CHAPTER 6
MINISTRY OF STEEL

Steel Authority of India Limited

6.1    Modernisation of Bokaro Steel Plant

Bokaro Steel Limited (BSL) was incorporated as a Company in January 1964 for setting up a steel plant with a capacity of 4 million tonnes per annum (MTPA) of ingot steel in collaboration with the erstwhile Soviet Union (USSR). The plant became a constituent unit of Steel Authority of India Limited (SAIL) with effect from 1 May 1978.

The construction of Bokaro Steel Plant (BSL) was completed in February 1978 with a capacity of 1.7 MTPA and at a cost of Rs. 981 crore. This was further expanded to 4 MTPA at a cost of Rs. 2141 crore by June 1985. The Cold Rolling Mill (CRM) was commissioned in November 1990. In July 1993, Government of India approved the proposal for modernisation of Bokaro Steel Plant at a cost of Rs.1625.79 crore.

A review of modernisation of Bokaro Steel Plant was conducted during 1999-2000 and updated thereafter. It covered 4 global and 11 indigenous packages and 4 AMR (Addition, Modification and Replacement) schemes related to modernisation. It was issued to the Ministry in November 1999 and their reply was received in August 2000.

An inter-governmental agreement on technical and economic co-operation was signed on 27 November 1986 between erstwhile USSR and India. This included rouble 1200 million credit to Government of India. Modernisation of BSL was one of the four projects included in the above agreement. In accordance with the above agreement, M/s. Tiazpromexport (TPE) of erstwhile USSR submitted a techno-economic offer in October 1987 for modernisation of the plant. The offer included:

1. reconstruction of Steel Melting Shop (SMS) I and II;

2. construction of Continuous Casting Department (CCD) in SMS-I and II; and

3. modernisation of Hot Strip Mill (HSM).

SAIL approached the Government in July 1988 for in-principle clearance of the modernisation scheme as recommended by TPE. The Government accorded stage-I clearance in October 1988 and sanctioned Rs. 5 crore for preliminary work/preparation of Detailed Project Report (DPR) and directed SAIL to seek a firm investment decision by June 1989. The DPR was submitted by TPE in December 1989 and on the basis of which, an investment proposal for Rs.1600 crore for modernisation of BSL was sent to the Ministry of Steel (MOS) in February 1990 for approval.

The proposal for investment was deferred in September 1990 by MOS since BSL had not achieved the expanded capacity of 4 MT. Therefore, MOS directed that BSL should first achieve 4 MT production before addressing itself to the task of modernisation. However, in January 1992, reversing its earlier stand, MOS directed SAIL to reconsider its proposal to modernise BSL. Accordingly, SAIL submitted a proposal in April 1992 for Rs.2754.95 crore (including Rs. 1547.03 crore for stage-I) with MECON, a PSU as the principal consultant.

The proposal for modernisation (stage-I) consisting of modification of SMS II, introduction of Continuous Casting facilities in SMS II, conversion of existing Reheating Furnaces 3 and 2 into Walking Beam type and up gradation of HSM was approved by the Government in July 1993 at a cost of Rs.1625.79 crore (including foreign exchange Rs.283.50 crore). The main objectives of the modernisation scheme included:

1. Increase in the production of liquid steel, slab, Hot Rolled (HR) coil and saleable steel from 4.08 MT to 4.50 MT, 3.45 MT to 4.06 MT, 3.36 MT to 3.95 MT and 3.19 MT to 3.78 MT per annum respectively.

2. Reduction of energy consumption from 0.905 to 0.576 G.Calorie/tonne of HR products and improvement in the quality of saleable steel.

The main features of the implementation strategy were as follows:

The project would be implemented with MECON as the prime consultant;

• SAIL would be fully responsible to the Government for timely completion of the project within the sanctioned cost;

• There would be a fixed point of responsibility either on SAIL or MECON or both;

• The project would be implemented with four global technological packages and suitable indigenous packages;

• In respect of indigenous packages, offers would be invited from parties with proven experience and capability of fulfilling their targets efficiently and within the stipulated time;

• The contracts with global bidders would provide for performance guarantees and penalty for performance failures;

• The project in charge as well as senior members would remain in project until its commissioning so that in case of over-run on time or costs, the persons responsible could be held accountable.

However, the directives given by the Government were not strictly adhered to, the impact of which had been commented at appropriate places in this review.

Scrutiny of the records/files of the MOS /SAIL revealed the following:

(a)    Revival of the deferred proposal

The MOS deferred (September 1990) the modernisation proposal submitted by SAIL in February 1990 due to poor performance of BSL, a large number of modernisation programmes already undertaken at Durgapur, Rourkela, Salem, VISL, the resource constraints of Government and SAIL’s difficulties in generating internal resources of such high order. However, the MOS revived the scheme (January 1992) even though conditions under which it had been deferred in September 1990 were still prevalent. Further, due to liberalisation of economy and opening of steel sector in 1991, the market had become competitive and the Company had lost the luxury of administrative prices and a captive market. Thus, the overall situation required careful examination of financial viability of each investment proposal.

The Ministry stated (August 2000) that the entire policy of the Government regarding steel had undergone a sea change during this period. Due to opening of the steel sector, it was essential for BSL to go in for modernisation programmes to face likely competition especially in flat products.

However, MOS did not take into account the crucial factors such as likely competition it would face in the coming years from the private sector. It also assumed 100 per cent capacity utilisation and full net sales realisation by taking the marketability of the products for granted while doing the sensitivity analysis for evaluating the scheme. As a result, when foreign manufacturers swamped the Indian market and dumped the quality steel products at cheaper rates, BSL did not have any option but to close down one blast furnace (no.-5) and two coke oven batteries for want of demand. Further, due to creation of surplus indigenous capacity for flat products in view of the entry of private sector, the sale realisation had also gone down.

The project was to be implemented with TPE as turnkey contractor but at the instance of the MOS the implementation strategy was revised in May 1992 under which the main units of the project were to be executed through competitive global bidding instead of one turnkey contractor. However, no cost benefit analysis was made to assess the impact of change in the implementation strategy from single turnkey mode to global competitive bidding.

It was noticed that cost of modernisation (inclusive of AMR schemes) of Rs. 1600 crore (as estimated by TPE in February 1990) increased to Rs. 3097.23 crore (estimated by SAIL in May 1992) i.e. an increase of Rs. 1497.23 crore (93 per cent) due to change in the implementation strategy, devaluation of Indian currency, higher incidence of interest cost, and price escalation between the intervening periods. Further, the implementation period was increased by 6 months (from 42 months to 48 months) for finalisation of global tenders and award of work.

The Ministry stated (August 2000) that due to disintegration of Soviet Union, rouble credit was not available from USSR. In the absence of any credit, the only alternative was to go in for global tendering to select latest technology and get competitive prices. They further added that cost benefit analysis for assessing the change in the implementation strategy was not felt necessary as there was no alternative available with SAIL but to go for global tendering.

Cost benefit analysis had become particularly imperative at a time when no credit was available even from other global bidders. Further, there was no reason for excluding TPE on grounds of non-availability of cheap credit in the post-liberalisation era. In addition, there was inordinate delay at various levels in clearing the project. Otherwise, the question of revising the implementation strategy vis-à-vis cost over run would not have arisen.

At the time of approval of project by Government in April 1993, SAIL/MOS inter alia intimated that:

• production of saleable steel during 1992-93 was 95 per cent of its rated capacity;

• taking into account own generation of power between 190-200 MW, the shortfall in power availability would be met by purchase from Damodar Valley Corporation (DVC);

• entire cost of the project would be repaid back within a period of 2.9 years (pay back period) with Internal Rate of Return (IRR) at the rate of 22.6 per cent;

• MOS proposed to finance the project with a debt equity ratio of 1:1. It was envisaged that the 50 per cent of the capital cost would be met from internal source;

• requirement of 7.487 MTPA of iron ore would be met from Kiriburu/ Meghahatuburu Iron Ore Mines in addition to 0.6 MT from Gua;

• definite plans had been made to increase the availability of limestone.

However, on verification, the position at the time of approval of project by Government was found to be as under:

• As against the reported production of 95 per cent (including semis) of the rated capacity in 1992-93, the actual production of saleable steel (excluding semis which did not fall under the category of saleable steel) was 87.27 per cent. But the same was neither taken into account nor brought to the notice of Government.

The Management stated (September 1999) that although the Soviet DPR of 1964 did not consider semis as saleable steel, these were treated as saleable steel in view of change in the market scenario. The reply of the Management is not correct as semis were not treated as saleable steel even under the modernisation scheme sanctioned by the Government in July 1993.

• The actual generation of power during 1991-92 and 1992-93 was about 150 MW as against 190-200 MW contemplated.

The Ministry stated (August 2000) that due to abnormal frequency situation in grid, power plant was required to be isolated from the grid very frequently. Thus, it could not generate power to the full extent.

It was observed that due to abnormal frequency in the DVC grid, there was shortfall in captive power generation resulting in loss of revenue amounting to Rs. 54.60 crore during the year 1997-98 to 2000-2001. The Company took up the matter with DVC for compensating the loss. However, no amount could be recovered from DVC so far (September 2001). Further, one of the conditions behind the sanction of the project by the Government was availability of cheap and assured supply of power through in-house generation. However, the Company is in the process of disposing of its captive power plant to a Joint Venture. In the event of sale of power plant, the Company will have to depend upon outside organisations to meet its entire requirement of power.

• Although there was clear indication that SAIL would not be able to arrange Rs.812.84 crore from its internal sources, the MOS went ahead for clearance of the project with a debt equity ratio of 1:1. Finally, SAIL could raise merely Rs. 36 crore (less than 2 per cent of actual expenditure) from internal sources. Interestingly, the actual debt equity ratio of BSL modernisation came out to be 59:1.

• Further, MOS had envisaged that entire debt would be made available at the cheap/ low rate of interest. However, it was found that 52 per cent of the debt was arranged through commercial borrowings/ public deposit scheme at high rates of interest.

• The pay-back period (2 years 9 months) and Internal Rate of Return (IRR) (22.6 per cent) were calculated on the assumption that the 100 per cent capacity utilisation and full sales realisation would be achieved even in post-liberalisation era. However, SBI Caps had estimated the IRR of 7 per cent only on the basis of current prices in October 1999. The situation of sales realisation had worsened since then.

• The average availability of iron ore from captive mines during 1992-93 to 2000-01 was 6.007 MTPA resulting into a shortfall of 0.880 MTPA. As a result, 0.639 MT were purchased from private sources at an extra cost of Rs. 8.23 crore.

• As a result of decline in the production of limestone from Kuteshwar mines during 1997-2001, 7.78 lakh tonnes of low silica limestone (SMS grade) was procured from Jaisalmer during 1997-98 to 2000-01 involving an extra expenditure of Rs.28.07 crore.

As per implementation strategy approved by the Government in July 1993, modernisation scheme was to be grouped into four global packages and suitable indigenous packages. 5 parties were short-listed for each of the three global packages (G-01 for CCD, G-03 for HSM-I and G-04 for HSM-II) against the pre-qualification bids issued in March 1993. After providing clarification regarding scope and specification for the job in October 1993, the bidders were asked to submit their bids. The bids received in December 1993 were evaluated and approved by the Apex Committee in May 1994 and July 1994 for CCD and HSM respectively. Global tender for Reheating Furnace (RHF) 4, AMR scheme, was issued in December 1992. The work relating to RHF 2 and 3 (G-02 package) and RHF 4 was combined together and Apex Committee approved the bids in February 1994. Accordingly, the following contracts in respect of global packages were awarded with the approval of the Board.

(Rs. in crore)

In this connection, it was observed that:

(a)  No criteria for short listing of bidders:    No criteria were fixed by the Board of Directors of SAIL for short listing of bidders. The criteria adopted by the Plant Level Committee (PLC) were modified by the Apex Committee by incorporating two additional conditions viz. (i) wherever two bidders selected each other as one of the associates for the package, only the bidder possessing his own state of art technology and process know-how would be considered for short-listing and (ii) only such parties who possessed state-of-the-art technology and process know-how or had collaboration agreement with such associates in possession of requisite latest technology and process know-how would be considered for short listing.

However, these criteria were not consistently followed. TPE’s offer for HSM package was rejected by the Apex Committee (July 1993) on the ground that TPE did not have the latest technology and their performance had also not been satisfactory in Durgapur Steel Plant (DSP) modernisation. However, the same criteria was not applied in case of Mannesmann Demag Huttentechniks (MDH), Germany who was short listed for CCD package even though their performance was also not satisfactory in DSP.

The Ministry stated (August 2000) that MDH was short listed for the package as they had the latest technology and their individual performance in DSP consortium was not questionable. The contention of the Ministry is not correct as there was delay of more than two years in completion of the packages awarded to MDH under the DSP modernisation plan.

(b)  Award of work on nomination basis:    In the HSM package, civil and structural works were also included under the scope of the package suppliers whereas these were not included in respect of CCD and RHF. These works were entrusted to Hindustan Steelworks Construction Limited (HSCL) on single tender (nomination) basis for execution based on the drawing and specification to be provided by the global package suppliers.

The Ministry stated (August 2000) that in case of CCD, major civil works were involved and considering the infrastructural facilities available with HSCL, the work was awarded to them in order to ensure better co-ordination for execution. The reply of the Ministry is not tenable as HSCL off-loaded a major portion of civil and structural work in favour of a private party without following any transparent tendering procedure and the work was delayed by about 6 months. The work in respect of RHF had not yet been completed. Further, by excluding the civil work from the global packages in case of CCD and RHF, no uniformity was maintained in the award of contract as directed by the Government.

Global tender enquiry was floated in December 1992 for installation of Reheating Furnace (RHF) No.4 at an estimated cost of Rs. 82.38 crore as an Addition, Modification and Replacement (AMR) scheme. Six parties submitted tenders, of which offers of two parties i.e. MECON/ Italimpianti, Italy and M/s. EPI/Stein-Heurtey, France were considered technically acceptable by the PLC.

Before the award of work could be finalised, Government approved (July 1993) conversion of existing Pusher Type Reheating Furnaces No. 2 and 3 into Walking Beam type furnaces as part of the modernisation. As this work was identical to the work of RHF No.4, the Board decided (August 1993) that order for conversion of RHFs- 2 and 3 should be finalised along with RHF-4, in order to avail the benefit of likely reduction in price due to similar and repetitive nature of work. Accordingly, MECON and EPI were asked to submit price bids for RHF-2, 3 and 4 combined together as a package.

The following points were noticed:

(a)  No Pre-Qualification Bids:    The contractors for the global package were to be selected through pre-qualification bids as per the directive issued by the Government of India but disregarding the same contract was finalised on LTE basis.

The Ministry stated (August 2000) that even if fresh pre-qualification bids were issued, no new party was likely to submit offers. As such calling of fresh bids would have only delayed the order placement. The reply is unacceptable as fresh tendering should have been resorted to in order to be transparent, to avail benefits of competitive prices and likely reduction in price due to similar and repetitive nature of work.

(b)  Faulty Evaluation of Offer:    The offers of MECON and EPI were evaluated by the Company considering the fuel cost as under:

(Rs.in crore)

After negotiation, the work order was placed on MECON in March 1994 at a price of Rs.173.80 crore.

It was observed that the Company had projected the capacity of the furnace in their Notice Inviting Tender (NIT) as 300 tonnes/hour but for calculating the fuel cost, the capacity of the furnace was taken as 260 tonnes/hour instead of 300 tonnes/hour. The evaluated price taking fuel cost on furnace capacity of 300 tonnes/hour, worked out to Rs.180.64 crore for MECON and Rs. 174.74 crore for EPI. Thus, the evaluated offer of EPI was lower by Rs.5.90 crore in comparison to MECON and placement of order on EPI, the lowest tenderer, could have saved an amount of Rs.13.22 crore (Rs.173.80 crore minus Rs.160.58 crore).

The Management stated (September 1999) that loading for fuel cost was done on the basis of guaranteed specific fuel consumption as indicated by the parties. The reply of the Management is not acceptable as financial evaluation of the bids should have been done on the basis of actual capacity of the proposed furnaces that were to be constructed by the bidders.

The Apex Committee in its meeting dated 7 February 1994 noted that final price of Rs.173.80 crore offered by MECON was lower than the estimated cost of Rs.177.48 crore. This was not factually correct as SAIL’s estimated cost included civil works, expenditure during construction, contingencies etc., but these did not form part of MECON 's price bid. The final price of MECON including these costs came to Rs.195.79 crore i.e. an excess of Rs.18.31 crore over the estimated cost of Rs.177.48 crore. The Ministry accepted (August 2000) that the final price of MECON (including contingencies etc.) was more than the estimated cost.

(c) Incorporation of lower capacity for Performance Guarantee of RHF:    According to clause 1.5.1 (Schedule-9) of contract with Italimpianti, Italy dated 25 March 1994, the supplier was required to give a Performance Guarantee (PG) of the RHF at the rate of 260 tonnes/hour as against 300 tonnes/hour contracted to them. Thus, the liability of the supplier towards PG was restricted to 87 per cent of the capacity.

The Ministry stated (August 2000) that the increase in capacity from 260 tonnes/hour to 300 tonnes/hour was dependent on supply of fuel of CV 2300 K cal /T/cum in future. The exact time frame as to when the fuel of that value would be available was not fixed. Hence, the parameters of inputs for PG test were fixed based on the achievable conditions. The Ministry’s reply is not tenable as the package of Gas Mixing and Boosting Station for producing fuel of CV 2300 K cal/T/cum given to NICCO in September 1996 had already been completed in September 1999.

The contract for installation of CCD in SMS-II, was signed on 11 June 1994 with Voest Alpine Industrieanlagenbau GmbH, Austria (VAI) being principal contractor along with Larsen & Toubro Limited, (L&T) and Asia Brown Boveri Limited (ABB) as its associates, at a total price of Rs.653.73 crore (including foreign exchange of Rs.152.42 crore) with a completion period of 33 months.

Audit scrutiny revealed the following:

Unfair treatment to a PSU:    The total package cost of Rs.606.43 crore offered by HEC was lower than the VAI's offer of Rs. 615.56 crore. However, during evaluation of the prices, taxes and duties amounting to Rs. 117.70 crore was added in case of HEC and Rs. 84.57 crore in case of VAI. This made the offer of HEC higher than that of VAI. Analysis of the taxes and duties revealed that the component of excise duty/countervailing duty loaded for evaluation was Rs. 61.32 crore in case of HEC and Rs. 40.60 crore in case of VAI. However, the benefits due to introduction of MODVAT on capital goods from March 1994, were not considered for bid evaluation by the Apex Committee.

The Ministry stated (August 2000) that the evaluation of bids was done without considering MODVAT benefits, as the quantum of benefits and time of receipt of those benefits was uncertain. The Ministry’s contention is not tenable, as the Company could have easily worked out the quantum of benefit by taking out the component of excise duty/countervailing duty while evaluating bids. Regarding time of receipt of benefits, there was no uncertainty when there was time bound programme for installation of CCD and the production therefrom.

The global packages relating to the modernisation of HSM-I, reconstruction of existing coilers (1,2 and 3) and installation of new coiler no.4 (HSM-II) were combined together and offer was invited. The contract for the combined package was awarded to SMS Schloemann Siemag, Germany along with their associates in August 1994 at a total price of Rs.457.51 crore (including foreign exchange of Rs.178.78 crore) with a completion schedule of 33 months.

The following points were noticed:

(a) Inclusion of AMR Schemes:    The evaluated price bids for HSM package combined with 12 AMR schemes were as under:

(Rupees in crore)

The Company awarded the work to SMS and its associates in July 1994 as SMS had quoted the lowest price inclusive of AMR schemes. As AMR schemes did not form part of the modernisation package, the award of contract for these schemes could have been dealt with separately, which would have saved an amount of Rs. 7.13 crore.

The Ministry stated (August 2000) that all these schemes were to be implemented in the same mill during the same period and same shutdown. It was also necessary to complete all these schemes in tandem with completion of HSM. The reply of the Ministry is not tenable as the completion of all these schemes was planned prior to the completion of modernisation of HSM. Further, in other cases such type of schemes (11 AMR schemes costing Rs. 342.28 crore - refer para 6.1.3.3) initially part of the modernisation project were deleted from its scope and were executed later on separately.

(b) Non-adherence to Implementation Strategy:    Clause 3 (iv) of the Government's sanction of July 1993 stipulated that civil and building structural works for the units would be carried out under separate contracts. However, the strategy was not adhered to and the civil and building structural works amounting to Rs.60.79 crore relating to the package were also awarded to SMS (I).

The Ministry stated (August 2000) that in order to ensure completion of the work during the short implementation period, civil works were kept within the scope of the SMS (I). The argument of the Ministry does not hold good as even by entrusting the entire work to SMS (I), HSM package was completed in January 2000 only i.e. after a delay of 32 months.

Indigenous tenders were invited during 1994-95 for 35 packages amounting to Rs. 236.87 crore (approx.). Of this, contracts for Rs.97.59 crore were finalised on single tender basis.

Public Sector Undertakings bagged 9 packages individually and 2 packages jointly with other contractors.

Some of the interesting points noticed were as under:

(a) No Open tenders:    Open tenders were not invited although a substantial amount was involved (Rs.236.87 crore). Instead, limited tender enquiries for each package were issued to the parties ranged between 4 and 9, while the offers received there against ranged between 2 and 6. Out of 35 indigenous orders, 9 orders were awarded on single tender basis and rest 26 orders on limited tender.

The Ministry stated (August 2000) that the work being of specialised nature, limited tenders were invited. The reply of the Ministry is not convincing as open tender could have ensured transparency of the tendering procedure, objectivity in the decision-making process and more competitiveness in the bidding particularly when the amount involved was substantial.

(b)  Award of work on nomination basis:    The Ministry of Steel directed (July 1993) that for indigenous packages, the short listing/limited tendering must be carried out in a manner so as to ensure reasonable competition. However, the above directives of the Government were not followed as civil work and structural work relating to CCD package were awarded to Hindustan Steelworks Construction Limited (HSCL) on single tender basis at a price of Rs.39 crore and Rs.30.16 crore respectively on the ground that HSCL was a resourceful contractor.

It was, however, observed that:

(i)  Lack of uniformity in terms and conditions:    During execution of civil work by HSCL, the value of work increased by Rs.26.97 crore including escalation of Rs.3.26 crore. In this connection clause 3.9 of the contract with global package suppliers may be referred to which reads as under:

‘If delay is on account of purchaser and extension had been granted, the same shall be taken into account for price variation. If there is delay on account of any other reasons not withstanding the extension granted, price variation shall not apply’.

In the absence of similar clause in the indigenous contract, escalation amounting to Rs.3.26 crore paid to HSCL could not be avoided though there was delay of 6 months in execution of work by HSCL. The Ministry stated (August 2000) that the contract for civil work was an “item rate contract” and that could not be compared with global contract for supply of equipment.

The Ministry, however, assigned no reasons for non-incorporation of such clause in the contract with HSCL particularly when the latter off-loaded the work to a private contractor. Interestingly, the scope of work awarded to the private contractor increased by more than 25 per cent during execution. Thus, BSL allowed itself to be a conduit for award of a work order of the magnitude of more than Rs. 32 crore (completion cost) to a private party without following any tendering procedure.

(ii) Imprudent decision-making:    In May 1993, HSCL submitted an offer to carry out the structural work at a rate of Rs. 26085 per tonne (Rs. 15960 per tonne for cost of steel and Rs. 10125 per tonne for fabrication and erection charges). HSCL showed its willingness to carry out the job again in November 1993 at the rates it had offered of May 1993 but the offer was not considered. Subsequently, order for structural work was issued to HSCL in December 1994 on single tender basis at a price of Rs.30.16 crore (Rs.15300 per tonne for fabrication and erection). This was much higher than the rates offered by HSCL in May 1993 and confirmed in November 1993. Thus, due to non-consideration of the earlier offer of HSCL, the plant had to suffer a loss of Rs.10.07 crore on award of structural work to HSCL at a higher rate.

The Ministry stated (August 2000) that HSCL’s offer was not considered as it was of an exploratory nature and was submitted by HSCL on their own even before the scope of work was frozen. The contention of the Ministry is not tenable as HSCL submitted their offer in May 1993 after several rounds of discussion with BSL. The scope of work was not frozen even at the time of award of the contract in December 1994 as the work was completed at a cost of Rs.69.30 crore against the awarded value of Rs.30.16 crore. Thus, SAIL could have availed of the advantage of lower rates.

11 schemes costing Rs.342.28 crore, although part of the modernisation project, were deleted from its scope by SAIL Board in May 1992 and executed separately as AMR schemes. Of 11 schemes, 2 were dropped, 1 was deferred and the balance 8 were completed between December 1994 and December 1999. The extent of delay in execution of these schemes ranged between 9 and 55 months.

A.    Argon Gas

For meeting the requirement of Argon gas in CCD, limited tender enquiries (LTE) were issued in September 1994 to 3 parties. Of these, only 1 responded. The Board of Directors of SAIL approved the scheme for recovery of Argon gas from Air Separation Unit (ASU) No.4 in September 1995 and the order was placed on Bharat Heavy Plates and Vessels Limited on single tender basis in November 1995 at a cost of Rs.41.80 crore.

Scrutiny of records revealed that:

• It took Management about a year to finalise the contract even on single tender basis. The scheme was completed with a cost escalation of Rs. 3.09 crore in December 1999 against scheduled completion period of August 1997. The increase in cost was mainly on account of delay in completion of the scheme;

• Changes made by CET in the design after award of work resulted in further delay of the project with additional expenditure of Rs. 1.75 crore. As a result of delay and inadequate production after commissioning, the plant had to purchase 1950 tons of Argon gas during the period from July 1997 to March 2001 at a cost of Rs.5.53 crore to meet the requirement of CCD.

The Ministry stated in August 2000 that the delay in award of work for laying pipeline was due to delay in assessment of total requirement of water because of the increase in the capacity of ASU. The reply of the Ministry is not convincing, as total requirement of water should have been assessed well before award of contract.

Offers from Voest Alpine (India) Private Limited (VAIL) and Indomag Steel Technology (IST) were received against LTE issued to four bidders for installation of pneumatic slag stopper system. However, the work was awarded on IST for dart type slag stopper, a technology different from that specified in the LTE, at a cost of Rs. 5.16 crore after rejecting the offer of VAIL on technical ground. The action of the Management, therefore, effectively resulted in award of the work on single tender basis as no opportunity was given to other bidders to bid for dart type slag stopper.

The Ministry stated (August 2000) that due to slag arrestor system in SMS, being a new technology, parties in the field were limited and re-tendering might have led to increase in the prices. Further, the scheme was a modernisation linked AMR scheme and was required only after completion of CCD. Hence, there was ample time for re-tendering which would have given a chance to obtain competitive rates.

6.1.4    Terms and conditions of contracts

An examination of terms and conditions of the contracts entered into with various package suppliers showed the following deficiencies:

(a) Undue Financial Benefit:    There was no uniformity in terms of the payment of contracts which were entered into with various contractors. This resulted in undue financial benefit of Rs.13.14 crore to MECON and its associates. The Ministry stated (August 2000) that payment terms were depended on commercial conditions offered by the tenderers and were subject to mutual agreement between seller and the purchaser and it might not be possible to ensure uniformity in this regard.

While it is admitted that the terms and conditions depended on mutual agreement between the buyer and the seller, it was also important to ensure that there was general uniformity in payment terms particularly in a project where a large number of executing agencies were involved. This was particularly necessary to ensure that no undue financial benefit had passed on to any single agency. Stipulating uniform payment terms in the tender documents could have enforced this.

(b) No binding quantity in contract with Voest Alpine:    The contract with MECON/Italimpianti (for RHF package) provided for a binding quantity for civil and structural jobs and in case of the quantity exceeded the binding quantity, the cost of excess quantity would have to be borne by the package supplier. However, contract with Voest Alpine (CCD package) did not stipulate any binding quantity. In the absence of such a provision, the value of excess quantity executed over the scheduled quantity amounting to Rs.17.09 crore could not be recovered from the package supplier.

The contention of the Ministry that it was not possible to fix a condition of binding quantity for civil works in a green field area is not tenable as quantity-wise detailed estimates were available with the Company before award of work.

For global packages, the Company executed contracts with the principal contractors and their associates separately and the contractors were made liable for their own portion of work only. Thus, no principal contractor was made liable for completion of the packages as a whole within the sanctioned frame of time and cost.

The Ministry stated (August 2000) that clause 1.8.1 of the contract provided that the principal contractor should be solely responsible and undertake full, sole and exclusive responsibility towards the purchaser for the integration, interface and co-ordination of all activities of the package including establishment of performance guarantee under all the contracts. The reply of the Ministry is, however, silent about making the principal contractor liable for timely and successful completion of the package as a whole.

Unlike the firm price clause in respect of foreign contractors (clause 3.9) the contracts signed with the Indian associates of the global packages provided for price escalation as follows:

“If delay is on account of the purchaser and extension has been granted, the same shall be taken into account for price variation. If there is delay on account of any other reason notwithstanding the extension granted, price variation shall not apply.”

It was noticed that escalation amounting to Rs.76.38 crore was paid to the Indian associates of VAI (L&T and ABB) and SMS (AG), Germany (Simplex, Tata, SMS (I) and ABB) even though the project was delayed by more than three years due to reasons not attributable to the purchaser (BSL). The learned Solicitor General of India had opined (August 1998) that in cases where there had been delay due to any other reason, even if SAIL had extended the period of the contract, the contractors stand to lose the benefit of the price variation clause right from the beginning of the contract. Thus, no escalation was payable right from the beginning of the contract and payment of escalation amounting to Rs.76.38 crore was irregular and unjustified.

The Ministry stated (August 2000) that further payment of escalation had been stopped. However, recovery of earlier escalation payment had been deferred to ensure progress of work at site.

A.    Continuous Casting Department

Voest Alpine Industrieanlagenbau, Austria (VAI) as a leader of the consortium with Larsen & Toubro Limited, (L&T) and Asia Brown Boveri Limited, (ABB) bagged the order for Continuous Casting Department (CCD) at a total value of Rs.653.73 crore. As per contract signed on 11 June 1994, the job was scheduled to be completed by March 1997. The following interesting points were noticed:

(i) Premature procurement of spares:    The plant was installed in March 1998 but the operational and maintenance spares worth Rs. 7.21 crore required after commissioning of the plant, were imported during 1996-97.

The Ministry stated (August 2000) that the billing schedules were finalised keeping in view the scheduled date of commissioning of the project and the spares were supplied as per the schedule of despatch specified in the approved billing schedule. The reply of the Ministry is not convincing as there were slippage in the commissioning of the project and the actual delivery of the spares should have been monitored and could have been deferred to avoid blockade of funds for about two years.

(ii) Changes in models/make:    During execution of CCD project, L&T made certain changes in make/model of some of the plants and equipment without ascertaining the financial implication thereof.

The Ministry stated (August 2000) that some changes were essential due to site conditions/technical requirements and financial impact thereof would be settled at the time of closing of contract. The reply of the Ministry is not acceptable as financial impact of any changes in make/ model should have been worked out and got settled immediately so as to avoid litigation/dispute in future.

(iii)  Major defects remained unattended:    As per schedule 6 of the contract, 5 per cent of the contract value (Rs.32.69 crore) was to be released after successful completion of the Preliminary Acceptance Test (PAT) of the plant and machinery installed. The PAT of CCM-I and CCM-II were conducted in November 1997 and March 1998 respectively with 20 defects. However, the Company released Rs. 28.28 crore (86.5 per cent of amount payable after PAT) although a number of defects remained unattended.

The Ministry stated (August 2000) that the contract permitted issue of PAC with minor defects that did not affect the commissioning of the unit. The reply of the Ministry is not convincing as there were major defects in (i) Torch Cutting Machine, (ii) Pneumatic Transport System, (iii) ROT Motors, (iv) 3.3 KV Vacuum Circuit Breaker, (v) Tundish Car etc. As such, appropriate amount should have been withheld from the bills of the contractor until the defects were rectified.

B.    Hot Strip Mill

SMS Schloemann Siemag, Germany as a leader of the consortium with six other associates viz, VAI, GFA, Simplex, TISCO, ABB and SMS-(I) bagged the order in August 1994 for Hot Strip Mill modernisation package including 12 AMR schemes at a total value of Rs.457.51 crore.

It was observed that:

(i) Premature procurement of spares:    Hot Strip Mill modernisation was completed in July 1998 but the operational and maintenance spares worth Rs.17.06 crore were procured during 1996-97 i.e. much ahead of their requirement.

(ii) Unnecessary construction:    As per the contract, SMS (India) was to construct foundation for coiler no.4 only. However, at the instance of BSL/MECON, the party also constructed foundation for coiler no.5 and claimed Rs.4.29 crore. Since there was no proposal for construction of coiler no.5, construction of its foundation was premature and uncalled for.

The Management stated (September 1999) that claim of the party on this account was being examined and would be settled as per procedure. The claim of the contractor had not yet been settled (March 2001).

(iii)  Loss of Contribution:    As against the planned shutdown of 21 days for carrying out work, the work was completed in 38 days (10 May 1998 to 17 July 1998) due to delay in equipment erection by the contractors. The extra shutdown period of 17 days resulted in loss of production of 1.21 lakh tonnes of HR coils and consequent loss of contribution amounting to Rs.77.44 crore. However, in the absence of any suitable provision in the contract, no amount could be recovered from the contractors.

(iv) Non-recovery of Rs 1.14 crore:    An amount of Rs.1.04 crore being the cost of hydraulic oil supplied by plant beyond contractual obligation and double payment of customs duty amounting to Rs.10 lakh could not be recovered from the contractor (March 2001). The Ministry stated (August 2000) that the cost of hydraulic oil supplied by BSL and the customs duty paid on Radioactive source would be recovered from the party before release of final payment.

(v)  Non-replacement of prematurely failed load cells:    12 load cells worth Rs.2.11 crore out of 18 nos. supplied/erected by ABB Limited were damaged prior to issue of PAC/FAC and could not be replaced (March 2001).

C.    Reheating Furnaces

Work order valuing Rs.173.80 crore for conversion of Reheating Furnaces No. 2 and 3 from pusher type to walking beam type and installation of a new RHF No.4 was awarded to MECON (principal contractor) on 25 March 1994 with M/s. Italiampiant of Italy as its associates.

The following interesting points were noticed:

(i) Non-recovery of Rs.2.41 crore:    MECON had indicated the binding quantity in respect of earth work, RCC, reinforcement of steel etc. and cost of any excess quantity was to be borne by the principal contractor. It was observed that the actual quantity relating to RHF 4 exceeded the binding quantity but the cost of extra quantity amounting to Rs.2.41 crore could not be recovered from MECON (March 2001). Management stated (September 1999) that a committee had been constituted in August 1997 to ascertain the actual excess quantity on account of RHF-4 and after receipt of committee’s report, action would be taken as per provision of the contract. However, the report is yet to be finalised (March 2001) despite the passage of four years.

(ii) Non-reduction in scale loss:    With the commissioning of RHF scale loss was to come down to 0.6 per cent of the slab rolled. Two RHFs were commissioned but the scale loss remained at 1.02 per cent during the year 1998-99 to 2000-2001. Thus, the expected benefits of Rs.48.77 crore could not be achieved.

6.1.5.2    Indigenous Packages (including AMR schemes)

(a)   The civil work of CCD was awarded in September 1994 to HSCL on single tender basis at a value of Rs.39 crore.

It was observed that:

(i) Infructuous expenditure on CCM III:    The modernisation scheme sanctioned by the Government envisaged installation of two Continuous Casting Machines (CCM-I and CCM-II) in SMS-II. However, at the instance of BSL/MECON, foundation/concrete work for installation of third slab caster for CCM-III was also made at a cost of Rs.70 lakh.

The Ministry stated (August 2000) that the foundation work for CCM-III was done to ensure that there was no production loss in a running plant when construction work of CCM-III was taken up. It was observed that the construction of foundation work was not required as there was no proposal for construction of CCM-III in near future. This resulted in infructuous expenditure of Rs.70 lakh.

(ii) Premature Back Filling:    The civil work for CCD included excavation and back filling of 2,50,000 cum. of earth at a cost of Rs.4.20 crore. In the course of execution, HSCL had to backfill 72,000 cum. of excavated quantity without completion of civil work to facilitate movement of mobile cranes near to the foundation. The back filled area was again excavated and finally back filled after completion of civil work which resulted in avoidable expenditure of Rs. 80 lakh.

The Ministry stated (August 2000) that the premature back filling was inescapable technological requirement keeping in view the longer interest of the timely completion of the project.

(iii) Non-Reconciliation/ Adjustment of Material Accounts:    Cement and steel material worth Rs.19 crore were supplied by BSL to HSCL on cost recoverable basis. Of this, the plant could recover only Rs.14.34 crore leaving a balance amount of Rs.4.66 crore un-recovered. The reason for non-recovery included non-reconciliation/ adjustment of material account. The Ministry stated (August 2000) that the entire amount would be recovered before final payment was released.

(b) Infructuous expenditure of Rs.19.34 crore on RHF-I:    Government of India approved installation of walking beam type Furnace no.4 and conversion of Furnaces no. 3 and 2 into walking beam type in December 1992 and July 1993 respectively. However, in the mean time an order for up gradation of RHF no.1 (old model) was placed on L&T Ltd in January 1993 at a cost of Rs.13.02 crore. In the meantime, RHF 4 and 3 have already been commissioned and the dismantling work relating to RHF-2had also been taken up. The equipment and spares worth Rs.11.33 crore received for RHF-1 as well as materials worth Rs.8.01 crore for modification of skids for RHF-1 through another scheme undertaken in August 1991 had been lying idle (March 2001).

The Ministry stated (August 2000) that the schemes for up-gradation/ modification of RHF-1 would be taken up after completing the job of RHF 3 and 2. It was however, observed that although the modification of RHF-3 had already been completed (January 2000), dismantling of RHF 2 was still to be done (March 2001). Further, the Company does not have any plan / programme to take up of the modification of RHF-I in the near future due to severe financial constraints. In view of above, there was blockade of Rs.19.34 crore incurred on RHF-I.

(c)    Mechanised Work Roll Changing system

In order to reduce the roll changing time from 90-120 minutes to 15 minutes and thereby increase the productivity of Hot Strip Mill, an order for installation of Mechanised Work Roll Changing system was placed on MECON in December 1991 at a cost of Rs.29.65 crore.

It was observed that:

1. The system was commissioned in November 1997 after a delay of 4 years and 7 months without auto operation system. Consequently, the desired benefit of reduction in roll changing time could not be achieved and the actual time ranged between 20 -25 minutes as against 15 minutes envisaged which resulted in loss of production of 14.61 lakh tonnes of HR coil during the years 1997-98 to 2000-01.

2. As the system was not working properly, the consumption of bearing increased by 294 numbers during the period from 1995-96 to 2000-01 resulting in an extra expenditure to the extent of Rs.11.76 crore.

The contract provided for levy of liquidated damages (LD) at the rate of 5 per cent for time over-run and at the rate of 7.5 per cent for non-fulfilment of performance guarantee subject to an overall ceiling of maximum liability of 10 per cent of the contract value. All the packages except one global package (RHF-2) were completed by January 2000 and the extent of delays ranged between 3 and 39 months. As such, LD recoverable for delays worked out to Rs.76.10 crore being 5 per cent of the ordered value of Rs.1521.91 crore. Against this, an amount of Rs. 30.63 crore only was recovered (March 2001).

The following interesting points were noticed:

(i)  Undue favour to the foreign suppliers:    Undue favour was shown to the foreign suppliers as no LD was recovered from them although no global package was completed within the contractual completion period. The amount of LD not recovered worked out to Rs. 19.07 crore being 5 per cent of the ordered value of Rs.381.36 crore.

The Ministry stated (August 2000) that no LD was leviable on overseas suppliers as the FOB supplies were generally made as per approved schedule. The reply of the Ministry is not factually correct as there was delay in supply of drawings and specifications by VAI, delay in supply of equipment by VAI and SMS (AG) and Italimpianti and the extent of delay ranged between 12 to 21 months. Similarly, there was delay of 17 months in supply of mechanical equipment by SMS (AG). Therefore, non-recovery of LD tantamount to undue favour to the foreign contractors

(ii)  Irregular refund of LD:    In three global packages, LDs amounting to Rs.24.13 crore were recovered from six Indian associates during 1995-96 to 1997-98. Subsequently, Rs.11.40 crore was refunded to them during 1998-99 and 1999-2000 and further recovery was postponed on the plea that the matter regarding recovery of LD would be decided after the completion of the contract.

It was observed that in almost all cases, LD was refunded at a time when the work was already completed (except RHF-2).

(iii)  Short recovery of LD:    Even in the cases where LD was recovered on account of delay, the same was limited to 5 per cent of the contract price. No provision was made in the contract for levying LD for the subsequent increase in the contract price. Consequently, there was short recovery of LD amounting to Rs. 15.63 crore, (5 per cent of Rs. 312.58 crore) being the increase in the ordered value (i.e. Rs. 1834.49 crore- Rs. 1521.91 crore).

The Management stated (September 1999) that refund of LD was made with a view to complete the project at the earliest by improving the liquidity position of the executing agencies. Further, as per established practice in SAIL, liquidated damages as well as escalations were worked out on the basic contract price. The Ministry added (August 2000) that SAIL had informed that LD was being recovered on the escalated contract prices in respect of major contracts.

The reply of the Management/Ministry is not tenable as on verification of records, it was observed that recovery of LD was postponed in 1999-2000 and no LD was recovered on escalated contract price from any major contractors.

Government while conveying the approval of the modernisation scheme in July 1993 indicated that SAIL should implement the project with MECON as their prime consultant. It was also prescribed that the relationship and distribution of functions between SAIL and MECON for the implementation of the project should be determined by mutual agreement in such a way that for each activity in the project implementation, there was a fixed point of responsibility either on SAIL/BSL or on MECON or both. Accordingly, an agreement was entered into with MECON on 4 July 1994 at a consolidated consultancy fee of Rs.42 crore. The agreement was made effective from 1 January 1992 for a period of 87 months ending on 31 March 1999.

The following points were noticed:

(i) In-house consultancy wing overlooked:    SAIL could have assigned the consultancy work to its in-house technical consultancy wing CET (Centre for Engineering and Technology) instead of MECON. However, only a small portion of consultancy work relating to Reheating Furnaces was given to CET.

The Ministry stated (August 2000) that since consultancy service for 4 MT expansion of Bokaro Steel Plant was also provided by MECON, it was deemed fit to select them as consultant for the modernisation project. The reply of the Ministry is not convincing as the in-house consultancy wing of SAIL had developed expertise in steel technology over the years and their involvement in BSL modernisation in a bigger way would have minimised the project cost.

(ii) Consultancy with retrospective effect:    The modernisation project was approved by the Government in July 1993 but the agreement was entered into with MECON only in July 1994 and made applicable for a period of 87 months from January 1992. Thus, the consultant was engaged one and half years before the approval of the project, which resulted in expiry of the agreement period before completion of the project (March 2001).

(iii) No clause for imposition of liquidated damages:    No clause for imposition of liquidated damages or penalty was incorporated in the agreement in case of delay on the part of the consultant.

The Ministry’s contention that the consultant would continue to provide consultancy services during the extended period of project as the delay was attributable to them is not tenable. In the absence of a suitable penalty clause, there is no safeguard available with the Company for compensating the financial loss due to failure of the consultant.

(iv) Other shortcomings:    In the following areas the consultant failed to recommend the optimal facilities/equipment which could have been beneficial to the Company.

• For steel refining, one Ladle Heating Furnace (LHF) and one Ladle Rinsing Furnace (LRF) were installed in September 1997 under CCD package. However, in January 2001, SAIL decided to convert LRF worth Rs.48.16 crore into LHF at an additional cost of Rs.15.30 crore as the latter displayed certain technical distinct advantages over the former such as lower of tapping temperature, increase in lining life of converter, reduction in return heats etc.

• The newly constructed CCD in TISCO and RINL adopted hot tundish lining practices because of its superiority over cold lining practice which was adopted by BSL. RSP is also contemplating to switch over from the cold tundish to hot tundish lining. This is now being envisaged to be taken up at BSL as an AMR scheme.

As per the sanction of the Government in July 1993, the modernisation process of BSL was to be completed within 4 years i.e. by July 1997. However, even after a lapse of 50 months from the scheduled date of completion, the project still lies incomplete (September 2001). None of the packages was completed in time and the delay ranged between 3 and 39 months as per the details given in Annexure-XV. It would thus be seen that although all the indigenous packages were completed by September 1999, one global package (RHF-2) remains to be completed (September 2001).

The main reasons for delay as reported by the Management were delay in submission of drawings and specifications by VAI, ABB, MECON and L & T, delay in supply of equipment by VAI/L&T, ABB, SMS (AG), delay in equipment erection by VAI/L&T and TGS, delay in replenishment of stocks for missing /damage items, delay in testing and trial run, delay in execution of civil work by HSCL and SMS (India) etc. In addition to above, acute cash problem, inadequate mobilisation of manpower and construction equipment by some of the major contractors like HSCL, HEC, BHPVL, lack of co-ordination between principal contractors and their associates, failure of the principal contractors in their leadership role to motivate and organise the resources efficiently and effectively were also responsible for overall slippage.

The time over-run could have been avoided to a great extent, had the Company taken the measures like (a) proper scrutiny regarding capability and competence of the parties, (b) strict adherence to the terms and conditions of the contract, (c) retaining one officer as project in charge until completion of the project, (d) fixation of responsibility of the core group members for each package and utilisation of their services uninterruptedly without any transfer to other departments until completion of the package and (e) fixation of responsibility among various agencies for each stage of delay.

The Ministry stated (August 2000) that the project in charge and other officer/core group member for each packages were generally not shifted / transferred / disturbed mid-way except either on superannuation or in special circumstances. They further added that unless the whole project was completed and detailed analysis of delay on overall basis was made, exact responsibility for delay could not be pinpointed.

The reply of the Ministry is not tenable as two project in-charge officers and one core group member each from CCD and HSM packages were transferred/retired mid-way before completion of the project. Detailed analysis for delay in respect of completed schemes, could have been done and necessary steps to fix the responsibility for the delay initiated so that a procedure could be set for others.

It was observed that SAIL suffered a loss of contribution amounting to Rs.1161.50 crore during the period from August 1997 to March 1999 due to delay in completion of the project.

The Ministry of Steel, while conveying the sanction of the Government in July 1993 for Rs.1625.79 crore, had indicated that SAIL would be fully responsible to the Government to complete the project within the time and cost estimate ensuring at the same time that there was no loss in the current production.

In June 1994, SAIL submitted a Revised Cost Estimate (RCE) of Rs.1792.90 crore to the Ministry of Steel based on tenders finalised. The increase in the project cost was mainly on account of price escalation and under-estimation. The RCE was approved by the Ministry of Steel in August 1994. In this connection it may be mentioned that as per the guidelines of the Ministry of Finance dated 24 August 1992, Administrative Ministries were competent to sanction the revised cost estimate provided the project was completed within the original approved time cycle. In respect of the change in the project time cycle, the normal procedure of referring the RCE to Government would be required.

It was observed that in respect of Reheating Furnaces no. 2 and 3 package, the contractual completion period was reckoned as September 1997 as against the overall approved commissioning date of July 1997 for the modernisation scheme. Thus, there was a change in the project time cycle for which approval of Government was necessary. However, MOS approved the RCE of Rs.1792.90 crore in August 1994 without referring the matter to Government. Interestingly, the work of RHF no. 2 had not yet been commenced (March 2001) while RHF no.3 was commissioned in January 2000 only (i.e. after a delay of two years and four months).

The Ministry stated (August 2000) that there was no shift in the project time cycle as RHF-4 and RHF 3 or 2 would be available within 31 months from the effective date of contract i.e. by October 1996 against the project completion schedule of July 1997. The reply of the Ministry is not tenable as the modernisation scheme envisaged conversion of two RHFs (No. 2 and 3) which were to be completed within 42 months i.e. by September 1997. Thus, there was shift in the project time cycle at least by 2 months for which approval of the Government was necessary. But this was not obtained. Incidentally, work of RHF-2 had not yet been completed (March 2001).

The cost over-run of Rs.842.39 crore as per second RCE of Rs.2468.18 crore approved by SAIL in October 1999 was attributed to the following reasons:

The package-wise break-up of sanctioned cost, ordered value, expenditure upto March 2001 and the anticipated cost is indicated in Annexure-XVI. Package-wise break-up of sanctioned cost of indigenous packages, though called for, had not been furnished by the Management.

At the time of approval of project by Government in April 1993, the cost of the modernisation amounting to Rs.1625.79 crore was to be financed from internal sources of SAIL and borrowing from Steel Development Fund (SDF)/ external sources in the ratio of 1:1. SAIL indicated that it would arrange Rs. 812.84 crore from internal sources and the foreign currency requirement of Rs. 283.50 crore would be met through External Commercial Borrowings (ECB). The balance fund would be arranged from SDF loan/external borrowings.

SAIL also indicated the total fund requirement for capital projects during 8th plan period (1992-97) as Rs. 12480 crore. Of this, only Rs. 2844 crore was to be met from internal source and the rest Rs. 9636 crore from borrowings. Despite this, the Ministry of Steel proposed clearance of the project with a debt equity ratio of 1:1, which was approved.

The funding pattern of the project approved by the Government, the actual mode of financing as on 31 March 2001 and the rate of interest thereon were as under:

(Rs. in crore)

SAIL contributed only Rs. 36 crore from its internal sources against Rs.767.44 crore (excluding interest) as committed by them. Consequently, the debt equity ratio increased to 59:1 from 1:1 originally envisaged.

The Ministry stated (August 2000) that decline in net sales realisation from steel products, continued cost escalations coupled with capitalisation of modernisation schemes of Durgapur and Rourkela Steel Plant had given rise to difficult financial position of SAIL leading to non-availability of internal resources for the capital expenditure of BSL modernisation. As such most of the expenditure had to be met from borrowed fund resulting in adverse debt equity ratio.

• The burden of Interest During Construction (IDC) resultantly increased substantially from Rs.90.91 crore originally envisaged to Rs.551.56 crore (March 2001). This had obviously put the viability of the project in doubt.

• Unlike Durgapur and Rourkela, suppliers' credit at a relatively lower rate of interest could not be arranged from the global contractors. Foreign currency amounting to Rs. 75 crore (ECB ) could be arranged against the requirement of Rs.283.45 crore.

• At the time the project was selected for approval, its viability was very attractive with an IRR of 22.6 per cent. This was highly optimistic as the IRR was calculated on the assumption of 100 per cent capacity utilisation and full sales realisation even after the decontrol of the Steel sector. The effect of liberalisation i.e. increased competition was not considered and visualised at the time of approval of the project.

The Ministry stated (August 2000) that the project was appraised by SBI Caps, an independent financial agency and was found to be viable with IRR at 17.79 per cent. It was however, observed that SBI Caps report further stated that based on the current prices of finished goods, the IRR would be 7 per cent only and project was highly sensitive to sales realisation. With the present down turn in the sales realisation due to excessive capacity building in HR products, there is no likelihood of changes in the fortune of this project in foreseeable future.

The table below indicates the installed capacity and production of major products there against during pre-modernisation and post modernisation period:

(In lakh tonnes)

Figures in the bracket indicate percentage of capacity utilisation.

It would, therefore, be observed that:

• envisaged production of 45 lakh tonnes of crude steel and 37.80 lakh tonnes of saleable steel after modernisation was not achieved due to closure of a BF and 2 coke oven batteries 5 years ago primarily as a result of sluggish market conditions and stiff competition not only from indigenous private firms but also from foreign companies. The actual production of crude steel and saleable steel stood at 33.53 lakh tonnes and 32.46 lakh tonnes during 1999-2000 and 36.35 lakh tonnes and 33.13 lakh tonnes during 2000-01 respectively. In fact, during 1999-2000 it registered a negative growth rate of 16 per cent and 14 per cent respectively (with respect to capacity) over pre-modernisation period of 1993-94;

• basic objective of introducing the continuous casting technology was to bring about improvement in the quality of steel products. However, even after modernisation of the plants, 3.27 lakh tonnes of defective/off-grade steel were produced during the year 1998-99 and 1999-2001;

• during 1999-2000 and 2000-01, 2.74 lakh tonnes of defective products were sold at a loss of Rs. 59.75 crore as compared with the net sale realisation value (NSR) of good products.

The main saleable steel products of the plant are HR plate/coil, HR sheet, CR coil/sheet and galvanised plain/corrugated sheet. The envisaged production as per modernisation scheme, production/sales plan, actual production and despatch of these products during 1998-1999 to 2000-2001 were as under:

(In lakh tonnes)

*    Total capacity of product

The following points deserve mention:

• modernisation scheme did not envisage sale of slab. However, 7.36 lakh tonnes of slab were produced between 1998-99 and 2000-01 against the annual plan of 2.50 lakh tonnes during these period. Of this, 3.59 lakh tonnes of slab were sold directly by the plant during 1999-2000 at an average NSR of Rs.7877 per tonne which was far below the average price of Rs.10016 per tonne fixed by the Central Marketing Organisation (CMO) of the Company.

The Ministry stated (August 2000) that the prices fixed by CMO and BSL could not be compared on like to like basis since BSL prices were generally firm, while CMO offered various rebates, discounts , incentives etc. to push up the sale.

The reply of the Ministry is not acceptable as it was observed that even after allowing various rebates / discounts etc., the NSR of BSL slab sold by CMO during 1999-2000 through its stockyards was Rs. 8359 per tonne. Thus, sale of slab by the plant at a lower price resulted in a loss of revenue of Rs.17.30 crore.

• analysis of cost of production and NSR of finished products (including semis) for the year 1998-99 revealed that the profit margin in case of HR coil was highest at Rs. 2173 per tonne whereas it was negative (Rs.958 per tonne) in case of slab. Despite this, only 6.56 lakh tonnes of HR coil was produced for sale during 1998-99 against the plan of 10.10 lakh tonnes. It was observed that entire quantity of HR coil produced by BSL during 1998-99 and 1999-2000 could be sold within the respective years. Thus, failure of the plant top Management to produce 3.54 lakh tonnes of HR coil less for sale during the 1998-99 resulted in a loss of profit margin of Rs.76.92 crore;

• plant also produced 1.33 lakh tonnes of HR thick plates (sub-standard quality) during 1998-99 to 2000-01, which was not envisaged in the modernisation scheme. Since the NSR of HR thick plate is much lower than that of HR Coil, the production of 1.33 lakh tonnes of HR thick plates resulted in a loss of Rs.43.61 crore during 1998-1999 to 2000-01.

6.1.10.2    Techno-economic parameters

The major techno-economic parameters as envisaged in the modernisation scheme, actual position before modernisation in 1993-94 and after modernisation i.e. during 1998-99 to 2000-01 are indicated below:

It would be seen from above that the plant could not achieve the projected norm in any of the parameters except in the yield of CCD and labour productivity (2000-2001).

• specific heat consumption per tonne of HR coil was abnormally high at 1.075, 0.974 and 1.032 G. calorie during 1998-99 , 1999-2000 and 2000-01 respectively as against 0.576 G. calorie envisaged. This resulted in an excess consumption of heat to the tune of 3.77 million G. calorie valuing Rs.120.98 crore during 1998-99 to 2000-2001;
• labour productivity during 1998-99 was far below the projected norm of 113.18 tonnes/man/year and was even below the productivity level achieved during pre-modernisation period;
• tap to tap time in SMS-II have also increased from 71 minutes in 1993-94 to 99 minutes in 2000-01.

The Ministry stated (August 2000) that labour productivity during 1998-99 was low on account of less volume of production due to gestation period of ongoing modernisation activities as also depressed market conditions.

The financial performance of the plant since 1992-93 was as under:

(Rs. in crore)

The following points deserve mention:

• plant registered a loss of Rs.164.61 crore in 1998-99 after 18 years of earning profit due to capitalisation of CCD and HSM which resulted in increased incidence of interest and depreciation that stood at Rs.501.96 crore and Rs.199.49 crore respectively as against Rs.391.94 crore and Rs.140.49 crore during 1997-98. The loss of Rs.164.61 crore during 1998-99 was understated by Rs.34.47 crore due to under-charge of depreciation and other expenses due to delayed capitalisation of CCD (Rs.32.54 crore) and capitalisation of revenue expenditure (Rs.1.93 crore)
• during 1999-2000, the plant received financial relief aggregating Rs.917.80 crore from the Government of India. The financial impact of such relief in the profitability of BSL worked out to Rs.264.46 crore;
• plant made a profit of Rs.49.17 crore during the year 2000-01. This profit was overstated by Rs.180.19 crore due to non-provision against stores/spares declared surplus/ not moved for the last ten years, overstatement of sales, non-provision against outstanding advances, valuation of mixed coke, non-provision of depreciation etc;
• as against the envisaged sales realisation of Rs. 5178.59 crore after modernisation, the actual net sales was only Rs. 4396.24 crore.

(a) Avoidable Engagement of Foreign Experts:    A contract with Voest Alpine Industrial Service (VAIS), Austria was signed on 9 December 1997 for engagement of VAIS's experts for a period of 15 months at a cost of Rs.26.26 crore for providing technological, operational and maintenance support services for stabilisation of CCD.

The scope of supply and services of Voest Alpine Industrianlagenbau, Austria (VAI) under CCD package included inter alia, design, engineering, testing, commissioning, training and demonstration of performance guarantee. Accordingly, 105 personnel were sent to Austria and Germany for undergoing training in CCD and HSM operation. Some employees were also trained at Bhilai Steel Plant where CCD was already in operation. Further, CCDs were already in operation in other steel plants of SAIL. In view of above, engagement of VAIS for operational and maintenance services at a cost of Rs.26.26 crore lacked justification. Of this, an amount of Rs.21.94 crore had already been paid to VAIS.

The Ministry stated (August 2000) that deployment of VAI’s personnel was made to ensure early stabilisation and achievement of rated capacity of CCD. It was, however, observed that VAI’s personnel took up the work at CCD in December 1998 when the production had already stabilised i.e. it reached a production level of 76 per cent of the budgeted production. As such, engagement of VAI’s personnel for stabilisation of production in CCD was not justified. It is interesting to mention here that performance of VAI’s experts in CCD was not found to be satisfactory by the plant Management.

Similarly, experts from VAI, Austria and GFA, Germany were engaged in November 1998 for improvement and stabilisation of production of Hot Strip Mill (HSM) at a cost of Rs.8.73 crore. HSM was under hot trial run between July 1998 and October 1998 and within a period of less than 3 months, it reached a production level of 2.25 lakh tonnes of HR coil against the rated capacity of 3.29 lakh tonnes per month. The Company incurred an expenditure of Rs.10.56 crore on engagement of experts.

The Ministry stated (August 2000) that in order to overcome various post commissioning problems and also to ensure early achievement of rated capacity and stabilisation of the new system, it was felt necessary to take the help from SMS (AG) and VAI.

It was observed that Final Acceptance Certificate (FAC) in respect of HSM package had not yet been issued. As such rectification of post-commissioning defects, if any, lies with the package suppliers. Further, the plant had already achieved 68 per cent of its capacity by October 1998 and as such engagement of foreign experts in November 1998 for stabilisation and improvement of production at a cost of Rs.10.56 crore was avoidable. Of this, an amount of Rs.7.28 crore had already been paid to foreign experts although FAC had not yet been issued.

(b)  Financial Assistance to PSUs:    A Public sector undertaking viz. HSCL faced acute financial problem in executing their work and asked Management to provide them with financial assistance. Although BSL had to borrow substantial funds at commercial rate of interest (12.5 per cent average), financial assistance amounting to Rs.15.33 crore was provided to HSCL between April 1996 and November 1998 without any specific work. Further, no effort was made for recovery of interest amounting to Rs. 7.46 crore from the contractors.

It was also observed that ad-hoc advance amounting to Rs.18.33 crore was paid to two PSUs - HSCL (Rs.8.80 crore) and HEC (Rs.9.53 crore) for the release of payments to their sub-contractors beyond the contractual obligation.

The Ministry stated (August 2000) that the advances were released in the interest of the work. Had such advances not been paid, progress of work at site would have suffered.

(c) Non-utilisation of trained manpower:    The manpower requirement of modernised units was proposed to be met by deployment of personnel from the existing work force after providing training. Accordingly, 105 personnel were trained by package suppliers at a cost of Rs.4.50 crore. It was observed that of the 105 personnel, 6 had already retired before issue of FAC, 12 personnel were continuing in project division and 2 persons from CET, not related with the operation and maintenance of the plant, were also given training.

The modernisation programme of BSL which was conceived in 1987 so as to encompass entire mid-stream facilities like Steel Melting Shops I and II and introduction of continuous casting facilities in both SMS units and up gradation of Hot Strip Mill had neither been completed fully as yet (September 2001) nor have the entire envisaged benefits have accrued to the plant. Though the original proposal approved by SAIL Board in February 1990 aimed at modernisation of BSL in two stages at a cost of Rs. 1600 crore, even the stage-I of the modernisation programme had not been completed as on date. Due to radical changes in the steel sector consequent upon liberalisation of the Indian economy in 1991-92, the investment in stage-I of the modernisation programme of BSL had not yielded results as the net sales realisation envisaged at the time of approval by Government of India in July 1993 has come down in absolute term also during last eight years due to excess capacity building of flat products in the country, fall in the international prices of Hot Rolled coils and import restrictions on steel in some of the foreign countries.

Thus, BSL have neither achieved its objective nor have improved its financial position after an investment of nearly Rs. 2346.45 crore in modernisation programme as compared to its position before modernisation era.

6.2    Township Management

6.2.1.1   Steel Authority of India Limited (SAIL) has four integrated Steel Plants located at Bokaro in Jharkhand (BSL), Rourkela in Orissa (RSP), Bhilai in Chattisgarh (BSP) and Durgapur in West Bengal (DSP) for producing Iron and Steel. The steel plants have separate townships for employees.

The townships contain, inter alia, residential quarters, shopping complexes, community centres, educational institutions, hospitals and public gardens. The construction of townships and their further development and maintenance are the sole responsibility of the plant management under the overall guidance of Board of Directors of the Company. Management provides basic infrastructure amenities like electricity, water, sewerage and roads etc. in the township. The Company has also been providing official as well as residential accommodation to Central/State Government officials residing in the townships.

The Board of Directors decided in January 2001 to give on lease/sub-lease the vacant/surplus quarters in the steel townships to employees/ex-employees of the Company so as to generate financial resources. The Company plans to generate Rs 500 crore during 2001-02.

6.2.1.2  Scope of audit:    A review of Management of plant townships located at Bokaro, Rourkela, Bhilai and Durgapur was conducted and the system of acquisition/leasing/sub-leasing of land, allotment of quarters / shops and maintenance of township were audited. The review was issued to the Ministry in December 1999 and their reply was received in January 2001, which has been incorporated in the report. The review has been updated until 2000-2001. The audit findings are given in the following paragraphs:

Land measuring 113307.26 acres (as on 31 March 2001) was acquired at various stages from different State Governments as well as private parties for construction of steel plants and townships. The Acts governing the acquisition were Land Acquisition Act, Bihar, 1894 (for BSL), Orissa Development of Industries, Irrigation, Agriculture, Capital construction and Resettlement of Displaced Person (Land Acquisition) Act, 1948 (for RSP), Land Acquisition Act, Madhya Pradesh, 1894 (for BSP) and Land Acquisition Act, West Bengal 1894 (for DSP). The land acquired included both forest and non-forestland.

(Area in acres)

Note:    State Government gifted to BSL 4378.675 acres of land.

It would be observed from the above table that:

(a)    There was discrepancy in the area of land acquired by BSL and BSP to the extent of 2353.46 acres and 2548.35 acres respectively. The Company has not reconciled this with the respective State Governments even after lapse of about 41 years. In DSP, 531.23 acres of land acquired were transferred back to the Government of West Bengal between 1959 to 1983 for various purposes viz. setting up of colleges, city centres, housing, etc. and 21.28 acres of land is in litigation.

The Ministry stated (January 2001) that reconciliation was done in September 1999 in respect of BSL and difference has now come down to 221.52 acres.

(b)    Under the provision of Land Acquisition Act, the Company was required to enter into an agreement with the State Government in the shape of deed of conveyance, which is a transfer of right to enjoy such property, by the transferee/lessee. The Company was not able to get the title deeds for the 47.64 per cent area of land although the land acquisition process started in late fifties and early sixties. Deeds of conveyance were not executed for 13117.70 acres, 262.57 acres and 9311.77 acres of land in respect of RSP, BSP and DSP respectively. In BSL, deeds of conveyance were not executed for the entire land held by it.

The Ministry stated (January 2001) that all efforts were being made to get the title deeds of the land in the Company’s name. The fact however, remains that entire land had not been registered in Company’s name.

(c)    For construction of steel plant at Bokaro, Government of Bihar proposed to give Government Land (Gair Mazarua and Forest Land) free of cost and Raiyati land (from private landowners) at a ceiling price to be paid by the proposed steel plant (Bokaro). It was also agreed that any amount paid to the private landowners beyond ceiling price would be borne by the State Government. The ceiling price for land under 1956 notification was Rs.1900 per acre and that under 1964 notification was Rs.3800 per acre.

Consequent to the amendment of Land Acquisition (LA) Act in 1984, the landowners filed suit in Court of law for additional compensation, which was granted by the court. Thereafter, Government of Bihar claimed Rs.52.17 crore towards decretal demand (Rs.10.07 crore) and due to amendment of LA Act (Rs.42.10 crore) from BSL. Although the State Government’s claim was not accepted by the Company on the ground that the plant’s liability was restricted to the ceiling price only and any amount in excess of ceiling price was to be paid by the State Government on account of a decision conveyed by the Government of India to Bihar Government in 1955, the issue has been left unattended until now. As a result, deed of conveyance had not been executed in favour of BSL. In reply, SAIL stated that as for Raiyati land, Government of Bihar had put condition of payment of decretal amount before signing the deed during discussions.

The Ministry stated (January 2001) that claim of Bihar Government had not been accepted and State Government had been requested for review of their stand. The fact however, remains that non-settlement of claim during last four decades had been delaying the execution of title deeds.

(d)    In BSL, State Government did not deliver 824.85 acres of land although the Company had paid compensation for the same. Special Land Acquisition Officer of the State Government stated that all the raiyats of the land were not ready to vacate the land before getting benefit in the form of decretal amount and a job in the plant and as such the matter was pending. Thus possibility of getting the possession of 824.85 acres of land from the State Government in future appeared to be bleak.

The Ministry, however, did not agree to the contention of Special Land Acquisition Officer and stated that employment to the displaced persons had already been provided. The fact, however, remained that BSL is yet to get the possession of 824.85 acres of land from State Government due to lack of effective follow up action.

(e)    The land utilised by RSP did not include 11,871.30 acres used for the Mandira Dam Project. The Hirakund Dam Project constructed this dam and subsequently RSP was allowed to utilise the project for its water requirement. No formal ownership was available with the plant Management.

The Ministry stated that there was no precondition for execution of any agreement. Hence, no agreement was made with State Government. However, at the instance of the State Government, RSP was in the process of finalising terms and conditions of agreement.

The Ministry’s reply is not convincing as RSP had already entered into agreement with the State Government for most part of land already acquired and the plant should have entered into an agreement for Mandira Dam as well.

(f)    BSL deposited Rs.11.55 crore during the period 1963 to 1992 in the revolving fund of State Government for payment of compensation to landowners. Out of this, the State Government could not utilise Rs.3.68 crore for payment of compensation beyond the ceiling price, which was required to be refunded to the Company. The amount could neither be realised so far nor adjusted with other claims of State Government (September 2001).

Out of the total 113307.26 acres of land acquired by the four integrated Plants, 36218.60 acres of land could not be utilised for the purposes for which it was acquired. Unutilised area of the land was either leased out to other agencies or transferred to Government agencies or were still lying vacant until date as indicated in the table below: -

(Area in Acres)

As per provisions of the various Land Acquisition Acts of State Governments, sub-lease/sale of land was not permissible without prior approval of the Government. However, the Company had leased out 3388.61 acres of land to State Government, Central Government Department, Public Sector Undertakings, Educational and Cultural Organisation, Co-operative Societies of employees/ex-employees of SAIL and various private bodies for the purpose of construction of office, school, housing complex, shopping complex, residential hotels, petrol pumps and cinema houses etc., in violation of norms and legal provisions. The Plant wise position is indicated below:

(Area in acres)

(i)    As per provisions contained in Land Acquisition (Companies) Rules, 1963 and model form of agreement for acquisition of State land incorporated in Bihar Government Estate (Khas Mahal) Manual, 1953, the grantee shall not use the land for any purposes other than those for which the land was acquired. In event of non-execution of deed of conveyance, the industry concerned was not authorised to deviate from the purpose for which the land was granted except with the previous sanction of the Government.

However, it was observed that BSL sub-leased 423.03 acres Government land to various agencies for purposes other than the stated objectives of the plant without the State Government’s approval although no legal ownership vested with the Company. Of this, 248.52 acres were sub-leased to private agencies for various purposes including commercial use viz. marketing complex, residential hotels, petrol pumps, cinema houses etc.

The Ministry stated (January 2001) that the land was leased out for providing civic amenities and development of infrastructure facilities in the township. The fact remains that legal provision regarding utilisation of Government land was violated and no previous sanction of the Government was obtained. The Government had also objected to such sub-leasing of land from time to time.

(ii)    90 acres of land was allotted to the Bokaro Steel Employees’ Co-operative House Construction Society Limited on lease basis in September 1968 for construction of houses for serving and retired employees without approval of the State Government. It was found that in addition to this, the Secretary of the Society occupied 13 acres of land, which were distributed among the members in May 1992 for Rs.59.61 lakh. The amount has not deposited with BSL. No action was taken by the Company to evict the unauthorised persons.

The Ministry confirmed that society had encroached land for distribution among members.

(iii)    A piece of land measuring 21600 Sq. ft. was leased out in May 1967 in favour of two private individuals namely Shri Damadar Sahay and Shri M.M.P. Verma jointly. The Company fixed a monthly licence fee of Rs.500 each renewable twice in a year for construction of a temporary Cinema Hall without the approval of State Government. Subsequently, the party was allotted another piece of land measuring 61200 sq. ft in April 1976 for constructing a permanent cinema hall on 30 years’ lease again without the approval of the State Government. BSL also asked the party to convert the temporary cinema hall into a permanent one. As the party did not show any interest in this regard the lease agreement was terminated with effect from 5 October 1980. Management obtained eviction order from the Estate Court. However, the party obtained stay order from the Higher Court. The party had not vacated the land so far (March 2001)

(iv)    Non-revision of charges for allotment of land at BSL: In 1979, the Company approved guidelines for allotment of land to private parties/government departments/PSUs/educational, religious, cultural organisations. As per guidelines, on allotment of land, cost of land (Rs.4500 per acre), land development charges (Rs. 1 lakh per acre), land premium (Rs.25, 000 per acre to Rs. 2 lakh per acre), and annual ground rent (1 per cent to 10 per cent of land premium) were payable. Plots of BSL lands ranging between 0.25 acre and 10 acres were allotted to various organisations.

It was found that the rates were not revised for 18 years until July 1997. In July 1997, the SAIL Board revised the rates of cost of land and land development charges by 900 per cent. A new rate of premium for land and infrastructure was introduced in case of private parties/government departments stipulating minimum premium as Rs. 1 lakh per acre for land and Rs. 24 lakh per acre for infrastructure. Annual ground rent was revised and fixed at a flat rate of 2 per cent of premium. A further revision in rates of premium was made in September 2000.

The Plant collected Rs. 2 crore from lessees viz. central and quasi- government departments, commercial establishments, cinema halls and educational institutions as premium. As per lease agreement, 50 per cent of the premium collected i.e. Rs.99.99 lakh was to be deposited with State Government. However, an amount of Rs.85.75 lakh only was deposited leaving a balance of Rs.14.24 lakh (31 March 2001).

The Ministry stated (January 2001) that some parties had asked for refund of premium before execution of sub-lease agreement. As such, advance payment of Government share of premium may create complications.

(i)    Bhilai Steel Plant transferred (on freehold basis) 4132.98 acres of land between 15 February 1961 and 23 September 1991 to 30 different government/semi-government departments/organisations and autonomous bodies. It was observed that the rates at which the land was transferred by BSP were much lower compared to the Minimum Upset Price (MUP), i.e. the minimum rates which the MP Government would have charged for the cost of land fixed from time to time as per Para 23 of Part-4 of Section-1 of MP Revenue Book Circular. Of this, 1920 acres were transferred in October 1977 and 290.26 acres in October 1989 to Special Area Development Authority (SADA), Bhilai, an autonomous body constituted by the Government of Madhya Pradesh at the rate of Rs.561 and at the rate of Rs.744 per acre respectively against the minimum upset prices of Rs.40,075 and Rs.2,17,748 per acre prevailing on the said dates of transfer. The under-valuation of property with reference to the minimum upset price of MP Government worked out to Rs.13.89 crore. The price was also much lower than the BSP’s own rate of one lakh per acre (prior to 1979) and two lakh per acre since 1979. Thus the plant incurred a loss of Rs.24.88 crore due to under-valuation of land.

The Ministry stated (January 2001) that SADA was treated as an integral part of the MP Government. Hence the system followed for transfer of land to MP Government was followed for transfer of land to SADA. The Ministry’s reply is not tenable as SADA was an autonomous body and not a part of the Government.

(ii)    In June 1980, SAIL approved construction of 2000 dwelling units at BSP for its employees on lease basis under non-Company housing scheme for which 172.54 acres of land was utilised. The dwelling units were constructed under AMDI Housing Scheme between December 1985 and December 1988 with the assistance of HUDCO. It was observed that the Company did not obtain State Government’s permission before taking up the scheme.

It may be mentioned here that the Government of West Bengal had not agreed to a similar proposal sent by DSP. In fact, it had directed DSP (March 1981) to relinquish the required land in favour of the State Government who in turn allotted the land directly to the employees of Government departments. The same procedure was not followed in BSP. Incidentally, the Government of Madhya Pradesh had also refused to give permission to BSP for the second phase of AMDI Housing Scheme and directed it to surrender the excess land holding.

Further, out of the 2000 dwelling units constructed at BSP only 24 units were registered and the Company could not collect ground rent and service charges from December 1988 onwards.

The Ministry stated (January 2001) that no permission of State Government was necessary as the land was given by Central Government to BSP. The Ministry’s reply is not tenable as the lease deed could not be registered in absence of prior permission and plant could not collect the ground rent and service charges.

(iii)    BSP allotted 23100 Sq. ft. of land to a private party in 1982 for construction of a permanent cinema hall. Subsequently, another piece of land measuring 8400 Sq. ft. adjoining the above area was also allotted to the party in 1987. Approval of the State Government was not obtained in both the cases. Further, the owner of the hall started screening Video shows and opened a restaurant and Gymnasium in the Cinema hall complex violating the provision of the MP Cinema (Regulation) Rules 1972.

The Ministry stated (January 2001)that prior to allotment of land, NOC was obtained under Urban Land Ceiling Act. Examination of NOC however reveals that NOC was issued for allotment of land on lease without specifying the purpose for which the land was to be used. The restaurant has since ceased to function but the gymnasium is still functioning.

(iv)    Shop-owners of BSP Township requested the Company in 1989 to change their status from licensee to lessee. The Company agreed to their request in 1991 and 1992 and accorded lessee status to 550 shop-owners. This process had also passed the legal right of the land on which the shop was constructed to the shop-owners. The grant of leasehold status to the shop-owners was irregular as section 44A of the Land Acquisition Act 1894 did not authorise the plant management to sell, mortgage, gift or lease any part of the acquired land without the permission of the State Government.

The Ministry stated (January 2001) that the land for Bhilai was not acquired under Section 44A of Land Acquisition Act, 1894. Hence no prior permission is required. The contention of the Ministry is not tenable, as the deeds of conveyance could not be executed without the prior permission of the State Government.

6.2.2.3.4    Durgapur Steel Plant

(i)    The Plant Management decided in 1972 to create a zonal shopping complex in Zones A and B, where shop-owners would be permitted to construct residential accommodation on the first floor of the shop. Open tenders were invited in 1974 but as there was poor response in respect of B Zone, and the proposal was subsequently dropped. On the basis of offers received, 23 plots were allotted to 16 persons in Zone A. State Government’s permission was also not obtained before leasing the land. The plots were leased out to private parties without incorporating a clause prohibiting third-party transfer of the plots. Subsequently Management noticed that a large number of third-party transfers had actually taken place and none of the allottees were carrying out business for the purpose of which the land was allotted.

The Ministry stated (January 2001) that eviction action for third-party transfer could not be effected as there was no clause in the lease deed barring such transfer. Action was being taken to make the scheme purposeful. Thus, due to defective lease deed, unauthorised transfers were made.

(ii)    Land measuring 70.17 acres was allotted to various institutions on lease basis without approval of the State Government. Out of this, 10 acres was allotted to a cultural organisation Durgapur Children Academy of Culture in November 1998 at pre-revised rate even though the allotment rules were revised in July 1997. The Ministry stated that land was allotted at pre-revised rates with the approval of SAIL’s Board of Directors.

6.2.2.3.5   Other Irregularities

(a)    DSP leased out to various educational institutions without State Government’s permission and without charging any premium and only negligible annual rent. Further, the terms and conditions for lease deed with each organisation were not similar. A test check of records revealed that the lease deed signed with Aurobindo Vidyamandir (1996) stipulated that 60 per cent of SAIL wards must be admitted in the school subject to fulfilling normal admission criteria. No such clause was incorporated in the lease agreement with St. Xaviers School signed in 1973 and Carmel Convent in 1976.

Further, in respect of the following educational institutions, no lease deed was registered:

The Ministry stated (January 2001) that the terms of lease was in accordance with the approved policy in vogue at the time of allotment and are therefore not similar.

(b)    As on 31 March 1999, ground rent of various plots of land amounting to Rs.12.11 lakh was outstanding. Of which, 12.03 lakh pertained to government institutions. Out of Rs. 12.03 lakh, Rs.10.34 lakh remained outstanding for more than 3 years. The main defaulters were Regional Engineering College (Rs. 5.58 lakh), South Bengal State Transport Corporation (Rs. 1.62 lakh) and Mining and Allied Machinery Corporation Limited (Rs.1.15 lakh). The departments disputed the dues and the matter was unresolved. (March 2001)

The periods of lease for different institutions were not uniform and ranged between 30 years and 99 years. No rational basis was on record for determining the lease period. It was seen in audit that out of the 192 nos. of leases executed for allotment of lands, lease period in respect of 5 lessees had already expired, as indicated below:

(Area in acres)

The lease agreements were neither renewed so far nor any action taken to get the land vacated. The Ministry stated that action for renewal of lease agreement has been taken.

(c)    DSP transferred 1039.25 acres of land to Alloy Steels Plant (ASP). ASP, in turn, leased out 4.834 acres, 0.29 acres and 2.7 acres to Damodar Valley Corporation (DVC), United Bank of India (UBI) and Indian Oxygen Limited (IOL) respectively. All the lease deeds expired long back. The deeds have neither been renewed nor lessees been evicted by the lessor so far.

Non-utilisation of vacant land for a long time led to encroachment/unauthorised occupations by various agencies for construction of jhopris, shops, khatals etc. The plant-wise position is indicated below: -

(Area in acres)

It would be observed from the above that the DSP was having the highest percentage of unauthorised occupation, where 1165 acres of land had been unauthorisedly occupied by various agencies as per the latest survey of land. However, BSL conducted no such survey to find out the quantum of land held under unauthorised occupation although the plant management admitted that encroachers had occupied some portion of land.

The value of the land unauthorisedly occupied by the various agencies in the three plants of SAIL excluding BSL worked out to Rs.387.04 crore as per the Company’s own valuation rate.

The Ministry stated (January 2001) that efforts were being made to curb/control the encroachment with the help of law and order authorities. However, it was seen in audit that there has been no improvement in the situation and a large area continues to be under unauthorised occupation.

6.2.3.1    Total number of residential quarters available, quarters allotted, quarters lying vacant and the number of employees in the waiting list as on 31 March 2001 is indicated below:

The Ministry stated (January 2001) that quarters of the area, which is in low demand remains vacant for longer period. In fact quarters are now surplus to the requirement, as such Company had initiated action to lease out the quarters to employees / outsiders. The reply of the Ministry does not explain the reasons for having such a large number of employees in the waiting list for allotment of quarters.

The Company had allotted 9906 residences to central and State Government departments, PSUs and others. The plant-wise position is indicated below:

It may be observed from above that:

• 1372 quarters (13.85 per cent) were allotted to others. Of this, 1021 quarters pertained to BSP, which were allotted to educational institutions (201), co-operatives/ employees’ co-operatives (673) and miscellaneous organisation (147).

• 74 residential quarters of DSP have been allotted to Police personnel. A sum of Rs.13.24 lakh was outstanding against police personnel /Superintendent of Police, Burdwan as on 31 October 1999 towards licence fee, electricity charges etc.

The aforesaid analysis shows that there is variation from plant to plant on allotment of quarters to different outside organisation. The Company had not fixed any norms for allotment of quarters to outsiders and there appears to be no uniform policy in all plants. The Ministry stated (January 2001) that allotment of quarters to outside organisations depended on local circumstances and no uniform policy could be followed.

The reply of the Ministry is not tenable as a multi-unit Company like SAIL should have corporate guidelines for allotment of quarters to outside agencies depending on the nature and activities of the allottees and their relation with the steel plant.

The plant wise details of unauthorised occupation as on 31 March 2001 were as under: -

Out of the total 1192 quarters unauthorisedly occupied, 811 quarters (68 per cent) pertains to BSL. Total no. of 993 quarters are occupied unauthorisedly by their employees and 199 by others.

The Ministry stated (January 2001) that the matter of unauthorised occupation was handled through Estate Officers (Court) and eviction of unauthorised occupation was carried out regularly. The fact remains that even after the effort of Management, unauthorised occupation is still very high.

The DSP management had identified 695 cases of subletting of quarters during the period from 1994 to 1998. Similarly 704 cases were identified in BSP, 155 cases in RSP and 95 cases in BSL.

(a)    In each plant, there exists Accounts and Revenue Section, which are entrusted with the work of raising bills towards licence fee, water tax, electricity charges and service charges etc. The bills are raised in the first week of the months subsequent to the month to which the bills relate. The total outstanding dues as on 31 March 2001 was Rs.35.99 crore as detailed below:

(Rs. in crore)

It would be observed from above that: -

• Government parties are the main defaulters (63 per cent). Out of total outstanding dues of all four plants, Rs.12.28 crore (53 per cent) pertained to BSL only.

• Outstanding from Private parties in BSL and BSP was 53.89 per cent and Rs.32.17 per cent respectively.

• 11.83 per cent of the dues were pending from the employees.

The Ministry stated (January 2001) that measures like recovery from bills of private parties, disconnection of service connections, etc are taken for recovery of dues. The amount of outstanding dues has however not reduced but has been increasing.

(a)    In BSP, an amount of Rs. 1.05 crore was recoverable from South-Eastern Railways on account of water-charges since 1991-92. The amount was recovered after being pointed out by audit.

Standard licence fee of different types of quarters in respect of RSP, BSP and DSP were fixed by the erstwhile Hindustan Steel Limited (HSL) long back. The standard licence fee for quarters constructed after formation of SAIL was fixed by the respective plant on completion of construction.

It was observed that though the salary revision for executives and non-executives has been taking place regularly every five years, BSL and BSP did not revise the standard licence fee during last twenty years. In RSP the standard licence fee for employees (executives/non-executives) has not been revised in last 28 years since 1973, though in case of non-employees’ licence fee was revised in 1996. In DSP the licence fee for new built houses and for executives was revised in 1993 and 1999 respectively but for other employees/non-employees, no such revision taken place so far.

Similar rules in the Government of India provide that the standard licence fee was to be re-calculated after expiry of every 3 years from the date of last calculation, such an exercise was not carried out in any of the Plant (except in the case of DSP for executives) by the Company.

The Ministry stated (January 2001)that due to objections from trade unions, license fees have not been revised. Standard licence fee should be revised every three years in accordance with the increase in maintenance cost. Further since 100 per cent neutralisation is being given to employees to meet the rise in cost of living, there is no reason as to why full cost recoveries in respect of maintenance cost of the quarters be not effected.

The Accounts and Revenue Department of each plant is entrusted with the work of presenting the bills for license fee, water charges, electricity charges and other charges on regular basis.

The following points were noticed:

• As per the rules an employee who has resigned/retired/discharged/ terminated/transferred was not allowed to retain the quarters for a period exceeding two months from the date of superannuation or otherwise except with the permission of Management. Violation of this procedure attracts penal rent and the occupants are treated as holding the quarter unauthorisedly.

• There were 44 cases of unauthorised occupation at BSP as on 31 March 1999 by others i.e. not directly related to the plant and consequently rent and other charges amounting to Rs.1.53 lakh were not recovered.

• The Bills in respect of 15 quarters occupied by retired/superannuated employees of DSP were not raised. The period of such occupation ranged between 6 months and 36 months.

• The Rent and other charges in respect of 141 quarters allotted or retained by widows/dependants of deceased employees of DSP were not billed. The retention period of these quarters ranged between 6 months and 40 months.

The Ministry stated (January 2001) that the rent of retired / superannuated employees and also from the widow/dependent is recovered from the final payment of the concerned employees. As regards 44 cases of unauthorised occupation at BSP by non-employees, the Ministry has not stated anything.

The Enforcement/Eviction Department of Bhilai Steel Plant has set up Estate Court under the Public Premises Act, 1971 to prevent cases of unauthorised occupation of quarters, plots and lands. During 1994 and 1996, the Estate Court settled 52 cases of unauthorised occupation. An amount of Rs. 16.14 lakh was to be recovered as ‘dues and damage’ in 38 cases for the year 1994 and 1996 as per section 14 of Public Properties Act, 1971, for which a copy of the order was sent by the Estate Court to the Tehsildar, Durg, Madhya Pradesh. Due to lack of proper follow up of the case by the Estate Department, the entire amount in respect of 38 cases is yet to be recovered (March 2001). The Ministry stated (January 2001) that BSP has been following up with the Tahsildar, Durg for recovery of the dues.

Bokaro Steel Limited (BSL) supplied water at a total cost of Rs. 20.74 crore, to quarters allotted to employees/non-employees during 1997-98 to 2000-2001. Until 31 January 2000, no recovery of water charges from the employees as well as non-BSL agencies was made though other sister plants like DSP had been recovering water charges from non-plant agencies since long.

Bokaro Steel Limited (BSL) started raising the bills for water charges @ from Rs. 12/- to Rs. 35 per month with effect from 1 February 2000 from non BSL agencies to whom quarters were allotted. However, the water charges are not being recovered in respect of 32577 quarter allotted to own employees despite the fact that a large amount is being incurred in purchase, treatment and supply of water.

Had the full cost recovery of supply of potable water for domestic consumption from employees /non-employees been made, the loss during last 4 years could have been reduced by Rs.20.74 crore.

With a view to raise additional resources and to reduce maintenance cost of houses, a scheme to dispose of 25 per cent of Company's houses through leasing/licensing to its employees/ex-employees was introduced by the Company in May 2001. As per terms, the houses would be leased out initially for 33 years extendable for two further tenures of 33 years each on payment of one time premium. In addition, annual lease rent, service charges etc. would also be payable during the pendency of the lease. The average cost of one dwelling unit was assessed to be Rs.1.88 lakh by HDFC. The Company planned to raise Rs.500 crore during 2000-2001.

The scheme was launched on 1 June 2001 in Bhilai, Bokaro and Durgapur townships. However, the Company received only 939 applications from interested parties during the implementation period of the scheme. To get positive response, the scheme was further extended with some modifications.

Despite these changes, the Company could allot 707 quarters and mobilise Rs15.88 crore only upto September 2001.

All the steel plants of the Company had constructed shopping complexes for the benefit of the employees. Total number of shops in various plants as on 31 March 2001 was as under:

*    As on 31 March 1999

Following irregularities were noticed in the administration of the Shopping Complex:

RSP and BSP did not revise the licence fee of shops regularly and the last revision was made in 1996 and 1997 respectively. BSL has revised the same in January 2000 after initial fixation of rent in 1982 and DSP has revised only once in 1994. Thus, the license fee was neither revised regularly by the steel plants nor they adopted any uniform policy.

The licence fee of 640 shops belonging to DSP was fixed at the rate of Rs.0.18 per sq. ft. in early sixties and was enhanced to Rs.2.50 per sq. ft. from August 1994. However, no shop owner paid the enhanced rate of licence fee, and the amount not recovered worked out to Rs.113.28 lakh. The Ministry stated (January 2001) that on request from the shop owners the revised rates had been reduced and as such outstanding dues had also reduced. Although dues had reduced due to reduction in rate, the same had also not been realised.

71 shop-owners in BSL had not been paying the rent and other charges since 1995 and amount outstanding against them was Rs.71.50 lakh as on 31 March 1999. The Ministry stated (January 2001) that after March 1999 Rs.9.5 lakh has been realised.

RSP management have failed to bill 87 shops and attached flats for licence fee for a period ranging from 3 to 304 months. This has resulted in less revenue to the extent of Rs.13.93 lakh.

The Ministry had not accepted the audit comment and stated (January 2001) that bills were raised periodically and licence fees realised.

The Notified Area Council, (Steel Township) NAC (ST) came into existence with effect from 17 June 1963, which also took up development work in RSP township. Consequent on the declaration of RSP as an Industrial township from 15 April 1995, the NAC (ST) became defunct. In an agreement reached in October 1996 between SAIL and NAC (ST), RSP agreed to pay Rs.5.75 crore for the assets of the Council which existed within the steel township. The assets consisted of immovable assets (512 shops, including plots for shop), on-going works and public utilities. Although RSP made full payment as per agreement in August 1997 it (RSP) got possession of only 209 shops until November 1999. This resulted in blocking up of capital to the tune of Rs.1.13 crore being the pro-rata value of 303 shops not handed over to RSP and resultant loss of interest of Rs.33.99 lakh at the rate of 18 per cent per annum from August 1997 to March 1999. The Company also could not recover license fee and other charges from the shops originally allotted by NAC (ST), which amounted to Rs.6.08 lakh until March 1999.

The Ministry stated (January 2001) that out of 512 shops, 375 shops owners have made payment until 31 January 2000 and that there is no blocking up of capital. The Ministry’s reply is not tenable as out of 512 shops, RSP has taken over only 375 shops until January 2001 and possession of the balance 187 shops (pro-rata value Rs.82.77 lakh) have not been taken by RSP, the cost of which is blocked from November 1997 which resulted in loss of interest of Rs.35.87 lakh upto February 2001.

(a)    Out of 1581 shops, 41 shops were under unauthorised occupation at DSP. The annual loss of revenue in this regard worked out to Rs.7.20 lakh per annum.

The Ministry stated (January 2001) that licences of 41 no. of shops have been cancelled and cases filed with the Estate officer. However, 7 shops have so far been taken over by the plant.

(b)    A large number of unauthorised structures and stalls grew up all over the Township of DSP. Keeping in mind the unemployment situation, a self-financing rehabilitation scheme (SFRS) was drawn up with the approval of Managing Director. The schemes inter alia, envisaged cost of construction to be borne by the shop owners, which was to be deposited to DSP in advance and adjusted against the monthly licence fee. Under this scheme, 940 nos. of unauthorised temporary shops were converted into permanent shops. Thus through SFRS scheme the unauthorised shops were regularised by Management instead of evicting the unauthorised occupants. The Ministry stated (January 2001) that 940 shops under SFR schemes were built after due assessment of the situation and subsequent survey on this issue was conducted. Hence, there was no question of encouragement for further encroachment of land. The Ministry’s contention is not tenable as regularisation of unauthorised occupation certainly encourages further encroachment in anticipation of regularisation.

Shop rent, electricity and water charges recoverable from shop-owners as on 31 March of the last 8 years were as under: -

(Rs. in lakh)

BSP Management expressed their inability to furnish the outstanding dues from the shop-owners upto 31 March 1998 on the ground that their records were not maintained to show the dues of all shops together.

It may be seen from above that there have been steady and steep increase in outstanding dues over the years in RSP and DSP. The Company failed to recover even the electricity and water charges, which are procured on payment from outside agencies. In RSP outstanding dues from shop-owners increased abruptly from Rs.50.22 lakh in 1997-98 to Rs.1.19 crore in 2000-2001. While in DSP these have been three-fold increase in the last five years.

The Ministry stated (January 2001) that serious attempts are being made for realisation of dues. The fact, however, remains that large amounts are still outstanding.

6.2.5    Loss on Maintenance of Township

The year-wise net deficit suffered by the steel plants on running the township during the last seven years ended 2000-01 was as under:

(Rs. in crore)

*    Average annual deficit comes to Rs.198 crore

Loss on township has almost doubled in view of large losses incurred by SAIL there is a need for a fresh look at township expenses.

Year-wise maintenance expenditure per quarter incurred by the Steel Plants:

(Rupees)

It would be observed that there is a wide variation in respect of expenditure per quarter among various steel plants during the period from 1994-95 to 2000-01. It ranges from Rs.11405 in respect of DSP to Rs.39810 in respect of BSL (2000-01). The expenditure at BSP had all along been very high as compared to other plants except during 1999-00 and 2000-01, when expenditure at BSL was the highest. The expenditure per quarter at BSL had increased abruptly during 1999-00 and 2000-01 as compared to earlier years.

The Ministry stated (January 2001) that expenditure has increased in BSP due to the fact that quarters have become old and as such, more maintenance was required.

The Ministry’s contention is not acceptable, as quarters of other steel plants are also old. Moreover, BSL is the latest of all Steel Plants developed, and yet expenditure in this plant had increased abruptly during 1999-00 and 2000-01.

BSP paid Rs.34.78 lakh for the first time towards property tax for the year 1966-67 to 1968-69 under Section 4 of the Madhya Pradesh Nagariya Sthawar Sampatti Kar Adhiniyam 1964. The payment was made under protest as the Bhilai Township was not specified as urban area under the notification dated 20 January 1967 issued by the Madhya Pradesh Government. The Honourable High Court quashed (1980) the order of levy of property tax for the year 1966-67 to 1968-1969 when BSP management in 1972 filed a petition. As Bhilai Township has not been specified as urban area, no property tax was paid after 1968-69 and the amount of Rs.34.78 lakh could not be adjusted/recovered. The amount was written off in 1997-98 with the approval of Chairman, SAIL.

DSP falls under the jurisdiction of Durgapur Municipal Corporation (DMC). The annual valuation of DSP holding was assessed at Rs.2.25 crore (approx.) with effect from 1 April 1992 and holding tax was computed at 40 percent of the assessed value i.e. Rs.90 lakh annually. The 74th amendment of the Constitution of India came into force with effect from 1 June 1993 which allowed Industrial Establishment providing municipal services to be exempted from the payment of holding tax if the said area is declared as Industrial Township. The matter was taken up by DSP with the Corporate office and also with the State Government, but the plant did not succeed in get the status of an Industrial Township and accordingly DSP had been paying holding tax at the rate of Rs. 86 lakh annually since April 1992. Incidentally, it may be mentioned here that RSP had already got the status of Industrial Township from the Government of Orissa with effect from 15 April 1995.

The Ministry stated (January 2001) that the matter of declaring DSP Township as an industrial township is being pursued at appropriate level in the State Government The fact, however, remains that due to delay in declaration of Durgapur township as industrial township, DSP had to pay holding tax every year.

6.2.7    Other Topics of Interest

Scrutiny of records of Bokaro Steel Plant revealed that BSL has allotted 46.41 acres of land on lease for 33 years to five private educational/cultural societies for construction of buildings comprising four Degree/ Teachers training/Law colleges, one Engineering college, one-Higher Secondary School and 2 Nursery Schools. The lease was at a nominal rent of Re.1 per acre per annum. Subsequently, BSL sanctioned and paid (1991 to 1994) a sum of Rs.52.80 lakh as long-term loan recoverable in a maximum of twenty instalments to eight organisations.

It was observed that:

• The Company had not invited any applications for grant of land/financial assistance through open advertisements for setting up educational institutions during last two decades since inception of the education policy.

• The Company has considered only those applications, which were submitted suo moto by private societies. These societies have defaulted in refunding the loan and the amount outstanding as on February 2001 was Rs. 71.01 lakh including interest/penal interest of Rs. 18.21 lakh.

• By charging interest only 4 per cent per annum (after moratorium of 3 years) against 15 percent paid on Government loan, interest subsidy allowed to the borrowers on aforesaid loan of Rs. 52.80 lakh worked out to Rs. 63.89 lakh on normal repayment basis.

• As per the terms of agreement, the Company was entitled to discontinue lease and take possession of the land/building erected by the borrower in case the borrower defaults in payments of loan instalments together with interest. However, Management has not taken such action against any defaulter so far.

• Bokaro Steel Plant has given a total loan of Rs.20.00 lakh to Chas Bokaro Vikash Samiti in the year 1994 and 1995. Though more than 5 years have elapsed, the Samiti/Institution had neither paid any interest on the loan nor a single instalment of the principal amount of the loan.

• They neither submitted any annual accounts nor came forward for mortgaging the building etc. as required under rules. In spite of this, the Board of Directors of SAIL approved (September 1998) an allotment of land measuring 17.297 acres at a token annual lease rent of Re. 1/- only, without premium, for a lease period of 33 years to the Bokaro Institute of Technology (BIT), established by the same private society. The land, actually allotted on 13 May 2000, had commercial value (total premium) of the Rs.5.79 crore at the rate of Rs.33.50 lakh per acre.

The Management stated (June 2001) that facilities of land and loan were extended to reputed institutions as per SAIL guidelines to discharge a major non-Company welfare function. Mortgaging of the buildings as security to loan has been pursued with the institutions and this has also started yielding results. As regards repayment of loans and interest, it was stated that the matter is being pursued and it will be realised in due course. But Management has so far not succeeded in getting the mortgage of the building as security to loan as well as repayment of loan and interest.

With the twin objectives of (a) internal communication through cable network and (b) external communication i.e. feeding other electronic media, a channel namely the Durgapur Steel Television (DSTV) was set up in DSP township at a capital cost of Rs. 57.37 lakh in November 1989. The expenditure on publication of house journals was also proposed to be reduced with the expansion of DSTV network. The TV network did not get the popularity and there were only 243 subscribers.

The Ministry stated (January 2001) that Cable TV networks had grown substantially and DSTV programmes were available in one of the cable channels. The fact however is that due to its non-viability, the Cable TV network was off loaded to Catvision (a private party) in 1996 and out of subscription fee of Rs.132 per month, the share of DSP is only Rs.9.90 (7.5 per cent).

6.3    Working of Research and Development Centre for Iron and Steel

The Estimates Committee of Parliament recommended, in 1950, the setting up of a well-equipped and organised research establishment in the steel plants for commercial and technical research on the operational side. Consequently, a Central Research and Development Organisation was set up by the erstwhile Hindustan Steel Limited (now Steel Authority of India Limited) at Durgapur Steel Plant in 1967. This was shifted to Ranchi in 1972 as a full-fledged Research and Development Centre for Iron and Steel (RDCIS).

The Memorandum of Association of SAIL describes, inter alia, the objectives of RDCIS as following:

• To establish, provide, maintain research laboratories and experimental workshop for scientific, technical or research experiments

• To undertake directly or in collaboration with other agencies scientific and technical research, experiments and tests of all kinds

• To process, improve and invent new products and their techniques of manufacture

• To assist, encourage and promote rapid advances in technologies, economies, import substitution.

In the post-liberalisation era, RDCIS has re-oriented its efforts to provide greater thrust to plant performance improvement projects, evolution of technology packages for the production of new and special steel, process and system modelling. It has also enhanced collaborative efforts with other research institutes, academia etc. in order to sharpen the competitive edge so as to face domestic as well as global competition.

6.3.2.1    A Director (presently part-time) assisted by two Executive Directors and eight General Managers, heads RDCIS with its headquarters at Ranchi. The organisation with its plant centres in each steel plant of SAIL, works in close inter-action with the steel plants and Central Marketing Organisation of the Company to achieve its objectives.

The working of RDCIS between 1994-95 to 2000-2001 was reviewed by Audit. The findings were communicated to the Ministry of Steel in January 2001, and their comments received in October 2001.

In a note to a meeting of the Board of Directors held on 19 June 1973, it was envisaged by the Company that investment in R&D would increase to 1 per cent of the gross sales turnover within next 5 years i.e. by 1978-79. However, even after two and half decades of establishment of R&D Centre, the level of investment in R&D activities has remained around 0.25 per cent of the gross sales turnover of the Company. Of this, more than 3/4 of the expenditure was incurred on salaries, maintenance of buildings, administrative support system, etc. As a result, investment on the real R&D activities is barely 1/50 of 1 per cent of gross sales of the Company as against average R&D expenditure of 1 per cent of the turnover by major steel companies across the world.

The Ministry stated (October 2001) that resources had seldom been a constraint to meet plant needs. The reply of the Ministry does not address the point raised in audit.

6.3.4   Project formulation, approval and implementation

RDCIS undertakes new and innovative R&D projects with the objective of reducing cost, energy consumption, rejections and to improve quality, yield, productivity, equipment availability and add value on a continuous basis in the steel plants of SAIL. The selection of R&D projects begin with the process of identification of the problem areas jointly by the research scientists of RDCIS and engineers of the steel plants, followed by the preparation of an outline on each project called ‘Project Profile’ which is approved by the Plant Management. Only mutually agreed projects are selected for preparing Project Micro Plan Document (PMD) which is subsequently submitted to an in-house expert committee consisting of senior executives known as Approval Committee.

The projects are categorised under the following heads:

• Basic and Scientific Research (BSR)
• Major Technology Development (MTD)
• Equipment and Instrument Development (EID)
• Short Term Assignment (STA)
• Plant Performance Improvement (PPI)
• Investigation and Consultancy Assignment (ICA)

Among the various kinds of projects undertaken by the RDCIS, the PPI and the ICA projects were introduced as the new emerging areas in order to face competition from domestic as well as global players. The project, once approved by the plant management, is undertaken under the leadership of a spokesperson. The progress of projects is monitored through in-house committees consisting of members from the RDCIS as well as steel plants.

The Ministry accepted (October 2001) the facts.

Although the RDCIS formulates the projects in close inter-action with plant managements and executes them under their joint supervision, there was no involvement of outside experts, scientists or technologists etc., from reputed national and international research laboratories or Institutes of Technology either in determining the thrust areas of the R&D activities of the RDCIS or in formulation of the projects.

Further, the performance of the RDCIS was being monitored in the meeting of Board of Directors (BOD) only through the monthly/quarterly reports highlighting the achievement and target fulfilment of the Centre. As users of the benefits, both BOD as well as steel plant managements could certainly appraise the performance of the Centre, but they were hardly equipped to judge the quality of the scientific research undertaken in the Centre. RDCIS had undertaken 12 projects in all in collaboration with other research institutions between 1995-96 to 2000-01, as against 582 projects undertaken during this period. Thus, the level of inter-action with other institutions of higher learning appeared to be nominal (2 per cent) only.

The Ministry stated (October 2001) that projects undertaken by RDCIS were reviewed by the Head of the Department (HODs), Head of Accounts (HOAs) and Directors regularly and team of scientists across divisions quarterly. The Ministry added that the RDCIS had been directed to work out a mechanism for inviting outside experts, institutes. In view of the competition from other foreign/domestic steel companies, SAIL had to look beyond the in-house mechanism for formulation, appraisal and monitoring of the Projects so as to derive rich dividends.

The following projects have been undertaken during last seven years:

(Figures in numbers)

It is evident from the above that RDCIS had been re-orienting its thrust areas during last few years primarily as a result of the present market scenario from the BSR projects to PPI projects and ICA projects in order to face competition from domestic as well as global players. The Management justified (June 2000) the apparent decline in the number of basic and scientific research projects during last few years by stating that the reduction in number of BSR projects was due to the combination of small projects into larger ones to give a focused impact of its output.

Since the primary goals of a Centralised Industrial Research and Development Organisation were medium and long-term research for in-depth study of process analogy, evaluation of technologies and likely innovations so as to reduce production costs, enhance the value of the products and make the Company competitive internationally by introduction of new technologies and/or process improvement, overall decline in the number of BSR projects indicated that the RDCIS has been ignoring its long term objectives and concentrating only on immediate needs.

Prior to 1994-95, RDCIS had no system to account for the direct cost and total cost of the project undertaken. However, since 1994-95 the Management had started keeping records of product-wise direct cost. The sanctioned budget of each individual project included the likely amount of expenditure to be incurred on equipment, consumables, travel/tour etc. But audit scrutiny revealed that actual expenditure incurred on travel/tour was not reflected in the final project cost to keep a control over expenditure.

The Ministry stated (October 2001) that expenditure on travel/tour was treated as a part of overhead expenditure which was recovered from projects based on engineering day cost.

RDCIS had also undertaken consultancy projects/jobs for other public and private organisations and generated total revenue of Rs. 3.20 crore (Public-Rs.1.94 crore and Private-Rs.1.26 crore) during the year 1995-2001. However, test check of the records revealed that Company was not maintaining any costing record to ascertain and analyse the job-wise actual loss/gain. It is, thus, not possible to find out as to whether the RDCIS had made any profit out of these consultancy projects.

The Ministry stated (October 2001) that the consultancy assignments required very small proportion of direct cost. The cost of engineer days is a fixed cost and as such there was no possibility of incurring loss in consultancy services. The Ministry’s reply is not acceptable, since, had the engineer days not been spent in the consultancy job, it would have been used for a project which would have generated Certified Annual Benefit (CAB).

There had been a system of joint financial evaluation of completed projects with the participation of user plants since 1993-94. Under the system, the incremental CAB as well as recurring annual benefit for subsequent two years were ascertained by the standing committee headed by the Head of Works of concerned plant.

The incremental CAB is the additional annual monetary benefit generated on the implementation of R&D projects. This was being done for each completed project for a period of first 12 months of its use. The recurring annual benefit represented the annual monetary benefit assessed for next two years after establishing incremental benefit.

During the period 1994-95 to 2000-01, out of 718 projects taken up, 663 projects were completed. Of this, only 307 i.e. 46.30 per cent could generate monetary benefits.

Further 132 projects which were executed at a direct cost of Rs. 17.43 crore and generated monetary benefits were discontinued mid-way. Of these, 35 projects generated only one time benefit although they were expected to generate annual recurring benefit in the micro plan documents. Thus, it may be construed that the performance of the completed projects was not satisfactory, as it did not meet the expectations of the Management.

The Ministry stated (October 2001) that RDCIS and steel plants jointly worked to solve a problem faced by shop either in diagnosis of malfunction or development of superior materials or technique. Later on, the plants followed the system of their own. Hence, RDCIS could not evaluate the recurring benefits.

The reply is not tenable in view of the fact that all the projects were selected jointly by RDCIS and steel plants as such the mid-way discontinuation of the project which generated benefits to the plant indicates that there were loopholes in the system which needed to be plugged.

It was observed that 24 research projects were abandoned mid-way between 1994-95 to 2000-01without any reason being assigned, although an amount of Rs. 60 lakh had been incurred. This showed that these projects were approved without proper screening and thus indicated poor performance of project approval mechanism. Abandonment/discontinuance could have been avoided by careful selection of the projects based on peer review and close monitoring by eminent scientists from reputed national research laboratories, IITs etc. as the reasons attributed by the Management for non-utilisation of projects were of such nature which could have been foreseen.

The Ministry stated (October 2001) that these projects were stage-closed due to market constraints such as order position, discouraging results in initial trial and availability of better alternative. However, RDCIS had been directed to work out a mechanism for inviting outside experts, institutes.

The reasons for stage-closing as stated by the Ministry indicated lack of foresight of the Company in taking up the projects or failure in proper guidance of the research work.

48 projects were completed between 1995-96 to 1998-99 after incurring expenditure of Rs.4.49 crore but could not be evaluated due to non-submission of completion reports by the Group leaders. However, evaluation reports in respect of 27 projects were submitted. The reasons attributed for non-submission of evaluation reports in respect of remaining 21 projects were due to either part fulfillment of the stated objectives or their desire to extend the scope of work. Further, 7 projects lying unevaluated after completion between 1999-2000 to 2000-01 were due to non-submission of completion report.

Thus the fact, however, remains that due to non-submission of reports and non-implementation of these projects on time, the usefulness of direct expenditure of Rs. 4.49 crore incurred on these projects could not be determined.

The Ministry accepted the facts and stated (October 2001) that SAIL had been directed to expedite the completion reports.

Even though projects were successfully completed, a number of them were not utilised in the steel plants and as such monitoring the implementation for the subsequent three years was discontinued by RDCIS. It was noticed that from 1994-95 to 1999-2000, in respect of 95 projects, although incremental benefit of more than one crore of rupee was established by RDCIS, 18 projects (Annexure XVII) were found to have been discontinued, after its successful completion had been certified by RDCIS at the implementation stage. The reasons attributed for the same were either low utilisation period, process not being stabilised, non-improvement in performance indices or availability of one-time benefit. Perusal of Annexure XVII indicates that these projects were not utilised mostly because they were actually taken up without being related to actual needs and due to non co-operation by the plant authorities. Reasons assigned for its non-utilisation itself speak of the failure of the Management to achieve objectives. As a result, the very purpose of creating a separate RDCIS was defeated, as even for good projects, the benefits could not be obtained for a longer period.

The Ministry stated (October 2001) that benefit calculation based on budgeted financial figures give a better indication of the usefulness of the project, than when the calculation was based on the actual cost/financial figures. The reply of the Ministry was not specific relating to the projects discontinued.

The table below indicates the number of projects completed, number of projects generating incremental CAB, monetary value of incremental CAB and recurring annual benefit for the years 1994-95 to 2000-01.

(Rs. in crore)

During the course of Audit, 20 cases were examined in detail. The comparative position of the benefits certified by RDCIS management were scrutinised and Audit findings based on scrutiny are given in the table below:

(Rs in lakh)

Note :-     (i) N.A. represent not available with the Management
               (ii) (---) represent benefit not obtained

It would transpire from the table that:

• The annual benefit certified by RDCIS in respect of 18 projects except the projects at Sl.No.1 and 11 was Rs. 47.29 crore, Rs.50.71 crore and Rs.41.22 crore during the three years as against anticipated annual benefits of Rs. 64.83 crore. Of these, in 8 cases (marked H) as against anticipated annual benefit of Rs.51.87 crore the benefit certified by RDCIS was Rs.14.76 crore, Rs.13.15 crore and Rs.10.58 crore during the three years, falling short by Rs. 37 crore. In one project (S.No.6) comprising 18 separate projects, benefit of Rs.32.66 crore was anticipated in the micro plan documents at a direct cost of Rs.79 lakh. Although the Management's records indicated a benefit of Rs.2.59 crore on the basis of higher contribution of pig iron, examination in audit indicated a loss of Rs.34 lakh. Further, out of 18 individual projects, not a single project was in use at present;

• The actual incremental benefit of 9 projects marked @ as per audit was Rs.8.40 crore, Rs.7.67 crore and Rs.9.10 crore as against the certified benefits of Rs.18.41 crore, Rs.19.76 crore and Rs.18.17 crore respectively. The annual incremental benefit in respect of 10 projects marked @@ though certified by RDCIS as Rs. 31.27 crore, Rs. 31.88 crore and Rs.22.99 crore, the same could not be confirmed as per the plant records. Further, one project had been closed (Sl.No.20) for which RDCIS had wrongly calculated CAB for three years;

• In two projects (Sl.No. 4 and 5) the benefits of Rs 13.90 crore and Rs.11.34 crore for three years were worked out erroneously by taking higher rate of contribution as against actual contributions of Rs.9.96 crore and Rs 4.46 crore only;

• In one project (Sl. No.16), the benefits were worked out in four areas e.g (i) skull reduction, (ii) reduction in coal heats, (iii) heating green ladles and (iv) heating repaired ladles. Examination in audit indicated that the savings in heating green ladles and heating repaired ladles did not crystallise. The benefits assessed in other two areas such as saving due to skull reduction and reduction in coal heats were also found to be on higher side.

The Ministry stated (October 2001) that in the absence of actual data, budgeted data was used for calculation which caused minor variations.

The reply of the Ministry is not tenable as there were substantial variation between the certified benefits and the actual benefits.

• Although the projects (Sl. No. 13 and 19) commenced during 1995-96, the Management worked out benefits on the basis of data relating to the years 1993-94 and 1992-93 respectively.

The Management stated (June 2000) that the base period was chosen jointly by shop head and the project team. The Ministry offered no further comment on this.

(i)    Napthelene is second largest by-product of coal. The yield of hot pressed napthalene at Bhilai Steel Plant varied from 3.0 to 3.5 per cent of Crude Tar where as napthalene content in crude Tar is 6.5 per cent to 7 per cent. A project (51:03:35) was taken up in July 1995 with the scheduled completion month of July 1996 at an estimated direct cost of Rs. 23.00 lakh. The object was to improve the yield of napthalene from 3 per cent to 4 per cent The project was stage closed in January 1996 after incurring direct expenditure of Rs.32.85 lakh without assigning any reasons.

The Ministry stated (October 2001) that the capital expenditure incurred towards this project was transferred to another project in this area. The reply of the Ministry that the capital expenditure had been transferred to another project in this area indicates that the existing project was taken up without examining all the pros and cons.

(ii)     A project on stabilisation of combined blowing technology (project No.24-19-22) at Bokaro Steel Plant was taken up in April 1993 without obtaining statutory permission of the Explosives Department. The first completion date of the project (June 1994) was rescheduled to March 1996. However, due to non-availability of Argon reservoir and non-obtaining of statutory permission from Explosives Department at Nagpur, the project was stage closed after incurring an expenditure of Rs.11.13 lakh. The Ministry confirmed (October 2001) the facts of the case.

A project (51:03:36) on production of impregnating pitch was taken up in October 1995 at an estimated direct cost of Rs.45.00 lakh with an anticipated annual benefit of Rs.1.44 crore in micro plan document to be completed within 12 months. The project although completed on scheduled date at a total direct expenditure of Rs.40.98 lakh could not provide any commercial benefit to the user plant. Thus entire expenditure proved infructuous.

The Ministry stated (October 2001) that the production of impregnating pitch was deferred due to changed market conditions.

The fact, however, remains that the project is still not in use (October 2001).

All research works which result in the development of a new process of production can be patented if the conditions necessary for grant of patent are satisfied. The main criteria of a patentable invention is that it should be novel. The primary objective of filing patent is to seek protection of the intellectual property. The details of patents and copyrights filed and sealed during 1994-2001 are as under:

The number of patents sealed is a measure of the efficacy of R&D efforts. RDCIS have so far acquired 41patent rights since its inception, which also included 28 patents sealed during 1994-2001. Of these, 23 patents sealed pertained to research activities conducted prior to 1992-93. RDCIS has, however, so far commercialised only six patents, generating an income of Rs.79.62 lakh upto November 2000.

It would be interesting to note that other reputed research and development institutions have been able to generate 20 per cent of their fund requirements by means of royalty on patents.

The Ministry stated (October 2001) that in addition to income generated from six sealed patents, an amount of Rs 27.04 lakh was also generated out of 8 patents not yet sealed. It added that that efforts were being made for generation of revenue from external sources through R&D consultancy, specialised testing services, know-how transfer of developed technologies whether patented or not.

Even if it is accepted that RDCIS had been making efforts to generate revenue even from technologies not patented, the primary objective of seeking protection of its intellectual property in a highly competitive market remained unfulfilled.

Details of papers published and scientists engaged during 1994-2001 are as follow:

The average output of scientific publications worked out to 0.15 papers per scientist per annum during the last 7 years.

Of 663 in-house projects completed during 1994-2001 (refer table under para 6.3.5.5), scientific publications were brought out from only 304 projects. Thus, number of scientific publications reflect on the quality of work undertaken by RDCIS.

It was observed that the role of Finance Department of RDCIS or SAIL in certifying/ascertaining the incremental CAB/recurring CAB is minimal. Further, there is no direct linkage between the results exhibited by RDCIS with the figures appearing in the summarised working results of SAIL. The analysis of such working results did not indicate the monetary benefit either in terms of reduction in cost or increase in revenue consequent on implementation of R&D projects in plants.

The Ministry stated (October 2001) that the benefits generated by RDCIS innovations were actually generated on shop floor and were included in the financial results of individual plants.

It is, however, felt that the ultimate effect on profitability arising out of use of projects/innovations should be analysed separately and highlighted.

6.3.6.1   The ‘Open Tender’ system i.e. invitation to tender by public advertisement should be used as a general rule with certain exceptions in order to get competitive prices for making purchases.

During 1996-97 to 2000-2001, not a single item was procured on Open Tender basis;

Major purchases were done on single tender basis (ranged between 33.04 per cent to 54.50 per cent) which was against the basic principle of financial propriety;

Regarding limited tender enquiry, the said procedure provides that the party shall be selected out of the registered suppliers/traders etc. maintained by the Material Management Department of the RDCIS. The registration of manufacturers is required to be done after proper appraisal of their capabilities through inspection of the manufacturing facilities etc., wherever necessary. It further stipulates that the validity of such registration should be three years for traders and five years for manufacturer. Before expiry of this period, the traders/manufacturers should be asked to get their registration re-validated.

The following table indicates the number of purchase orders issued by RDCIS during last five years:

The Ministry stated (October 2001) that the items procured by RDCIS were unique in nature and not off-the-shelf items and were generally procured for the first time. That is why open tendering was not resorted to all the time, and RDCIS made most of the purchases by limited tender enquiry. The reply of the Ministry is contrary to the basic canons of financial propriety. In cases of items of unique nature for which supplier was not known and purchase was being done for the first time, open tender was the only rational way of purchasing.

There were delays ranging between two months to three months in conducting final inspection after receipt of goods in the stores. One printer model imported from Mitsui and Co., Japan at a cost of Rs. 52 lakh on 27 June 1997 was inspected on 31 March 1998 i.e. after a delay of nine months. During inspection it was found that the equipment was partially damaged. The Company lodged a claim of Rs.1.22 lakh on the supplier as well as on Insurance company. The claim was, however, not entertained by the Insurance company due to abnormal delay in submission of the claim. The Ministry stated (October 2001) that they requested the supplier for free replacement. However, the same is yet to be replaced. This indicated that the chance of replacement of a costly equipment was remote due to negligence of RDCIS in inspecting the received equipment in time.

RDCIS has 32 executives (9 per cent) above the level of Deputy General Manager which are predominantly administrative positions. There are 75 executives (22 per cent) in group head positions above the level of Assistant General Manager who carry out a mix of research and administrative functions. 69 per cent of the total executive strength is involved in research activity, which is the primary function of RDCIS.

(i)    Although RDCIS was envisaged to be a flat organisation with a minimum of hierarchy, it has grown into a typical hierarchy based organisation, over the years, with 10 tiers of executives. There is virtually no difference in the organisational structure of RDCIS and other steel plants. Although the Board of Directors of the Company had decided in April 1996 to reduce the levels of executives/hierarchy below Director, no change was discernible even after the passage of five years.

The Ministry stated (October 2001) that the RDCIS had been re-organised as a three-tier structure. The fact remains the existing hierarchy system is similar to other units/plants of SAIL although the Board of Director decision of April 1996 had envisaged otherwise.

(ii)    The Board had decided in April 1996 to induct qualified and well motivated scientists not only from the reputed research organisations within the country but also from abroad at middle level. No such recruitment has been made during last five years. As a result thereof, the RDCIS is being managed by engineers who were either recruited directly 15 years back or those from plant units who opted to join the RDCIS. Incidentally, only 1 out of every 5 R&D personnel had a doctorate degree.

The Ministry stated (October 2001) that soon after 1996, the business scenario after globalisation changed completely. The focus of SAIL shifted to restructuring for survival, from the earlier planned path of high growth.

(iii)    The Board of Directors decided in April 1996 to induct Management Trainees (Technical) from IITs and Engineers with postgraduate qualification for posting in RDCIS. No recruitment has been made in this direction as yet.

The Ministry stated (October 2001) that the IITs were approached but there was no suitable response.

(iv)    The long-term human resources plan envisaged continuous flow/redeployment of executives at senior level to plants/units. No such redeployment has been done during last five years.

The Ministry stated (October 2001) that exchange of manpower had not been at a steady rate due to shifting of focus on survival.

(v)    The Board decided to increase executive strength in technical areas as a part of the long term plan. It directed that the same should not result in large increase in the numbers of the executives at RDCIS headquarters and increase in research personnel should be utilised for strengthening the sub-centres at plant locations. However, no perceptible shift had taken place from RDCIS to Plant/Units during last five years.

The Ministry stated (October 2001) that most of the yardsticks on manpower that were formulated earlier had to be evaluated.

(vi)    Though the Board approved (April 1996) redeployment of the non-executives to the jobs where contract labour was engaged, no such redeployment had taken place during last five years. Interestingly, the number of contract labourers had gone up from 240 to 265 during the period.

The Ministry stated (October 2001) that strength of non-executives was getting reduced due to promotion/VRS and no fresh recruitment had been made.

Thus, the long term human resource plan approved by the Board of Directors nearly five years back had remained on paper only.

The manpower resources of the RDCIS both technical and non-technical is given below:

(Figures in Numbers)

The Board of Directors identified (April 1996) some broad principle for developing long term human resources plan for RDCIS which, inter alia, included increase in technical executive strength to 384 by 2005, reduction in executive strength in non-technical areas to 59 by 2005 and reduction in the strength of non-executives (non technical) category to the level of 173 by 2005.

Scrutiny of the records, however, revealed that actual executive manpower in technical areas has been going down and stands at 344 as on 31 March 2001. Further, no recruitment has been made for the last 15 years in RDCIS. The induction during 1980’s was only at the junior most level of the executives cadre

The Ministry stated (October 2001) that efforts were being made to arrive at an optimal manpower mix in keeping with the Corporate manpower strategies.

6.3.7.3   Use of Scientific and technical manpower for non-R&D work

It may be observed from the table that:

• There was no system of identification of the actual deployment of engineering days with reference to planned allocation against each project

• The percentage of net engineering days planned for research work to total available engineering days ranged between 55.45 per cent (2000-01) and 60.58 per cent (1997-98) only during the period

• The utilisation of engineering days for development of professional skills, co-ordination, meeting, administration, organising corporate life is 25 per cent. There are no norms for this and no comparative analysis had been made with the position existing in other Industrial Research and Development Institutions

• It was also found that in spite of passage of nearly three decades, the Management had no fixed norms for deployment of technical manpower for research or up gradation of professional skills, self-development and for work other than research.

The Management stated (June 2000) that month-wise milestone plans for the groups were derived from plant-wise engineering days and monitored accordingly. The system was in use since 1994-95 and had helped a reasonably high level of compliance.

The Board desired (April 1996) to re-deploy the surplus non-executives to other units of SAIL at Ranchi and in the areas where contract labours were engaged. The decision of the Board has not been implemented as yet. Even after lapse of nearly five years the number of contract labourers was 265 i.e. for every five technical executives there are 4 casual labourers in the RDCIS. The annual average financial burden on deployment of such labour amounted to Rs.87.38 lakh.

The Ministry stated (October 2001) that efforts were continuously on to reduce the contract labour gradually by redeployment. Accordingly, the contract labour strength had been frozen for the last two years.

Although the Management had excessive non-executives, it employed private contractors for routine nature of jobs and paid a sum of Rs.48.31 lakh for maintenance of two sub-stations and operation of Diesel Generating (DG) sets in the Township during the period from 1992-93 to 2000-01. The deployment of private contractors for such work could have been avoided in view of surplus manpower.

The Ministry accepted (October 2001) the facts and stated that efforts were on to re-deploy the existing non-executives to this area.

As per the directions issued in November 1985, engagement of personnel beyond office hours and on holidays was to be managed by granting compensatory days off. However, RDCIS paid Rs.19.15 lakh as overtime to personnels deployed beyond normal office hours/holidays during 1994-95 to 2000-2001 in security, AC plant, water supply, 33 KVA sub-station and pumping set departments.

The Ministry stated (October 2001) that attempts were being made to re-deploy surplus staff having appropriate qualifications to alleviate the need for extra wage payments.

Perusal of the budget allocation vis-à-vis actual expenditure (as evident from the following table) towards revenue and capital items during the period under review indicated that the allocation towards capital expenditure as compared to the revenue expenditure was declining rapidly. It ranged between 41.95 per cent (1994-95) and 6.15 per cent (2000-01). Actual expenditure was even less than the amount allocated. The component of the revenue expenditure mainly comprises salaries and allowances of the unit. This further indicated that major portion of the expenditure of the unit was in providing salaries and allowances to supporting manpower. However, allocation of actual resources towards basic research was fast declining.

(Rs. in crore)

The Ministry stated (October 2001) that capital budget was on a declining trend as laboratory based infrastructure facilities required for the organisation has been built up over the years to cater to the needs of the organisation. The fact remains that RDCIS incurred more expenditure on salaries and establishment and less on basic researches, which is the business goal of the organisation.

It was detected during Audit that the meter installed by Bihar State Electricity Board (BSEB) for recording units of power supplied to RDCIS was not working since 17 July 1997. As a result, payment was being made on the average consumption (412400 units) of the corresponding three months of the previous year consumption as per the provision of the Tariff Act. Scrutiny of the relevant records, however, revealed that for the purpose of working out average consumption, the peak period consumption was selected which resulted in an excess payment of Rs.79.68 lakh upto December 1999. It was also noticed that although BSEB had advised (February 1998) RDCIS to replace the meter at a cost of Rs.0.56 lakh, the unit did not agree and continued to make extra payment. The electric meter was installed in January 2000 by the Electricity Board and charges for electricity was being paid on the basis of meter reading which on an average worked out to 351209 units only.

The Ministry stated (October 2001) that the delay in replacement could not be anticipated when RDCIS refused to make the payments. Since BSEB charged tariff as per rule, there was no overpayment to BSEB and as such there was no question of fixing responsibility. Had the proper action been taken by RDCIS, the excess payment could have been minimised particularly when the Company has been incurring huge losses.

Sanction for one DG set of 1000 KVA capacity (in addition to existing 7 DG sets, 3 of 425 KVA each to supply a peak load of 750 KVA obtained in June 1995 apart from 4 DG sets lying in stores). RDCIS awarded the contract to Genset (I) Pvt. Limited in July 1995 on turnkey basis at a total contract price of Rs.1.44 crore with the scheduled date of completion by April 1996. However, the same was installed in September 1999 i.e. after a delay of more than 3 years from scheduled date of completion.

The installation of additional DG set of 1000 KVA was not justified as there were already 7 DG sets having capacity of 1785 KVA against the projected demand of 1750 KVA. The maximum demand load including the load of township never exceeded the 1440 KVA. Thus, the installation of this DG set at an investment of Rs.1.44 crore from borrowed fund bearing an annual interest burden of Rs.23 lakh was avoidable.

The Ministry stated (October 2001) that the combined load of existing DG sets were not sufficient and considering the complexities of laboratory working, decision was taken to purchase the new set. The reply is not tenable as the existing capacity was sufficient to meet the emergent requirement.

In 1978 when the right, title and interest of the erstwhile Hindustan Steel Limited in the immovable property located at Ranchi were transferred to MECON, 209 quarters of various categories as well as 4 single room hostels situated in Shyamali township of Ranchi then under the occupation of SAIL employees were left at the disposal of RDCIS. However, the rent deducted from the occupants was to be deposited to MECON. Subsequently in 1982-83 and 1989-90, it further constructed 212 and 508 quarters at an average cost of Rs.1 lakh and Rs.2.5 lakh per quarter respectively in Shyamali township itself. Examination of the records, however, revealed that standard license fee in these cases was not fixed in terms of the cost of construction and the existing rate applicable for old construction were being recovered. In 1990, in the name of uniformity, the RDCIS further reduced the license fee and adopted a lower rate of recovery for those residing in Shyamali than that applicable for the employees of MECON the owner of the township, residing in the same colony

The Management, however, never considered the deduction of concessional/ subsidised standard license fee from occupants of residential accommodation as a taxable perquisite under Section 17(2) of the Income Tax Act. The value of such concessional rent worked out to Rs.1.02 lakh per annum. Non-consideration of taxable perquisites while deducting tax at source has made the Management liable to various penal provisions under Income Tax Act.

The Ministry stated (October 2001) that efforts were being made to enhance the rates of licence fee.

The scheme for reimbursement of local travelling expenses (LTE) to executives was introduced by SAIL in April 1978 which was later on extended to non-executives as well. The objective of the scheme was to assist the employees to meet the expenditure incurred on maintenance and use of the vehicles in the performance of official duties, thereby reducing the pressure on company's vehicles. Under this scheme, employees were allowed to claim the reimbursement of actual expenses wholly, exclusively and necessarily incurred by them on utilising their own vehicles in performance of official duties, on the basis of a certificate to be given by them. Rules also provided that journey from residence to office and vice-versa will not be considered as official duty. While the executives were allowed reimbursement of LTE upto Rs. 1600 p.m. non-executives were permitted reimbursement of LTE upto Rs. 350 p.m. The officials and employees of the Company were required to certify that the vehicle was owned by them and the expenditure was incurred on the maintenance and running of the vehicle in connection with the official duty. During the years 1997-98 to 2000-2001, RDCIS had paid a sum of Rs.5.69 crore on account of LTE to its officials /employees.

Scrutiny of records revealed the following:

• almost all officials and employees claimed the maximum amount permissible under the scheme every month, although nature of work of majority officials and employees posted in RDCIS were such which did not require them to leave their place of work during the working hours. Such claims were being admitted in a routine fashion

• none of the executives indicated the nature of official work done by them, the date and time of departure and return, number of KMs. covered by own car/vehicle etc., during the month while claiming the reimbursement of travel expenditure. No verification was ever done by the Management to find out the details of official work done by the executives/non-executives daily outside the office premises

• copies of R.C. book, insurance papers etc. of the personal vehicles owned by the executives, were not available in the personal files/records etc. produced to audit. Hence, it is not clear what checks were being exercised by the Company in this regard

• rules allowed the executives to take reimbursement of LTE even when they went on leave, training, temporary transfer etc. for more than 15 days, at full rate

• although the reimbursement of LTE on certificate basis justified its treatment as taxable income on par with that of payment of transport allowance, no income tax was being deducted from the amount paid to the employees/officers.

Thus, due to inherent shortcomings of the scheme, the RDCIS had to admit fraudulent claims of Rs.5.69 crore during the period of four years when its finances were facing severe constraints and liquidity crisis.

The Ministry stated (October 2001) that the technical executives were required to go out of the office premises on various official purposes. Other executives moved out of the office premises on various jobs like local purchases, discussion in connection with Income Tax and Sales Tax officials etc. It added that LTE was sanctioned after ascertaining road-worthiness of the vehicles and after verification of necessary documents.

The fact remains that LTE was allowed in a routine manner to all the employees without examining the actual need or movement of the official.

RDCIS acquired 64.24 acres of land from HEC on lease basis for a period of 30 years in November 1986 for construction of its own township. Another plot of 29.66 acres near Ranchi Airport at a total cost Rs. 72.11 lakh was purchased in auction from other parties in November 1987 for the same purpose.

The Company developed its township on the land leased from HEC which rendered the land acquired near Ranchi Airport as surplus. Accordingly, a Committee was constituted to take necessary action for disposal of the land. RDCIS had been in possession of 23.11 acre of land as the remaining land (6.55 acre) was under dispute. The Management apprehended that disposal might not be commercially beneficial until possession of entire plot was obtained.

The Ministry accepted (October 2001) the facts and stated that it had been the considered view for some time that the land might be disposed of but because of dispute it was not disposed of.

The fact, however, remains that due to injudicious decision to procure land, not only the Company’s capital blocked up but it also suffered a loss of interest to the extent of Rs.1.41 crore (March 2001) particularly at a time when its finances were in poor shape.