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Home News Power Sector News CAG seeks Power Ministry's reply on Sasan coal diversion

CAG seeks Power Ministry's reply on Sasan coal diversion

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CAGThe Comptroller and Auditor General has observed that the union power ministry gave "undue benefit" of Rs 1.20 lakh crore - calculated over the next 25 years - to Reliance Power Ltd (RPL) in the ultra mega power projects (UMPPs) at Sasan in Madhya Pradesh and Tilaiya in Jharkhand. "We have received CAG comments. We are examining them and we would reply to them soon," Power Secretary P. Uma Shankar said. However, Mr. Shankar refused to elaborate on the nature of reply sought by the CAG or what it was actually looking into. The CAG had already submitted a damaging report recently on the elder sibling Mukesh Ambani's KG basin D-6 block venture which had accused Reliance Industries Limited (RIL) of getting undue benefits and favours and had blamed the Directorate General of Hydrocarbons and the Petroleum Ministry for going out of the way to benefit the group. These concessions, the CAG report says, because they came after the execution of the contract agreements, "vitiated the sanctity" of the bidding process.

And resulted in a benefit over 25 years to RPL of Rs 42,009 crore from the Sasan project and Rs 78,078 crore from the Tilaiya project.

These numbers were arrived at by using the differential cost between the market rate fixed by state-run Coal India Ltd and the proportionate extraction cost of the extra coal from the captive coalmine.

The CAG says that the allocation of the captive coalmine was one of the key features of UMPPs (plant capacity above 4000 MW) and initial bid documents did not contain the provision of diverting excess coal to other projects.

Records show that this condition was reflected in the contract which RPL signed in September 2007 for the Sasan project.

The coal ministry clarified on September 13 and October 26, 2006 - even before the UMPP bids were called for - that coal from designated blocks would be "exclusively used" for the specific UMPP project.

But in August 2008, an Empowered Group of Ministers, headed by Power Minister Sushil Kumar Shinde, allowed RPL to divert surplus coal from its Sasan project for use in other projects, specifically the Chitrangi project in Madhya Pradesh.

Justifying this decision, the EGoM said that it had received a letter from RPL saying that the company planned to use the "latest technology" to mine coal in Sasan and was "confident of producing more coal annually than the requirement of the UMPP". RPL asked the government to allow it to use this coal for other projects.

"The matter was examined and discussed in detail by EGoM and it was agreed that for expeditious implementation of coal-based thermal power projects, which would also increase the generation capacity of the country, and for optimal utilization of coal reserves in the blocks allotted to UMPPs, incremental coal may be permitted to be used by other projects of the same developer of the UMPP subject to necessary safeguards," the EGoM said.

But the CAG doesn't agree.

"The change in stand after award of Sasan UMPP vitiated a key commercial condition for the UMPPs. Ministry of Power did not mention the financial implication of the proposal while moving the agenda note for the EGoM. RPL was unduly benefited by the EGoM decision," says the CAG report.

The CAG has recommended that "the permission to use excess coal in other projects should be reviewed as no benefit on this account was passed to the consumers".

Instead, its use at the 4,000 MW Chitrangi project would benefit RPL as it would earn a higher tariff of Rs 2.45 per unit from Chitrangi compared to Rs 1.19 per unit for Sasan for which the coalmine was allotted.

The CAG also referred to a subsequent EGoM - headed by Finance Minister Pranab Mukherjee - responsible for permitting similar relief to RPL's Tilaiya UMPP. "At the time of bid submission for Tilayia (December 2008) there was lack of clarity as to whether permission of use of incremental coal would be granted by the Government," it says.

But a year after RPL secured the UMPP in January 20009, the EGoM issued blanket relief for all UMPPs. Incidentally, only two - RPL's Sasan and Tilaiya based on domestic coal - were the beneficiaries then. The remaining two UMPPs - RPL's Krishnapatnam and Tata Power's Mundhra - had been approved on imported coal.

The CAG says this blanket relief was to be given after a "legal vetting" of the amended coal allocation letter. Ministry sources said that so far, no legal scrutiny has been conducted of the additional clause allowing diversion of excess coal.

It says that this permission to use extra coal would also create disparities among bidders of future UMPPs. "This situation arises out of the fact that some of the bidders would already be having UMPP with coal linkage and a new bidder will not have the same level playing field," it said.

Incidentally, Tata Power has contested the deviation in coal allocation norms from the time of bidding and awarding the Sasan project claiming it "disturbed the fairness, transparency, and the level playing field".

When asked about the CAG's allegation, Power Secretary P Uma Shankar replied: "The audit team of CAG has sent some queries/observations on UMPPs and they are under examination in the ministry and we will reply to them. It is not an interim report but queries/observations of audit team."

In a statement to the BSE, Reliance Power said: "To the best of our information, there is no CAG report on the decision taken by the Empowered Group of Ministers (EGoM) regarding use of incremental coal from coal blocks allotted to its Ultra Mega Power Projects".

The company's comments followed reports that CAG has raised some concerns on the issue.

Source- Indian Express


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