Power department paid INR 22 crore in excess (Part II)

Our Correspondent
Kohima, Feb. 22 (EMN): The Comptroller and Auditor General (CAG) of India in its report for the year ended March 31, 2018 had detected ‘excess payment’ of INR 22.50 crore by the department of Power, Nagaland, to contractors and suppliers involved in six projects in the state.

The CAG’s findings on four of those projects were published in the first of this two-part series.

The remaining two projects include:

Conversion of 33kV pole structure to lattice tower of Ring Main feeder in Kohima

The North Eastern Council (NEC) had sanctioned INR 14.31 crore for ‘conversion of 33kV pole structure to lattice tower of the Ring Main feeder at Kohima, Nagaland’ in June 2015, to be completed by July 2017.

The work, including construction of control room at sub-station, IG Stadium in Kohima for INR 11.17 crore, was awarded to M/s National Power Systems, Dimapur on turnkey basis in August 2016.

NEC had released INR 9.20 crore to the state, and the government of Nagaland sanctioned INR 9.78 crore (including the state share of INR 0.58 crore) to the EE, Transmission Kohima.

The CAG observed that out of the total amount INR 9.78 crore, the department paid INR 1.98 crore for the procurement of one transformer and three different electrical items. To ascertain the actual price, it cross-examined the records with the tax invoices of the manufacturers and waybill/consignment note of transporter which revealed that the actual price of one transformer and three different electrical items was only INR 0.87 crore; whereas, the department had paid INR 1.98 crore.

This indicated that the supplier had procured the transformer and three electrical items from the manufacturer at the price of INR 0.87 crore and paid the taxes on the actual cost of the transformer and three electrical items, according to the CAG.

After considering the supplier’s margin and the transportation charges allowed by the department on the basis of 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 one transformer and three electrical items worked out to INR 1.48 crore.

According to the CAG, this was a clear indication of the department not exercising due diligence to satisfy itself of the ‘reasonableness of the price of the transformer and three electrical items which resulted in procurement of transformer and three electrical items at an exorbitant rate’.

Thus, the department paid INR 0.50 crore over the admissible cost after admitting the transportation charges and the margin of the supplier along with payment of mandatory taxes with an intention to misappropriate government money, it added.

In response, the state government had stated, in December 2018, that the project was awarded as a single package on EPC-turnkey basis after due tendering process and approval of the State Purchase Board, and not based on individual item-wise rates as analysed by audit.

However, the CAG maintained that the reply was not acceptable as the contract was awarded on clear segregation of items of work without establishing the reasonableness of prices in relation to the prevailing market rates/ manufacture’s price, which led to excess payment made to the supplier.

Construction of 33kV transmission lines, 33/11kV sub-station, 11kV lines, 11/0.4 kV distribution sub-station and LT lines in Kohima

The NEC sanctioned ‘construction of 33KV transmission lines, 33/11kV sub-station, 11kV lines, 11/0.4KV distribution sub-station and LT lines in Kohima, Nagaland’ in December 2013 for INR 14.97 crore. The department, in March 2014, awarded the work for INR 14.36 crore to M/s National Power Systems, Dimapur on turnkey basis; to be completed by March 2016.

Examination of records revealed that NEC had released INR 13.47 crore to the state, and the state government had released INR 14.67 crore (including state share of INR 1.20 crore) to the EE (Electrical) Division Kohima. The division utilised an amount of INR 14.51 crore (March 2018) for the project.

It was observed that the department had paid INR 2.52 crore for six different electrical items. However, cross-examination of bills revealed that the actual price of six different electrical items was only INR 0.89 crore whereas, the department had paid INR 2.52 crore.

“This indicated that the supplier had procured six electrical items from the manufacturer at the price of INR 0.89 crore and paid the taxes on the actual cost of the electrical items. After considering the supplier’s margin and the 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 six electrical items worked out to INR 1.51 crore,” the report maintained.

This, it stated, clearly indicated that the department did not exercise due diligence to satisfy itself of the ‘reasonableness of the price of the electrical items which resulted in procurement of six different electrical items at an exorbitant rate’.

Thus, the department ended up paying INR 1.01 crore over the admissible cost ‘after admitting the supplier’s margin and the transportation charges along with payment of mandatory taxes with an intention to misappropriate government money’, according to the CAG.

In response, the department stated that ‘NITs were floated and comparative statements prepared’. “However, market surveys of the prevailing rates of the items were not done. Further, the work was awarded only after the approval of the government,” according to the CAG report.

Therefore, it maintained, the government’s reply was ‘not acceptable as the work was awarded without assessing the reasonableness of prices in relation to the prevailing market rates/manufacture’s price, which led to excess payment made to the supplier’.