CAG smells scam in PSPCL’s Jharkhand coal block via extra payment

  • Gurpreet Singh Nibber, None, Chandigarh
  • Updated: Mar 21, 2015 09:37 IST

The Comptroller and Auditor General (CAG) in a report tabled in the Vidhan Sabha on Friday pointed serious irregularities in the functioning of coal block allotted to Punjab State Power Corporation Limited (PSPCL) in Jharkhand, leading to a scam. The coal mine fulfills about 60% requirement of three state-owned thermal plants — Bathinda, Lehra Mohabbat and Ropar.

The report’s observations range from extra payment by PSPCL, grave conflict of interest and allowing the utility’s joint venture (JV) partner book mining and operation expenses without verification.

2001 agreement

PSPCL entered into a JV agreement with Eastern Minerals and Trading Agency, Kolkata (EMTA) in March 2001 to develop and operate a captive coal mine and formed a joint venture company in April 2001 with Panem Coal Mines Limited (PANEM). PSPCL was allocated a coal block at Pachwara in Jharkhand in Dec 2001 by the coal ministry, followed by a coal purchase agreement between PANEM and PSPCL for 30 years.

The Supreme Court in September 2014 quashed the allotment of coal blocks. Thereafter, PSPCL had deposited an additional levy of `391.46 crore with the coal ministry in December 2014. The report observed that basis of calculation of additional levy and implications of the decision of the apex court is awaited.

No fresh bids invited

CAG reported that though the tenders invited for selecting the JV partner were ambigious, yet PSPCL did not consider it appropriate to invite fresh bids, despite opinion by experts. It added non-determination of coal price on cost-to-produce basis resulted in extra payment of `29.59 crore to PANEM by PSPCL for supply of coal in 2013-14.

PSPCL did not assess the value of coal block after its allotment and failed to recover premium on shares allotted through private placement. The structure of share capital was not as per agreement and was concentrated with JV partner.

The mining operations were sub-contracted to EMTA by an agreement of January 2002 between PANEM and EMTA, in which the cost of extraction was not defined and the day-to-day affairs of management of PANEM and EMTA were looked after by the same person who was the MD of PANEM as well the CMD of EMTA.

“This gave rise to conflict of interest. The arrangement helped the JV partner book mining and operation expenses in PANEM without verification. PSPCL had no knowledge of mining operations and costs incurred,” says the report.

Other observations

Technically sound parties got ignored, because, instead of inviting bids in two parts - technical and financial, a combined bid was invited.

In contravention of JV agreement and ignoring the opinion of the financial advisor, PSPCL provided working capital support of `27.71 crore between July 2013 and December 2013); no interest was recovered on the advances so far.

Supply of entire mined coal as per its quality was not assured. PANEM was not impressed upon to discharge liability

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