Report of the Comptroller and Auditor General of India on Public Sector Undertakings for the year ended March 2015 Government of Karnataka Report No.3 of the year 2016 Paragraph Particulars Page No. No. Preface v Overview vii-xvi Chapter I Functioning of State Public Sector Undertakings Introduction 1.1 1 Accountability framework 1.2-1.4 1-3 Stake of Government of Karnataka 1.5 3 Investment in State PSUs 1.6-1.7 3-5 Special support and returns during the year 1.8 5-6 Guarantees for loan and guarantee commission 1.9 6 outstanding Reconciliation with Finance Accounts 1.10 6-7 Arrears in finalisation of accounts 1.11-1.13 7-8 Placement of Separate Audit Reports 1.14 8-9 Impact of non-finalisation of accounts 1.15 9 Performance of PSUs as per their latest finalised 1.16-1.19 9-11 accounts Winding up of non-working PSUs 1.20-1.21 12 Comments on Accounts 1.22 12-13 Response of the Government to Audit 1.23 14 Follow up action on Audit Reports 1.24-1.26 14-15 Response to Inspection Reports 1.27 15-16 Coverage of this Report 1.28 16 Disinvestment, Restructuring and Privatisation of PSUs 1.29 16 Chapter II Performance Audits relating to Government Companies Electricity Supply Companies 2.1 17 Performance Audit on the ‘Implementation of Nirantara Jyothi Yojana’ Executive Summary 17-18 Introduction 2.1.1-2.1.3 19-21 Audit Objectives 2.1.4 21 Scope of Audit 2.1.5 21-22 Audit Methodology 2.1.6 22 Audit Criteria 2.1.7 22 Acknowledgement 2.1.8 22 Audit Report –PSUs for the year ended 31 March 2015 Paragraph Particulars Page No. No. Audit Findings 2.1.9 22 Status of NJY 2.1.10-2.1.11 22-25 Planning 2.1.12-2.1.13 25-28 Implementation 2.1.14-2.1.19 28-36 Funding 2.1.20 37 Evaluation of the objectives of NJY 2.1.21 37 Uninterrupted supply to non-agricultural consumers 2.1.22-2.1.24 38-40 Improvement in load management 2.1.25-2.1.26 40-41 Reduction of power losses 2.1.27 41-42 Financial viability of NJY 2.1.28 42-43 Effect of NJY on IP subsidy 2.1.29 43-44 Conclusions 45 Krishna Bhagya Jala Nigam Limited Performance Audit on the ‘Resettlement and 2.2 46 Rehabilitation in Upper Krishna Project’ Executive Summary 46-47 Introduction 2.2.1-2.2.5 48-50 Audit Objective 2.2.6 50 Scope of Audit 2.2.7 50 Audit Methodology 2.2.8 50-51 Audit Criteria 2.2.9 51 Acknowledgement 2.2.10 51 Audit Findings 2.2.11 51 Policy and Survey 2.2.12-2.2.13 51-55 Implementation of R&R 2.2.14-2.2.18 55-62 Monitoring 2.2.19-2.2.21 62-64 Conclusions 64 Chapter III Compliance Audit Observations Government Companies 65 Karnataka Power Transmission Corporation Limited Deviation from regulations 3.1 65-67 Unwarranted creation of substations 3.2 67-69 Infrastructure creation in violation of conditionalities 3.3 69-70 The Mysore Sugar Company Limited Deficiencies in the implementation of co-generation 3.4 70-72 project Undue benefit to the Consultant 3.5 72-73 Bangalore Electricity Supply Company Limited Improper Financial Management 3.6 74-75 ii Table of contents Paragraph Particulars Page No. No. Deviation from bid conditions 3.7 75-77 Karnataka Neeravari Nigam Limited Extra payment towards price adjustment claims 3.8 77-78 Karnataka State Coir Development Corporation Limited Undue benefit to the supplier 3.9 79-80 Mangalore Electricity Supply Company Limited Failure to follow Railway Board’s directives 3.10 80-81 Hubli Electricity Supply Company Limited Non-realisation of revenue 3.11 81-83 Karnataka State Industrial and Infrastructure Development Corporation Limited Avoidable payment of Corporate Tax 3.12 83-84 Karnataka Renewable Energy Development Limited Renewable Energy Sector in Karnataka 3.13 84-94 Karnataka State Tourism Development Corporation Limited Inefficient operation of taxi services 3.14 94-98 Statutory Corporations Karnataka State Warehousing Corporation Augmentation of storage capacity and operations of 3.15 99-107 warehouses Bangalore Metropolitan Transport Corporation Idling of assets and blocking up of funds 3.16 108-110 North Western Karnataka State Road Transport Corporation Non-assessment of adequacy of space for construction 3.17 110-111 of bus depot No. Appendices 1 Statement showing investments made by the GoK in 1.11 113-115 PSUs whose accounts are in arrears 2 Summarised financial position and working results of Government Companies and Statutory Corporations as 1.15 116-122 per their latest finalised financial statements/accounts 3 Statement showing the department-wise outstanding 1.27 123 Inspection Reports (I.Rs) 4 Statement showing the delay in finalising tender in 2.1.14 124 various taluks in GESCOM 5 Write-up on Rostering 2.1.18.1 125 6 Write-up on Open delta 2.1.19 126 7 Statement showing the results of test checked feeders 2.1.5, 2.1.21 127 with regard to the objectives of NJY in ESCOMs. iii This report deals with the results of audit of Government Companies and Statutory Corporations for the year ended March 2015. The accounts of the Government Companies (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 619 of the Companies Act 1956 and Sections 139 and 143 of the Companies Act 2013. The accounts certified by the Statutory Auditors (Chartered Accountants) appointed by the CAG under the Companies Act are subject to supplementary audit by the officers of the CAG and the CAG gives his comments or supplements the reports of the Statutory Auditors. In addition, these companies are also subject to test audit by the CAG. The Reports in relation to the accounts of a Government Company or Corporation are submitted to the Government by the CAG for laying before the State Legislature of Karnataka under the provisions of Section 19-A of the Comptroller and Auditor General’s (Duties, Powers and Conditions of Service) Act, 1971. CAG also conducts the audit of accounts of the State Road Transport Corporations, State Warehousing Corporation and State Finance Corporation as per their respective Legislations. The instances mentioned in this report are those, which came to notice in the course of test audit for the period 2014-15 as well as those which came to notice in earlier years, but could not be reported in the previous Audit Reports. The matters relating to the period subsequent to 2014-15 have also been included wherever felt necessary. The audit has been conducted in conformity with the Auditing Standards issued by the Comptroller and Auditor General of India. v 1. Overview of Government Companies and Statutory Corporations Audit of Government Companies is governed by Sections 139 and 143 of the Companies Act, 2013 (Act). The accounts of Government Companies are audited by Statutory Auditors appointed by the Comptroller and Auditor General of India (CAG). These accounts are also subject to supplementary audit by the CAG. Audit of Statutory Corporations is governed by their respective legislations. As on 31 March 2015, the State of Karnataka had 81working Public Sector Undertakings-PSUs (75 Companies and 6 Statutory Corporations) and 12 non- working PSUs (all Companies), which employed 1.92 lakh employees. The State PSUs registered a turnover of ` 48,765.18 crore during the year 2014-15 as per their latest finalised accounts. This turnover was equal to 7.12 per cent of the State Gross Domestic Product indicating the important role played by the PSUs in the economy. The PSUs had accumulated profit of ` 731.66 crore as per their latest finalised accounts. Investments in PSUs As on 31 March 2015, the investment (capital and long term loans) in 93 PSUs was ` 83,282.11 crore. Infrastructure Sector accounted for about 50.08 per cent of the total investment and Power Sector about 40.09 per cent in 2014-15. The Government contributed ` 13,957.53 crore towards equity, loans and grants/subsidies in 2014-15. Performance of PSUs The working State PSUs earned a profit of ` 1,438.53 crore in the aggregate and incurred loss of ` 899.59 crore as per their latest finalised accounts as at the end of September 2015. The major contributors to profit were Mysore Minerals Limited (` 313.53 crore), Hutti Gold Mines Company Limited (` 144.63 crore) and Bangalore Electricity Supply Company Limited (` 113.44 crore). Huge losses were incurred by Karnataka Neeravari Nigam Limited (` 295.59 crore) and Bangalore Metropolitan Transport Corporation (` 147.59 crore). Audit noticed various deficiencies in the functioning of the PSUs. Cases discussed in the subsequent Chapters of this Report indicate that there was a financial effect of ` 758.70 crore. The losses could have been minimized or profits enhanced substantially with better management. There is a need for greater professionalism and accountability in the functioning of the PSUs. Quality of accounts The quality of accounts of working Government companies needs improvement. During the year, out of 75 accounts finalised, the Statutory Auditors had given unqualified reports on 25 accounts, qualified reports on 47 accounts, adverse reports (which means that the accounts did not reflect a true and fair view) for 3 accounts. The compliance with the Accounting Standards by companies was poor as there were 101 instances of non- compliance in 33 Companies during the year.