13 districts (out of 27 districts) only from the earlier role of it being the only supplier for the whole State. The supply of energy food for other districts was entrusted to a private party by DWCD on the plea that it was required to invite competitive tenders for the purchases under the Karnataka Transparency in Public Procurements Act.
It is pertinent to mention that the Government while setting up the five units under the Company for manufacture of energy food to implement its nutritional programme had agreed to purchase the entire quantity of energy food manufactured by these units. This was also reiterated subsequently in a Legislative Annual Report (January 1997) and in the proceedings of a meeting (June 2004) taken by the Chief Minister for reviewing the operations of the Company.
Due to change in policy of procurement by the DWCD, the sales of energy food reduced from Rs.62.03 crore in 2001-02 to Rs.29.87 crore in 2005-06. Since the Government is the sole indenter of energy food and it represents 90 per cent of the total turnover, the diversion of orders has affected the very existence of the Company.
The Management accepted (September 2006) the audit observation and stated that there was no positive response from DWCD.
Loss of production due to cancellation of shifts 2.2.8 It was noticed in audit that a large number of shifts were cancelled in production units mainly for want of indents and raw materials. This led to loss of production, under-utilisation of resources and consequent payment of idle
The actual production reduced drastically from 2003-04 onwards due to diversion of 50 per cent orders to a private party by DWCD, which affected the very existence of the Company.
Chapter II Reviews relating to Government companies
wages. A review of the three production units at Chitradurga, Belgaum and Raichur revealed that:
- during last five years, 12 per cent of the shifts (1,163 out of 9,800) planned were cancelled due to non-availability of raw materials and indents. During the years 2002-03 and 2003-04, 692 and 320 shifts respectively were cancelled due to non-availability of raw material, indicating poor material planning.
- during the period 2003-06, the planning of shifts was reduced by one third. Even out of the planned shifts of 2,236 during 2004-05 and 2005-06, number of shifts cancelled due to non-availability of indents were 281 representing 12.60 per cent of the shifts.
This indicated the poor follow up of the Company with DWCD for indents and non-synchronisation of raw material purchases.
Wastage
2.2.9 The process wastage in production of energy food during last five years up to 2005-06 was as follows:
2001-02 2002-03 2003-04 2004-05 2005- Name of the unit (^) wastage in per cen t Belgaum 6.65 6.82 6.82 4.87 4. Chitradurga 5.50 5.85 4.91 4.29 4. Doddballapur 6.20 7.40 4.81 5.00 3. Mysore 5.99 NA 5.49 4.92 4. Raichur 6.43 6.14 5.84 4.29 4. Average 6.15 5.24 5.57 4.67 4.
It can be seen from the above table that the wastage was not only inconsistent within the same units but that there were wide variations amongst the units, ranging from 3.95 to 7.40 per cent. The Company has, however, not fixed any norm for wastage even though this is very vital in a manufacturing unit.
The Government agreed in the ARCPSE meeting to fix the wastage norms.
Payment of production incentive
2.2.10 As per the group incentive plan applicable for energy food division from April 1991, the standard production norms were fixed at six metric tonne with 22 workers per shift. Subsequently in 2000-01, the Company installed new automated machinery (wheat roaster with conveyor, air attrition mill etc.). The Company, however, did not increase the standard production norms after automation. Test check by audit in the three units at Chitradurga, Belgaum and Raichur indicated that though the capacity of the plants was increased and higher production was achieved, the Company paid incentive of Rs.40.29 lakh during 2001-02 and 2002-03 based on old production norms.
Chapter II Reviews relating to Government companies
Similarly, the Company mixed vitamin premix at 0.1 per cent as against one per cent prescribed by the CFTRI and DWCD resulting in savings of Rs.11.27 crore for the last three years (2003-2006). This, however, diluted the quality of energy food and did not supplement the desired nutritional value of vitamins, proteins, minerals and carbohydrates.
The Management stated (October 2006) that the specific nutritional requirement had been met in its supplies. The reply is not tenable as the CFTRI/DWCD has specifically prescribed the input contents as given in table above apart from specific nutritional requirement 5 and the change in the composition would not have been able to meet these specific nutritional requirements
Procurement of raw material
Allotment of wheat
2.2.13 The main ingredient of the energy food manufactured by the Company is wheat. In order to reduce the cost, the DWCD allots wheat (through Food Corporation of India-FCI) to the Company at Below Poverty Line (BPL) rates. A review of procurement of wheat revealed that there was no system in the Company/Department to determine the exact quantity of wheat required and there was delay in allotment of wheat by the DWCD (i.e. requirement of 2004-05 was allotted in August 2004; of 2005-06 in July 2005).
Purchase of sugar in open market
2.2.14 The Company is being allotted wheat by DWCD at Below Poverty Line rate, which in turn has helped in reducing the cost of energy food. The Company, however, purchases sugar from the open market. Even though 13,633 MT of sugar costing Rs.21.05 crore was consumed during the last three years, no efforts were made for allotment of sugar under the Public Distribution System, which could have brought down the cost of energy food by Rupees one crore per annum at current levels of cost (computed with reference to difference between the market price and the public distribution system price).
The Management stated (October 2006) that Department of Food and Civil Supplies had turned down the request as sugar is a controlled commodity and the matter would now be taken up with the Government.
Inter unit raw-material transfers
2.2.15 The requirement of each production unit was not properly assessed resulting in inter-unit transfers. Test check of the records at Chitradurga, Belgaum and Raichur units revealed that a total of 3,025.68 MT (for five years up to 2005-06) of raw material was transferred from and to these units resulting in extra expenditure of Rs.9.08 lakh (at Rs.300 per MT) on
(^5) Protein (15-16 gram ) ; calories (372-380 Kcal); crude fibre (2.5gram); iron (4.6mg)
phosphorous (0.8mg); thaimin (0.8mg); raboflavin (0.8mg); naicin (6mg); vitamin A (1,500-2,000 units); vitamin B12 (0.4 Ug).
Audit Report (Commercial) for the year ended 31 March 2006
transportation. The Management stated (October 2006) that inter unit transfers were necessitated due to lorry strikes, rains and unwillingness of suppliers to supply to certain units. The reply confirms the audit observation of lack of proper procurement planning.
Quality control
2.2.16 As per the accepted procedures, the raw materials and finished products are to be tested for quality under specified norms. The Company has its own laboratory at each plant. A review of the quality system revealed that:
- lab assistants without the required qualifications were conducting the chemical analysis and furnishing reports;
- though the Company issued general instructions for physical inspection, laboratory testing of raw materials and ingredients, the same was not conducted in the production units by qualified technicians;
- the guidelines issued by the management required highest cleaning standards viz., cleaning of stores and surrounding areas. There were, however, no records to show that hygienic standards were maintained;
- the Board observed (in 1997) that the raw materials were not meeting the specifications prescribed under the Prevention of Food Adulteration Act and suggested for reduction in prices depending on variations. Accordingly, the Company is accepting raw materials not meeting the specification, by recovering for deviations from the suppliers;
The Management stated that some of the units had qualified personnel while the other units had experienced staff in quality control. The reply is not acceptable as except for Doddaballapur unit, the other quality control personnel did not satisfy the educational qualification prescribed in the rules of the Company.
Marketing and pricing of energy food
2.2.17 In response to an observation by the Comptroller and Auditor General of India in the Audit Report (Commercial) of 1996 that the Company should not depend solely on Government for sale of its products as this would lead to a crisis in the event of withdrawal of captive Government business, it was replied that the Company was trying to diversify its product range. The Company, however, did not take any action to diversify and continued to depend on the Government. Meanwhile, the DWCD decided to procure 50 per cent of its requirement from the open market from 2003-04 onwards. The Company is now faced with the reality of excess capacity and no alternate buyers for its products, which has affected the very existence of the Company.
The Quality control system prevalent in the Company was not effective as the quality tests in its laboratories were carried out by unqualified personnel.
Failure to diversify its product range and the continued dependence on DWCD, which was diverting the orders to a private party, has affected the very existence of the Company.
