CAG pulls up SAIL for delay in expansion plans

Says mismanagement led to escalation in project costs, affected capacity

The Comptroller and Auditor General (CAG) has pulled up state-run Steel Authority of India (SAIL) for delaying the modernisation and expansion plans (MEP) of its integrated steel plants for more than four years.

“The integrated commissioning of capacity expansion projects in five integrated steel plants has been delayed by over four years, and is now scheduled for completion during 2015,” said the CAG report. 

According to the report, the project planning, tender finalisation, project execution, and monitoring of MEP implementation were not efficient at all stages of the project management cycle. 

Trying to take advantage of the prevailing buoyant steel market conditions in 2006-07, the company implemented the entire MEP to enhance hot metal production from 13.83 million tonne per annum (MTPA) in 2006-07 to 23.46 MTPA, including corresponding upstream and downstream production facilities across all the steel plants. 

However, it compressed the implementation period by two years to 2010 against 2012 as planned in the corporate plan.

According to CAG, the capacity of the equipment suppliers and contractors were limited. As a result, they were overbooked, which lead them to asking higher prices for their equipments leading to variance in cost estimates and awarded price. 

“The prices obtained through tender during 2006-08 were 70-100% higher than the cost estimates,” the CAG noted. Simultaneously, total cost of proposed MEP projects increased from Rs 43,142 crore, as approved by the SAIL board during 2006-07, to Rs 77,691 crore during 2008-09 - an increase of 80%. 

The CAG also pointed that while the SAIL management had the option to stagger the capacity building plan in phases - to allow the prices of equipment and works to calm down - it chose to continue with its earlier decision.

Also, projects to be deferred were selected in an ad hoc manner, resulting in severe capacity mismatch. 

“Deferment of some of the MEP projects created a situation where full production stream of integrated steel making was broken, resulting in capacity mismatch among the projects in upstream and downstream,” the report said. 

There were also severe delays in handing over of site and work front to the contractors. According to CAG, in 14 contracts amounting to Rs 7,472 crore, there was 11 months to 53 months delay in handing over the front/site to the contractors for construction and erection of main plants.

Moreover, oversight of SAIL board of MEP projects was not effective and it failed to contain the delays consequently. 

Meanwhile, CAG has recommended that company may strengthen their project monitoring system at all levels. 

“There should be appropriate monitoring mechanism at the Plant and the Board level that would not only monitor but should have the authority to take corrective action as well as fix responsibility at each stage of delay,” it said.