"Undue favour" by PSIDC to GAIL: CAG

Government auditor CAG has found "undue favour" was extended by state-owned company PSIDC to Navratna Company GAIL for renting out space at a rate lower than the prevailing market rate, thus losing an opportunity to earn extra rental income of Rs 1.22 crore.
Punjab State Industrial Development Corporation Limited (PSIDC) had executed a lease deed with GAIL (India) Limited for renting out 6,212 square feet area in its building at the rate of Rs 30 per square foot with 5 per cent increase in August 2004.
On expiry of period of lease on 17 September 2009, the PSIDC proposed a minimum rent of Rs 100 per square foot to the lessee (GAIL) against the prevailing market rates of Rs 100 to Rs 200 per square foot.

The lessee refused to accept this increase in the rent and legal notice was issued for vacation of the premises in September 2009, said CAG report on PSUs for 2014-15 which was tabled here in the ongoing budget session in Punjab Assembly today.
However, the Company agreed to charge a rent of Rs 70 per square foot with effect from September 18, 2009 with an increase at the rate of 10 per cent on the completion of third year.
Revised lease deed was executed commencing from September 18, 2009 which was again renewed (September 15, 2014) for a further period of five years at the rate of Rs 110 per square foot with an increase of 10 per cent on the completion of third year, the report said.

"We observed that the space was initially leased in September 2004 without any quotations/tenders. While renewing (September 2009) the lease, a rent of Rs 70 per square foot was accepted against the prevailing market rates of Rs 100 to Rs 200 per square foot.

"We further observed that though the Company leased out (June 2014) a part of ground floor at the rate of Rs 125 per square foot to a state government department, it renewed (28 July 2014) the lease deed with the lessee, GAIL at Rs 110 per square foot," CAG noted.
"Thus, the decision to renew the lease at rentals lower than the ruling market rates were not based on sound commercial considerations and resulted in undue favour to the lessee, resulting in loss of opportunity to earn extra rental income of Rs 1.22 crore to the Company during the period September 2009 to March 2015," it said.

This acquires further significance as the Company has been carrying huge accumulated loss year after year which stood at Rs 656.20 crore as on March 31, 2014, CAG said.
PSIDC in its reply (in June/July 2015) stated that the building was given on rent to a Government of India (GoI) undertaking being directly associated with acceleration of industrial growth in Punjab in association of PSIDC and it was on the safer side to give the building to a GoI undertaking.
The reply was not acceptable because leasing out premises to a Navratna Company at rentals lower than the prevailing market rates was not in the financial interests of the company, it said.