Renegotiate power projects: CAG

By Our Special Correspondent

CHENNAI, MAY 18. The Comptroller and Auditor-General of India (CAG) has suggested that the Tamil Nadu Electricity Board (TNEB) should renegotiate some of the agreements concluded with the private promoter of the Basin Bridge Diesel Engine Power Project which were either not in tune with Union Government guidelines or caused annually repetitive losses to the board.

The CAG, who has questioned the very propriety of selection of the private promoter for the project, has also suggested to the board to reassess its plans for additions to generation capacity since the State is likely to face the prospect of substantially unwanted and high-cost surplus power if all the approved projects went on stream.

The CAG's Report (Commercial) for the year ended March 31, 1999, tabled in the State Assembly, has found fault with the procedure of selection of the private promoter for the Basin Bridge project (awarded to GMR Vasavi Industries, Hyderabad). It said five out of seven other offers in the short list for the project were rejected by the Government ``on grounds which lacked justification''.

Three promoters were rejected on the ground that they were either executing projects elsewhere or could be considered for larger projects, and two others were not considered because they were equipment manufacturers/suppliers and might not go in for competitive bidding in selection of equipment.

``Rejection of offers on these grounds lacked justification since execution of other projects (by bidders) would not affect their ability to execute this project and it was possible to ensure that the promoters obtained equipment only after competitive bidding. In fact, the board did not insist on the selected promoter (GMR Vasavi) to procure equipment only after competitive bidding, and instead accepted their explanation that the equipment supplier was selected after discussions'', the report said.

Even after the Centre issued instructions (June 1996) that all power projects which had not finalised their engineering, procurement and construction (EPC) contract should go in for international competitive bidding (ICB), the board did not insist on this point again with the selected promoter, though the promoter entered into the EPC contract only in November 1996. ``Thus the board could not obtain the most competitive offers for both the project and the equipment''.

Other points made by the CAG report in respect of the Rs. 756- crore 196 MW Basin Bridge Project (which has already been commissioned) are: by agreeing to a Return on Equity (ROE) monthly on a pro-rata basis instead of annually, the TNEB extended additional benefit of Rs. 2.66 crores per annum to the promoter. Incorrect computation of working capital resulted in extra interest liability of Rs. 7.15 per annum to the board.

Computation of the incentive payable with reference to equity, instead of return on equity, resulted in extra expenditure of Rs. 20.47 crores per annum.

Fixing of a threshold limit of the Plant Load Factor (PLF) at 68.49 per cent for computation of incentive instead of an ``achievable and realistic level'' of 80 per cent would result in a higher commitment of Rs. 16.99 crores per annum on the part of the TNEB, the report said.

It pointed out that the incentive payable at 0.7 per cent of return on equity for each percentage point increase in the PLF above 68.49 per cent, in terms of the Centre's notification of March 30, 1992, was only the maximum prescribed and could be negotiated by SEBs to lower levels.

Computation of fuel consumption based on the norm for the Station Heat Rate instead of on `norms or actuals whichever is less', as subsequently clarified by the Union Government, would result in extra expenditure of Rs. 8.56 crores per annum to the board. By allowing creation of excess storage capacity for fuel, it would be put to an avoidable expenditure of Rs. 18.4 crores on fuel throughput charges. The fuel supply agreement with Hindustan Petroleum did not also provide for pro-rata reduction of throughput charges if it failed to supply the maximum delivery quantity of 3.70 lakh tonnes per annum.

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