AP govt extended undue benefit to Satyam: CAG

A report of the Comptroller and Auditor General of India (CAG) reveals how the Andhra Pradesh government extended “undue benefit” to Satyam Computer Services and Maytas Infra Ltd founded by B Ramalinga Raju.

The benefits were extended prior to Raju's confession to the massive accounting fraud at the IT services company in January 2009.

The CAG report for the year ended March 31, 2009, pointed out that the state government had “passed on undue benefit of Rs 165.75 crore” to Satyam in allotment of 50 acres at Kapuluppada village of Visakhapatnam district at a concessional rate of Rs 10 lakh per acre as against the “prevailing value” of Rs 4 crore to Rs 4.55 crore an acre.

The report also stated that due to “deficiencies in award of work relating to development of Machilipatnam Port” to the Maytas Infra-led consortium, the state government had been “saddled with the payment of Rs 335 crore as against nil investment initially contemplated”.

Ironically, both the projects did not take off, with Satyam Computer plunging into a crisis following unfolding of the accounting scam and Maytas Infra suffering substantial collateral damage. The managements of both companies changed hands subsequently, with Tech Mahindra taking over Satyam and IL&FS acquiring Maytas.

According to Mahindra Satyam sources, the 50 acres allotted near Visakhapatnam, had been surrendered at the request of the state government before the new management took over the company. On the other hand, government sources said the Machilipatnam Port project did not take off as Maytas failed to achieve financial closure.

According to the CAG report, the state government's ICT policy stipulated allotment of 0.30 acres at concessional rate to a company for every 100 jobs created. As Satyam had promised to provide 2,500 jobs, it was entitled to 7.5 acres.

“However, as against 7.5 acres entitled at a concessional rate of Rs 10 lakh per acre, the government allotted 50 acres at a concessional price. As against Rs 170 crore (Rs 4 crore x 42.5 acres), the company paid a meagre amount of Rs 4.25 crore (Rs 10 lakh x 42.5 acres) towards cost of land allotted in excess (that is, 42.5 acres) of the limit prescribed in the ICT policy,” CAG stated. Thus, CAG said, “undue benefit of at least Rs 165.75 crore” was extended to Satyam.

In the case of Machilipatnam project, CAG said the state government had initially decided to develop the port at Gogileru. After issue of bids and a pre-bid meeting, the project was awarded to a consortium of four companies, including Maytas Infra. The Director of Ports also handed over government land to the extent of 412.57 acres to the consortium, which proposed to develop the port at an estimated cost of Rs 1,225 crore.

However, due to representations received from the public, the government subsequently decided to develop the port at Gilakaladinne and not Gogileru. The consortium demanded a payment of Rs 335 crore for change in the location and the government agreed to pay.

CAG stated the government's explanation that the payment of additional cost to the firm was certified by New Delhi-based Water and Power Consultancy Services ( India) Ltd was "not acceptable".