CAG Nails Tamil Nadu's Power Utility for Rs.800 Crore Scam
Giving weight to the accusations made by DMK Chief M K Stalin, a recently released report by the Comptroller and Auditor General of India (CAG) found that numerous practices or steps adopted by Tamil Nadu Generation and Distribution Corporation (TANGEDCO) for procuring imported coal had resulted in excess payment of amount Rs. 813.68 crore to the coal supplier companies – one company from the Adani group, Knowledge Infrastructure Systems Private Limited (KISPL), Knowledge International Strategic Systems Private Limited (KISSPL) and Metal Scrap Trade Corporation Ltd (MSTC), a government of India enterprise, during 2012-2017.
These companies have repeatedly participated in the tender bidding process mainly benefiting from the criteria fixed by TANGEDCO and due to its subsequent procedures, have obtained 96 per cent of total import value of Rs. 8884.4 crore by winning five tenders of the total seven it floated during the period.
Stalin had recently demanded a Central Bureau of Investigation (CBI) probe into this alleged coal scam, while Arappor Iyakkam, a non-governmental organisation (NGO), too had raised doubts over the operations of the TANGEDCO.
The CAG’s report on Tamil Nadu’s Public Sector Undertakings was placed in the state assembly in July this year. The report found that the TANGEDCO incurred heavy losses amounting up to Rs. 5786.82 crore between 2012 and 2017. As of March 31, 2017, the total installed capacity of the thermal power stations owned by TANGEDCO was 4,320 Megawatt (MW) for which 21.5 Million Metric Tonnes (MMT) of coal was required annually.
TANGEDCO’s own way of importing low quality Coal at higher rates
From 2005 to mid-2012, TANGEDCO imported coal from foreign countries through government-based supplier companies. From July 2012, it shifted to global tender system for obtaining “competitive prices”. However, the CAG’s audit revealed that TANGEDCO neither followed the existing best practices in the industry, nor it has any special policy for procuring coal from foreign countries, which has resulted in massive losses. The report stated that TANGEDCO did not adhere to various compulsory provisions by both the governments of Tamil Nadu and India, which led to importing of lower quality coal at much higher price rates, only benefitting four supplier companies.
At the time of inviting tenders for the procurement of coal, TANGEDCO was required to allow a minimum time period of 30 days for the submission of tenders valuing more than Rs. 2 crore, as per Rule 20(1) of the Tamil Nadu Transparency in Tenders Rules, 2000 (Tender Rules). In contrary to this, it closed the sale of tender documents much earlier than 30 days. The report stated: “Since the time allowed for purchase of tender documents and submission by the prospective bidders from the date of publishing of the tender was gradually reduced from 30 to 10 days without any reasons on record, the number of bids received remained at three/four throughout the audit period thereby limiting competition – provisions of compulsory tender rules were not followed or overridden.”
Due to its “injudicious” fixation of Bid Qualification Requirement (BQR) criteria, only four bidders – Adani Group, KISPL, KISSPL and MSTC – repeatedly participated in all the tenders invited and gained the contracts. “Three of them shared 96 per cent of the total import value of Rs. 8,884.44 crore in all the five tenders covered by audit,” the audit report stated. As TANGEDCO’s criteria for bidders required them to have an average annual turnover of Rs. 1,000 crore – as against the criteria prescribed by other PSUs such as TNPL and NTECL, whose importing value was similar to that of TANGEDCO – smaller companies were not able to participate in the bidding at all.
While the coal importers generally finalise the competitive prices based on e-submission method (online submission of bids), reverse-auction method (method by which the sellers compete with each other by decreasing their quote starting from the price declared by the procuring entity on the date or time of opening of the online bids) and variable price method (recommended by Central Electricity Regulatory Commission for import of coal), TANGEDCO followed the conventional method of obtaining bids in sealed covers. This move was against a 2007 Tamil Nadu government order.
TANGEDCO’s failure to switch over to the industrial practice of variable price method – even though it was aware that all the major PSUs importing coal were adopting the method – had led to avoidable expenditure to 746.13 crore, revealed CAG. Some of the other PSUs following variable pricing method for procuring coal are Gujarat State Electricity Corporation Limited, Rajasthan Rajya Vidyut Utpadan Nigam Limited, Haryana Power Generation Corporation Limited, and Maharashtra Generation Company Limited.
For ensuring the genuineness of the imported coal, the production of Certificate of Country of Origin (COO) by the suppliers for all consignments was mandatory as per tender conditions. However, the test check by the audit revealed that 176 out of total 297 consignments were originated from Indonesia, but the COO for these consignments was not provided by the supplier companies. Furthermore, the tender rules specify that the Gross Calorific Value (GCV) of the imported coal was required to be at 6,000 Kcal/Kg with an acceptable range—between 5,800 and 6,700 Kcal/Kg—and the suppliers were required to engage an independent testing agency in consultation with TANGEDCO to verify the GCV. On the Contrary, TANGEDCO was dependent on a third party testing agency which solely collected coal samples for testing which resulted in variations in the GCV values. CAG’s independent verification of the coal quality test reports from the Customs Department (Chennai) Laboratory, in respect of 121 consignments, revealed that GCV of the imported coal was lesser than that of the test reports with TANGEDCO, confirming that the coal acquired was of lower quality. This resulted in an excess payment of Rs. 813.68 crore, the audit found.
Of the companies in question which have massively benefited due to TANGEDCO’s practices, Adani group’s company, KISPL were earlier accused of over-invoicing imports of coal and power generating equipment by the Directorate of Revenue Intelligence (DRI) – the investigative wing of the Central Board of Indirect Taxes and Customs in the Department of Revenue under Union Finance Ministry.
Tamil Nadu’s ruling party AIADMK’s leader Natham Viswanathan was the electricity minister of the state during this period, while K Gnanadesikan was the chairman of TANGEDCO during 2012 to 2014, and M Saikumar was its managing director from 2014 to 2018.
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