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CAG slams Modi regime for financial irregularities by Manas Dasgupta

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

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

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

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

Improper assessment

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

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

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

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

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

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

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

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

Unreasonable time

Taking 14 to 106 months for environment impact studies in eight out of nine blocks was “unreasonable,” the CAG said. As against the estimated drilling rate a day of 27.76 metres, the actual rate was 22.49 metres in drilling 16 wells in the KG offshore block between July 2004 and April 2010, resulting in an “avoidable expenditure” of Rs. 180.91 crore on drilling work. It also incurred an expenditure of Rs. 104.29 crore on drilling wells without obtaining the approval of the Centre and did not qualify for recovery.

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

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