CAG flags avoidable expenditure by Neyveli power project

Government auditor CAG has flagged an avoidable expenditure of Rs 10.31 crore by Neyveli New Thermal Power Station as it took loan "far in advance of requirement" and the subsequent foreclosure.
"...Drawal of loan far in advance of the requirement led to avoidable expenditure of Rs 10.31 crore, even after considering the interest earned thereon," the CAG report tabled in Parliament today said.
The Coal Ministry in June 2011 sanctioned a project for installation of 1,000 MW thermal power project at Neyveli in Tamil Nadu. The estimated cost of the project (Rs 5,907.11 crore) comprised term loan (Rs 2,500 crore), other borrowings (Rs 665.17 crore), foreign currency loan (Rs 969.81 crore) and equity (Rs 1,772.13 crore).

The ministry had also directed the company to finance the project on 70:30 equity basis and to complete unit 1 and unit by June 2015 and December 2015.
After re-tendering the project twice, the company issued Letter of Award to BHEL for erection of steam generator and auxiliaries in October 2013 and for steam Turbine Generator in December 2013 with the commissioning of the project scheduled for October 2017 and April 2018.
In the meantime, the company entered into an agreement with State Bank of India in March 2012 for a loan of Rs 2,500 crore.

"The company withdrew (Rs 100 crore) out of which only Rs 34.92 crore could be utilised up to December 2013. The board subsequently decided (December 2013) to foreclose the loan and go in for a fresh loan later when the project gets momentum and to meet the current fund requirements from internal resources," it said.

Accordingly, the company foreclosed the SBI loan on February 23, 2014, after payment of Rs 23.47 crore as interest and other charges on the loan, it said.
"Thus drawal of loan far in advance of the requirement lead to an avoidable expenditure of Rs 23.47 crore," it said.
In order to avoid the restructuring of existing loan and avail the advantage of softening interest rate in the market, it (company) had preclosed the existing loan, it said.
"Further, it invested the loan amount in short term deposit and earned Rs 13.16 crore as interest," it added.
The report also said that incorrect estimation of taxable income and consequent short payment of advance income tax by Eastern Coalfields, a Coal India arm, resulted in avoidable payment of interest of Rs 12.38 crore for 2013-14 and 2014-15.