Report of the Comptroller and Auditor General of India for the year ended March 2015 Union Government (Commercial) No. 15 of 2016 (Compliance Audit Observations) Volume II CONTENTS CHAPTER/ SUBJECT PSU PAGE PARAGRAPH NO. PREFACE v EXECUTIVE SUMMARY vii Chapter I MINISTRY OF PETROLEUM AND NATURAL GAS 1.1 Extension of credit facility to a Bharat Petroleum 1 defaulter company without security Corporation Limited 1.2 Safety Preparedness of Oil and Gas GAIL (India) Limited 3 Transmission Pipelines and Indian Oil Corporation Limited 1.3 Petrochemical Production and GAIL (India) Limited 22 Project Management and Indian Oil Corporation Limited 1.4 Avoidable expenditure on Diesel Hindustan Petroleum 36 Hydro Treater Project in Mumbai Corporation Limited Refinery 1.5 Irregular payment of Performance Indian Oil Corporation 38 Related Pay Limited 1.6 Undue benefit extended to the Indian Oil Corporation 40 executives in the form of shift Limited allowance 1.7 Delay in appraisal and non- Oil and Natural Gas 41 monetization of the discoveries in Corporation Limited KG DWN 98/2 block 1.8 Non achievement of objective of Oil and Natural Gas 57 acquiring Coal Bed Methane blocks Corporation Limited 1.9 Loss of returns to ONGC due to Oil and Natural Gas 68 adoption of financing mechanism to Corporation Limited maintain the status of ONGC Petro additions Limited (OPaL) as a non public sector undertaking 1.10 Loss of interest due to inordinate Oil and Natural Gas 72 delay in receipt of share of gas Corporation Limited transportation charges 1.11 Improper decision of procuring Oil and Natural Gas 75 intelligent well completion Corporation Limited equipment led to idling of equipment 1.12 Non–synchronization of ONGC Petro additions 78 construction of downstream units Limited and other utilities with the Cracker Plant led to avoidable expenditure on Preservation and plant check of Cracker Plant i Chapter II MINISTRY OF ROAD TRANSPORT AND HIGHWAYS 2.1 Undue benefit to the concessionaire National Highways 82 (PIU Begusarai) Authority of India 2.2 Undue benefit to the Concessionaire National Highways 84 relating to four-laning project Authority of India between Hazaribagh – Ranchi Section of NH – 33. 2.3 Undue Benefit to the concessionaire National Highways 86 (PIU Darbhanga) Authority of India Chapter III DEPARTMENT OF SCIENTIFIC AND INDUSTRIAL RESEARCH 3.1 Unproductive expenditure on Central Electronics 90 upscaling of operations Limited Chapter IV MINISTRY OF SHIPPING 4.1 Review of status of utilisation of Inland Waterways 92 infrastructure facilities Authority of India Chapter V MINISTRY OF STEEL 5.1 Execution of Jobs Hindustan Steelworks 97 Construction Limited 5.2 Marketing Activities Steel Authority of India 106 Limited 5.3 Idle investment at SPU Bettiah Steel Authority of India 116 project Limited 5.4 Avoidable expenditure Steel Authority of India 119 Limited Chapter VI RECOVERIES, CORRECTIONS/RECTIFICATIONS BY CPSEs AT THE INSTANCE OF AUDIT 6.1 Recoveries at the instance of audit National Building 122 Constructions Corporation Limited, Oil India Limited and Oil and Natural Gas Corporation Limited 6.2 Corrections/rectifications at the National Safai 122 instance of audit Karamcharis Finance and Development Corporation and National Scheduled Castes Finance and Development Corporation ii Chapter VII Follow up on Audit Reports 123 Appendix I 127 Appendix II 128 Appendix III 129 Annexures 130 iii PREFACE 1. The accounts of Government Companies set up under the provisions of the Companies Act (including Companies deemed to be Government Companies as per the provisions of the Companies Act) are audited by the Comptroller and Auditor General of India (CAG) under the provisions of Section 143(6) of Companies Act, 2013. The accounts certified by the Statutory Auditors (Chartered Accountants) appointed by the CAG under the Companies Act are subject to the supplementary audit by CAG whose comments supplement the reports of the Statutory Auditors. In addition, these companies are also subject to test audit by CAG. 2. The statutes governing some Corporations and Authorities require their accounts to be audited by CAG. In respect of five such Corporations viz. Airports Authority of India, National Highways Authority of India, Inland Waterways Authority of India, Food Corporation of India and Damodar Valley Corporation, the relevant statutes designate CAG as their sole auditor. In respect of one Corporation viz. Central Warehousing Corporation, CAG has the right to conduct supplementary and test audit after audit has been conducted by the Chartered Accountants appointed under the statute governing the Corporation. 3. Reports in relation to the accounts of a Government Company or Corporation are submitted to the Government by CAG under the provisions of Section 19-A of the Comptroller and Auditor General’s (Duties, Powers and Conditions of Service) Act, 1971, as amended in 1984. 4. The Audit Report for the year 31 March 2015 has been prepared in two volumes. This is Volume II of the Audit Report and contains 21 individual audit observations relating to 11 PSUs under control of five Ministries/Departments. Volume I contains 32 individual audit observations pertaining to 20 PSUs under the control of 11 Ministries/Departments. Instances mentioned in this Report are among those which came to notice in the course of audit during 2014-15 as well as those which came to notice in earlier years. Results of audit of transactions subsequent to March 2015 in a few cases have also been mentioned. 5. All references to ‘Companies/Corporations or PSUs’ in this Report may be construed to refer to ‘Central Government Companies/Corporations’ unless the context suggests otherwise. 6. The audit has been conducted in conformity with the Auditing Standards issued by the Comptroller and Auditor General of India. v Report No. 15 of 2016 (Volume II) EXECUTIVE SUMMARY I Introduction 1. This Report includes important audit findings noticed as a result of test check of accounts of records of Central Government Companies and Corporations conducted by the officers of the Comptroller and Auditor General of India under Section 143 (6) of the Companies Act, 2013 or the statutes governing the particular Corporations. 2. The Report contains 21 individual observations relating to 11 PSUs under five Ministries/Departments. The draft observations were forwarded to the Secretaries of the concerned Ministries/Departments under whose administrative control the PSUs are working to give them an opportunity to furnish their replies/comments in each case within a period of six weeks. Replies to 16 observations were not received even as this Report was being finalised. Earlier, the draft observations were sent to the Managements of the PSUs concerned, whose replies have been suitable incorporated in the report. 3. The paragraphs included in this Report relate to the PSUs under the administrative control of the following Ministries/Departments of the Government of India: Ministry/Department (Number of Number of Number of paragraphs in PSUs involved paragraphs respect of which Ministry/Department’s reply was awaited 1. Petroleum and Natural Gas 12 11 (BPCL, GAIL, HPCL, IOCL and ONGC, OPal) 2. Road Transport and Highways 3 - (NHAI) 3. Scientific and Industrial 1 1 Research (CEL) 4. Shipping 1 1 (IWAI) 5. Steel 4 3 (HSCL and SAIL) Total 21 16 4. Total financial implication of audit observations is ` 9,736.69 crore. 5. Individual Audit observations in this Report are broadly of the following nature: vii Report No. 15 of 2016 (Volume II) Non-compliance with rules, directives, procedure, terms and conditions of the contract etc. involving ` 308.42 crore in six audit paragraphs. Failure in safeguarding of financial interest of organisations involving ` 632.61 crore in five audit paragraphs. Defective/deficient planning involving ` 3,531.30 crore in five audit paragraphs. Inadequate/deficient monitoring involving ` 117.86 crore in two audit paragraphs. Non-realisation/partial realisation of objectives involving ` 5,146.50 crore in three audit paragraphs. 6. The Report also contains a paragraph relating to recoveries of ` 6.38 crore made by three PSUs and another paragraph relating to corrections/rectifications carried out by two PSUs at the instance of Audit. viii Report No. 15 of 2016 (Volume II) II. Highlights of some significant paragraphs included in the Report are given below:- Oil and Natural Gas Corporation (ONGC) acquired 90 per cent stake in the KG-DWN- 98/2 block in 2005 and balance in 2012 under first round of New Exploration Licensing Policy. The Company availed several extensions to explore and appraise its discoveries at a cost of ` 8,402.56 crore (March 2015). The Company also suffered a major setback in view of the expert confirmation regarding substantial migration of reserves from this area and their exploitation by RIL through its KG-DWN-98/3 block. Besides, the Company had considered a higher gas price while considering the viability of the block in December 2013. Under the New Domestic Gas Pricing Guidelines the gas price was fixed at a much lower price, which would further adversely affect the financial viability of the block. The Company has notified total of 11 discoveries in the block till August 2015. (Para 1.7) Oil and Natural Gas Corporation (ONGC) acquired 9 blocks of Coal Bed Methane (CBM) Blocks out of the 33 blocks awarded by Government of India during the period from 2001 to 2003. It relinquished five blocks on the grounds of poor prospects. Because of delayed acquisition of land due to various reasons and ONGC’s failure in completing the committed Minimum Works Programme in the blocks, Exploration Phase of the blocks was affected and ONGC had to seek repeated extensions of time from GOI. Repeated extensions had the effect of reducing the Development Phase of five years. It also failed in promptly obtaining Mining Leases and Environmental Clearances which are pre-requisite for commencement of development operations.