CAG pulls up MRPL for cost overrun in expansion projects

The CAG has pulled up Mangalore Refinery and Petrochemicals for capricious planning for expansion of its refining capacity that led to time over-run of more than two years and cost over-run of Rs 2,500 crore.
Mangalore Refinery and Petrochemicals Ltd (MRPL) had in 2006 decided to upgrade its refinery at Mangalore in Karnataka at a cost of Rs 7,943 crore. The project was to increase the capacity from 11.82 million tons per annum to 15 million tons by June 2010.
In a report tabled in Parliament, the CAG said in June 2010, the estimated cost stood revised at Rs 15,008 crore due to change in the scope of the project, which finally got completed in June 2015.

"Deficiency in planning, due to lack of clarity regarding revamping of existing units and commissioning of additional units, led to time over-run of more than two years and cost over-run of Rs 2,509 crore," it said.
The CAG said the production of propylene by processing Vacuum Gas Oil in Petrochemical Fluidized Catalytic Cracking Unit was known to the company at the time of evaluation of viability of the standalone PolyPropylene Unit in 2006-08.
The unit, however, was included in the plan in May 2009 which delayed the process of acquisition of land and obtaining clearances, it said.

MRPL availed USD 650 million of external commercial borrowings (ECB) loan without hedging the related exchange risk, leaving to loss of Rs 13.70 crore due to exchange rate variation up to September 2016. It may incur further losses in case rupee weakens against US dollar.

The CAG report further said the company drew funds for the project in excess of its requirements due to which Rs 768.46 crore was lying idling in non-interest bearing current account.
Captive power plant (CPP), a critical utility for a refinery for supply of steam and power, had to be commissioned before start of all other process units. But it was commissioned in August/September 2014 as against schedule date of January 2012 due to which various process units remained idle for a period ranging from 11 to 26 months, even after their mechanical completion, the CAG said.
Though MRPL had entered into a memorandum of understanding with Indian Strategic Petroleum Reserves Ltd for sharing of Single Point Mooring (SPM) Project and cavern facility in June 2014 but the related infrastructure sharing agreement was pending.

The CAG said MRPL commissioned in December 2013 a Booster Pumping Station at a cost of Rs 188.69 crore and pipeline from cavern to refinery at Rs 14.73 crore, which remained idle till September 2016 due to delay in commissioning of cavern.
The company in 2010 planned to install a Single Point Mooring (SPM) facility at an estimated cost of Rs 1043.57 crore, to handle the increased quantity of crude in larger vessels (VLCC).
"Savings in freight, avoidance of demurrage and improvement in Gross Refinery Margin as envisaged while the decision for setting up of SPM facility was taken, were actually not achieved," it added.

The CAG asked MRPL to "draw up a comprehensive plan before finalising projects (in future) in order to avoid time and cost overrun. Requirement of funds for the projects may be made on a realistic basis to avoid excess drawl of funds.