http://www.thehindu.com/todays-paper/tp-miscellaneous/tp-others/article3285775.ece 

GANDHINAGAR, April 6, 2012

CAG slams Modi regime for financial irregularities

MANAS DASGUPTA 

The Comptroller and Auditor General (CAG) has slammed the Narendra Modi government in Gujarat for financial irregularities, particularly for the mismanagement of the public sector undertakings resulting in losses of over Rs. 16,000 crore.

It has come down heavily on the State-owned Gujarat State Petroleum Corporation (GSPC) for extending "undue benefits" to the Chief Minister's "favoured few," mainly Adani Energy and Essar Steel companies, which coupled with its poor management and faulty agreements in the exploration of oil and gas in the Krishna-Godavari Basin alone had cost the exchequer over Rs. 5,000 crore.

Opposition absent

The report of the CAG was tabled on the concluding day of the budget session of the Assembly on Friday and in the absence of the Opposition members, who had been suspended on Wednesday for the remainder of the session for creating ruckus in the House. Leader of the Opposition Shaktisinh Gohil said the tabling of the report was deliberately delayed to deny the Opposition an opportunity to "expose" the misdeeds and "massive financial irregularities" of the Modi government.

The CAG report said the GSPC purchased natural gas from the spot market at the prevailing prices and sold it to Adani Energy at a fixed price much lower than the market price benefiting the private company to the tune of over Rs. 70 crore while to the Essar Steel, the corporation extended undue benefits of over Rs. 12.02 crore by way of waiver of capacity charges contrary to the provisions of the gas transmission agreement.

Improper assessment

It was particularly critical of the GSPC's operations in the KG Basin where its "improper assessment" of the oil and gas reserves and technical and financial issues led to the drilling cost shooting up to $1,302 billion against the original estimates of $102.23 billion.

According to it, the main reason for the incorrect estimation was the adoption by the GSPC of deficient geological model prepared by its joint venture partner, Geo Global Resources of Canada, which led to escalation in the cost of the exploration phase from Rs. 531.94 crore to Rs. 6,265.68 crore.

"Because of the adoption of the Geo Global Resources' model, the GSPC had to drill 12 high-pressure, high-temperature wells instead of the estimated four wells," the report said.

It felt that adding the Canadian firm as a joint venture consortium without any financial risk and only on the strength of its technical expertise "did not yield the desired results." Because of the faulty agreement, the GSPC had to bear the Canadian company's share of $175.07 million of exploration cost, besides losing Rs. 104.14 crore in interest during the period 2007-11, the report said.

"Over Rs. 43,000 crore"

According to Mr. Gohil, with the CAG estimating financial irregularities to the tune of over Rs. 16,000 crore in its latest report, the total misappropriation during Mr. Modi's tenure in the State crossed Rs. 43,000 crore. "It is the most corrupt government the State had ever seen in its history of 52 years," he claimed.

Cabinet spokesman and Health Minister Jaynarayan Vyas, however, said the report was based only on accounting figures. Certain decisions that were required to be taken from time to time for the larger benefit of the people did not come into the consideration of the CAG. He pointed out that the Public Accounts Committee of the House, which was headed by a senior member from the Opposition, had already cleared all the discrepancies mentioned in various CAG reports till 2005. "I am sure the PAC, when considering the latest CAG report, will also give a clean chit to the government," he said.

Severe criticism

The functioning of the GSPC came under severe criticism from the CAG right from bidding process, to explorations, development activities, trading of gas, management of finances and for lack of proper internal control and monitoring. The exploration and development activities undertaken by the GSPC suffered from several deficiencies such as delay in acquisition of study data, excessive time in drilling work, delay in preparing field development plan and others, which led to financial losses to the PSU, the auditing body said.

The CAG observed that the GSPC suffered financial losses in trading activities on account of undue favours extended to buyers by way of non-recovery of Take or Pay charges and sale of gas and oil at prices below purchase cost as it seemed to be mainly focusing on trading rather than on production from its oil and gas blocks.

Unreasonable time

The CAG found that the 14 to 106 months taken for environment impact studies in eight out of nine blocks was "unreasonable." As against the estimated drilling rate a day of 27.76 meters, the actual rate was 22.49 meters in drilling 16 wells in KG offshore block between July 2004 and April 2010, resulting in an "avoidable expenditure" of Rs. 180.91 crore on drilling work. It also incurred an expenditure of Rs. 104.29 crore on drilling wells without obtaining approval of the Central government and did not qualify for recovery, it observed.

The GSPC's management of finances was also far from being prudent and efficient as it financed the exploration and developmental activities through short-term borrowings — which was against the accepted business practices, the report said.

According to Mr. Gohil, not only in the sale of gas, the Adani group was also favoured by the Modi government in the allotment of land. The group was "doled out" over 5. 84 crore square metres of precious coastal land at a paltry rate ranging from Re. 1 to Rs. 32 at Mundra in Kutch district when the market rate was over Rs. 1,500 a per square metre. The market rate of this land was valued at up to Rs. 15,000 a per sq.m. The Adani group merely acted as a middleman and after getting the land at throwaway prices from the State government, sold off chunks at premium market rates making huge profits, he said.

Revenue department flayed

The CAG was also critical of the functioning the Revenue Department headed by Mr. Modi's confidant, Anandiben Patel.