Escolar Documentos
Profissional Documentos
Cultura Documentos
Period:
July 2010 to December 2010
1. Introduction
The division is, administrative head of all PO/ZO with respect to T&D schemes
and responsible for coordination with various division in CO (Finance, legal,
claims etc.) for resolving any issues of the PO/ZO in these areas.
Designation Nos.
Additional General Manager 1
Dy. General Manager 1
Chief Manager 2
Asst. Manager/ Dy. Manager 4
Sr. Officer / Officer/Assistant Officer 4
Sr Assistant / Sr. PA/Computer 4
Operator
Peon 1
Total 18
Nil
The details of financial comparison between various POs are given as below:
Project Office 2007-08 2008-09 2009-10 20010-11
Sanct. Disbs. Sanct. Disb. Sanct. Disbs. Sanc Disb.
ZO-Hyderabad 1283 669 577 1450 1440 996 0
ZO-Mumbai 3591 1222 4081 3408 3408 1764 0
PO-Jaipur 4422 1759 1605 888 888 1512 1521
PO-Panchkula 2146 1090 2828 2399 4638 2223 1212
PO-Bangalore 906 351 539 0 0 148 0
PO-Chennai 669 747 2622 810 685 672 188
Others 2016 824 3785 8246 5822 1042 1551
GT for T&D 15033 6662 16037 17201 16881 8357 4472
Total for REC 46770 16304 40746 41502 45357 16754 41747
% share of T&D 32 41 40 41 37 50 11
7. EXECUTIVE SUMMARY
AUDIT OBSERVATIONS
OUTSTANDING OBSERVATIONS
SIGNIFICANT OBSERVATIONS
With a view to review the appraisal mechanism for SPA schemes, Internal Audit
Team has picked up two sample cases, one from PSEB and others for
MSEDCL.
As per REC Appraisal Guidelines for SPA: PE schemes, the scheme shall be
considered viable if the economic rate of return on the total investment made on
the scheme is 20% over the project life.
c. The calculation part is still manual / excel based. ERP is the tool
introduced in REC which can be used for the appraisal process. The
parameters and calculations part for viability assessment is of quantitative
nature and it could be done on ERP platform which will help in the faster,
accurate and transparent appraisal.
As per the Delegation of Power issued vide office orders dated 27th April, 2009,
sanctioning authority for loan to central / state govt. power utilities or Central /
State PSUs are:-
Authority to whom delegated Extent of Power Annual Utilised
Financial upto
ceiling for the 31.12.20
year 10 as
informed
Screening Committee- Upto Rs. 20 crore in Upto Rs. 2149
constituted for the purpose each case 4000 crore
from time to time
CMD Upto Rs. 100 crore in Upto Rs. 7842
each case, on 8000 crore
recommendations of
the Screening
Committee.
Executive Committee Upto Rs. 150 crores in Upto Rs. 3617
Internal Audit Report- CO: T&D Division 201
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comprising of CMD, D(F), each, on the 16000 crore
D(T) and ED(T&D) recommendations of
the Screening
Committee
Loan Committee comprising In excess of 150 crore Upto Rs. 7262
of CMD, Functional but upto Rs. 500 crore 20000 crore.
Directors and one Govt. in each case, on
Nominee Director, with a recommendations of
quorum of three directors Screening Committee.
including CMD and one
Govt. Nominee Director.
It is observed that:-
11. Non releasing of claim for operational problem in ERP led to loss of
interest to REC
Since Project Module is being handled by Core User / officer from T&D Division,
therefore the issue may be taken up by T&D Division in consultation with Loan
Division and IT Division.
1. Improper sanction letter: - As per REC loan policy circular dt. 02.12.05,
State/Central sector borrowers shall have to pay either upfront fee or
commitment charges for projects with loan amount more than Rs. 100 Crore.
It is recommended that the present case may be verified for proper recovery
and subsequent corrigendum for the clause and in all cases above Rs 100
crores, a review may be undertaken to ensure proper terms and its recoveries.
Similarly in other schemes, this has been taken care and not allowed. Different
practices need to be seen so that consistency could also be maintained while
complying the guidelines.
During audit of various project offices, it has been observed that the monitoring
of award cost and its subsequent action towards reduction of sanction amount in
case of lower award cost than sanctioned or necessary pursuance for higher
sanction in case of higher sanction amount, are not in practice.
During audit of T&D Division, it has been observed that no such details are
being maintained at T&D Div, CO to ensure that necessary action towards
rechecking of viability as per guidelines and necessary action towards
reduction / enhancing of loan amount has been taken.
Internal Audit Report- CO: T&D Division 201
1
It may be worthwhile to mention that award cost can not be same as sanction
cost but no reduction / increase in sanction cost has been observed from
records / software in schemes where works are being executed through turnkey
contractors, which substantiate that the required action in such cases are still
absent.
Moreover, there is no provision in ERP system for capturing award cost so that
in case of reduction, the sanction cost could be restricted automatically by the
system and to regulate disbursements properly.
Evaluation of the project (as applicable) after completion shall be got done by
the borrower from a third party / independent agency, cost of which may also
form part of loan assistance from REC.”
Clause 15 ( c) further states that the final 10% of the loan will be released after
final field monitoring, evaluation as applicable and other terms and conditions of
sanction of the scheme.
Internal Audit Report- CO: T&D Division 201
1
However, it was observed that such evaluation is not being carried out at PO/ZO
level and also compliance of this condition is not being ascertained by T&D
Division at CO, who administrates all the T&D schemes being a nodal head.
Due to this disbursements are being restricted by the Project Offices.
In the absence of such evaluation, the validation of envisaged objectives of the
schemes could not be ascertained. Restricting disbursement upto 90% would
not serve the very purpose of the stipulation i.e. analysis of pre and post impact
of the scheme. Moreover, restriction in disbursement would lead to unutilized
amount. It is also worthwhile to state that in such schemes, closure would be
accepted only after evaluation study.
15. Tax Deducted at Source / Works Contract Tax not being considered
for disbursement under the T&D loan
As per REC Policy, in T&D schemes loan may be disbursed to the borrower or
turnkey contractor directly as per their request. During audit of ZOs, it was
observed that in case of release to the borrower, full amount is being disbursed
but in case of disbursement directly to contractor on behalf of borrower, the net
claim (after deduction of tax, WCT, as applicable etc) considered for releasing of
claims. The Discom has to pay taxes also to authorities, thereby, total loan
Internal Audit Report- CO: T&D Division 201
1
requirement for project is inclusive of taxes which is duly taken care while
releasing loans for Generation Projects.
Some schemes were reviewed where project has already been posed to SERC
and directly sanctioned by REC accordingly without calculating IRR etc. It is
observed that neither Project Offices nor T&D Division is monitoring further
approval of ERC with the borrower for various transmission schemes and no
such records are available with the division capturing approval details etc.
including amount approved/ reduction in the scope of the scheme/ cost etc, if
any.
T&D Division is therefore requested to ask PO/ZO to collect the approvals from
borrower and ensure that the ERC approval is in line with the REC sanctioned
schemes/cost/scope of works and if not, take further necessary action as
required in terms of laid down guidelines/ circular and advise position to IA.
As per terms of sanction, the scheme was of 13 years tenure with 3 years
moratorium, thereby loan repayment was started w.e.f. March 2006 and almost
50% amount under the scheme has since been refunded. The extension of
scheme for further disbursement would result into disbursement on one side
and repayment on other side.
It was observed that extension requests are being forwarded by ZO and T&D
Division is approving the extension without any analysis/ concrete appraisal of
schemes to review present costing, viability under those cost data, existing
power system, changed demand / growth etc.
While considering sanction, viability of the schemes are verified based on some
assumptions like completion of project in 2-3 years, demand growth, certain cost
data and inflation index etc. Any extension beyond a certain period definitely
affects such assumptions and therefore the scheme needs to reappraised.
As per the circular dated 23/7/2008, in case of integrated SEBs for all their
schemes irrespective of the size of the scheme, loan will be approved to the
extent of 90% of the project cost. Similarly, for P:SI schemes for non integrated
entities and less than Rs 100 crore, if securitized through hypothecation of
future assets, loan has to restrict to 90% of project cost.
During audit of various project offices, it has been observed that the sanction
and its subsequent disbursements being done for SPA and P:SI are not in
accordance to policy for following reasons:-
It is to state that the basic idea for 90% financing is to have some equity
from Discoms, which is duly complied through consumer contribution also
Internal Audit Report- CO: T&D Division 201
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which has to be ultimately borne by Discom. Therefore, in such case,
90% of Project cost (without deduction consumer contribution) can be
considered for sanction. The present practice led to loss of business.
(Rs in lakhs)
Scheme Scheme/ Consumer Loan Restricted To be
code project contributio Requirement to 90% by restricted to
cost n T&D 90% of
Division Project cost
B C D E F
A
161431 8156.74 1361.70 6795.04 6115.54 Lower of
7341 (90% of
project cost)
or 6795 (loan
requirement)
As per the circular no. SEC-1/224/2008/13 dated July 2008, the following
conditions have been stipulated in case of T&D projects of unbundled entities,
for exposure beyond the limit of 100% of REC ‘s net worth:-
a) Where the existing AT&C losses are more than 30%, the borrowing entity
shall undertake to bring down losses by a minimum 2% per annum for
that entity till it reaches the level of 30%; and
b) Where the existing AT&C losses are less than 30%,but more than 20%,
the borrowing entity shall undertake to bring down losses by a minimum
1% per annum for that entity till it reaches the level of 20%
c) The base data for AT&C losses referred to in (a) & (b) above would be
31st March of the financial year in which the project is sanctioned.
There are many State utilities, those exposure is more than 100% of REC’s net
worth like PSEB, MSEDCL, etc. During audit, it was observed that T&D Division
does not maintain relevant record capturing such information and monitor the
compliance of condition. Further, there no such control mechanism to monitor
the AT&C losses by the Project Offices also.
As the T&D Division is a nodal division for the T&D schemes, monitoring system
needs to be developed to ensure that conditions stipulated in the sanction letter
are complied.
As per fair practice code the scheme shall be sanctioned and sanction letter
issued by Corporate Office and PO within 90 days.
During audit, it was observed that there were several schemes which were
delayed and lying with T&D Division. Indicative cases are as under:-
T&D Division may take necessary action towards early sanctioning of schemes
adhering the fair practice code approved by BOD.
The same was done on a sample basis for the audits performed by IA team,
therefore, existence of more cases may not be ruled out in other PO's.
In view of above, T&D Division may please clarify internal check placed for
identification of non starter schemes and intimation to BOD.
b) T&D Division has to review all those cases where its exposure has
already exceeded than the norms prescribed by RBI and report the
same on quarterly basis to RBI along with the milestone for achieving
adherence to RBI norms by 31st March, 2012;
c) Despite raising this issue during last quarter and duly observed by Audit
Committee, no action in regard to review of exposure and formulation of
road map has since been informed to us.
a) During audit, it was learnt that Grant from Government of India (GOI),
was given for energy conservation schemes during 1990s. As per books
of accounts maintained by C&AT Division, it is observed that out of Rs 25
crore, an amount of Rs 19.87 crore have been utilized leaving Rs. 5.93
crores which is still unutilized in the account of REC for a long time.
As per general norms for grant from Govt of India, unutilized portion has
to be utilized in time framed manner or returned to the GOI. Failure to the
same, interest on the balance amount can be called for by the GOI.
Neither T&D division nor Loan Division could have substantiated the
action to be taken on the Grant amount.
Since this grant pertains to T&D project, it is requested that the same
needs to be analysed and further action on the amount needs to be taken
up urgently to avoid any action from GOI.
b) Similarly, in case of Jal dhara Grant from GOI, the grant has been utilized
fully but pending required recommendations / approval, the books of
account have not been settled by C&AT Section since long time. The
formality of closure of such scheme/account needs to be taken up by
T&D Division and information regarding the closure to CA&T Division for
necessary action.
c) Despite repeated oral request, the work allocation of T&D Division was
not made available to IA Team. The same may please be confirmed or
the work allocation be provided to the internal Audit Division.
With a view to assess the present exposure to different state utilities vis a vis
financial status of those power utilities, details have been worked out below
based on the report on performance of state power utilities by PFC for the FY
2008-09 (readily available), outstanding loan balance of REC as on 31.3.2010
and disbursement of REC during 2009-10.
(In crore)
State Financial Performance of Exposure / REC
State Power Utilities (as per disbursemen outstanding
PFC study) t during as on
PAT/ (Loss) for FY 2008-09 2009-10 31.3.2010
Rajasthan (1215) 1824.75 7962.03
iii. It is also worthwhile to state that T&D business of PFC has considerably
grown up as sanction during 2009-10 was about Rs 12000/- crores.
During audit of various project offices, it was observed that they have
also tapped business in Orissa, Gujarat etc etc wherein REC present
Internal Audit Report- CO: T&D Division 201
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business is negligible. Appropriate review need to be made so that our
business strategy could be properly adjusted and modified.
v. For exposure regulations, REC follows rating given by the PFC to the
discoms. It is to be stated that since PFC has entered in T&D sector in
recent years, therefore their rating for discom may not factoring the
experience of REC relating to higher exposure concentration,
rescheduling experience with certain Discoms, etc. Therefore, REC
needs to work out own rating system for discoms and factors like present
loan outstanding, experience of REC with these discoms etc.
vii. Presently the hypothecation is given of the lines, transformers, etc which
are scattered in a district. In case of default, takeover of those assets is
not practically feasible and may not contribute any revenue to the
company. It is worthwhile to state that some years back, there was a
practice of hypothecation of bulk security ie. hypothecation of the total
assets of particular circle. The benefit of such hypothecation was that the
schemes can be financed to the power utilities upto the amount of assets
already/ to be created within the circle. Further, from the point of the
financer, the total distribution of power of the circle can be controlled in
case of default.
REC has already experienced such non payment from the State utilities
and thereafter, the reschedulement of the loan in many states. With the
hypothecation of bulk security, the loan documentation would be explicit.
Further, in case of default, power distribution/transmission can be taken
over easily.