CAG asks NMDC to factor in mkt trends before fixing targets, conduct due diligence before investing

The Comptroller and Auditor General of India (CAG) has asked state-owned NMDC to factor in market trends while fixing production targets and conduct proper due diligence to the risk factors before embarking on national and international investment ventures.In its audit report on 'Operational Performance of NMDC Limited', tabled in Parliament on Monday, CAG said, "NMDC in its Strategic Management Plan (SMP) Vision 2025 fixed (October 2015) over-ambitious targets for production of iron ore viz. 75 MTPA by 2018-19 and 100 MTPA by 2021-22."It added that the targets were fixed without giving due cognisance to adverse findings of the consultant appointed for the purpose and without taking into consideration the declining trend in the domestic and international prices of iron ore.The plan was then revised in September 2016 wherein the targeted production capacity was reduced to 50 million tonne per annum (MTPA) and 67 MTPA by 2018-19 and 2021-22, respectively, the government auditor said.However, the enabling action of setting up of various projects and infrastructure facilities to achieve the targeted production capacity were not in sync with the envisaged timelines, it said and added that NMDC needs to factor in market trends while fixing the targets in its periodic plans so that the set targets are realistic and achievable.CAG said it has also found that there were a number of delays in various works because of NMDC.The execution of all the packages for development of Deposit-11B mine in the Bailadila sector was delayed beyond their scheduled completion dates. As a result, CAG said, the project was still under implementation in March 2018 against the scheduled completion time of June 2008."The execution of Kumaraswamy Iron Ore Project (KIOP) was still under implementation (March 2018) though the same was scheduled to be completed by March 2012. As such, the possibility of achieving the envisaged production target of 7 MTPA by 2018-19 as per the revised SMP-Vision 2025 by the company seems to be remote."Further, due to non-availability of screening plant and loading plant with railway yard for KIOP, the company had to resort to outsourcing of mining till the completion of the requisite facilities at KIOP, which was not an environment friendly step," CAG said.With the objective of securing metallurgical coking coal and thermal coal supplies from overseas, special purpose vehicle International Coal Ventures Ltd (ICVL) was formed in May 2009 wherein NMDC Ltd was one of the participating public sector undertakings."In July 2014, ICVL decided to acquire the ownership portion of Rio Tinto Plc., UK in the coal mine and coal assets located in Mozambique. It was observed that the investment made by the company to the extent of Rs 376.36 crore (on which there was no return so far) by relying upon the incorrect/ improper and unrealistic business plan of ICVL for acquisition of loss making Mozambique mining assets was not prudent," CAG said.The internal control mechanism of the company was weak as evident from the fact that the sub-committee for reviewing ongoing projects did not fix any timelines with clear milestones to be achieved which could be reviewed in its subsequent meeting; the decisions on major investments were made without conducting proper due diligence on its own; periodical mid-term review of the implementation of Strategic Management Plan Vision 2025 as prescribed by the board was not done, due to which corrective action in plugging shortfalls in achievement of the projected targets were not addressed, it said.CAG further said it recommends to conduct proper due diligence and pay due cognisance to the risk factors before embarking on national and international investment ventures, ensure timely submission of required documentation and follow up with the concerned statutory authorities with a view to secure statutory clearances within the timelines prescribed.The company also needs to strengthen its project execution mechanism/ strategy to avoid delays in implementation of projects/construction works and to avoid time and cost overruns so that envisaged benefits are realised, it said adding the board of the company may strengthen its monitoring mechanism to ensure timely completion of projects.

CAG asks NMDC to factor in mkt trends before fixing targets, conduct due diligence before investing

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