Audit Reports

Tamil Nadu

Overview

 Why did we take up this audit?

The performance of Tamil Nadu Cements Corporation Limited (TANCEM) was taken up as risk analysis indicated TANCEM incurring continued losses on account of operational inefficiency coupled with payment of heavy penalty for non-obtaining of Environmental Clearance for operation of limestone mines. The Expansion programme taken up for execution was also unduly delayed. Based on this, the performance audit on TANCEM was conducted between July and December 2020-21 covering the period from 01 April 2016 to 31 March 2021.The audit was carried out both at Ariyalur and Alangulam units of TANCEM.

• How did we conduct the Audit?

The Performance Audit aimed to assess whether TANCEM has anAmma Cement Supply Scheme (

During the Performance Audit, all the 60 contracts each valued more than ₹1.00 crore and implementation of expansion plant at Ariyalur were taken up for detailed examination. In addition, 92 contracts each valuing less than ₹1.00 crore were also selected on the basis of stratified random sampling method. To assess the effectiveness of ACSS, beneficiary survey was conducted jointly with TANCEM and Godown officials covering all the seven godowns in Chennai District.

• Main Audit Conclusion

TANCEM earned profit only in two out of five years and the loss during the remaining period was mainly on account of payment of penalty for extraction of limestone without permit and accounting/charging of finance cost and depreciation in respect of the new plant established at Ariyalur. Despite incurring losses, the Company’s financial management was deficient resulting in wasteful expenditure/avoidable losses viz., delay in arranging finance for expansion plant, avoidable import of raw material for a defunct unit, failure to carry forward input tax credit, etc.

TANCEM failed to obtain Environmental Clearance (EC) for eight out of nine limestone mines taken on lease from Government.It operated mines illegally for extraction of limestone without permit and consequently it faced penalty and royalty liabilities.

There was under production of raw meal, clinker and cement by the units of TANCEM mainly on account of controllable factors such as want of fine coal, improper maintenance, etc.Further, TANCEM incurred avoidable additional expenditure on purchase of lower grade of coal and consumption of clinker and electricity beyond the stipulated norm.

On account of avoidable time over run of more than seven years in establishment of expansion plant at Ariyalur, TANCEM suffered cost overrun of over ₹200 crore. The contract management was also tardy as the contract price was fixed higher due to erroneous fixation of base price and the work was awarded by deviating the tender condition. TANCEM extended undue benefit by waiver of Liquidated damages despite delays attributable to the contractor.

Non-revision of price of cement for supply to Government departments resulted in recurring loss to TANCEM since it was bound to supply the stipulated quantity to Government at a price lower than the open market price. Non-finalisation of contract in time with private cement manufacturers for supply of cement to DRDA has not only resulted in additional expenditure of more than ₹160 crore to the Government but also led to loss of profit to TANCEM. Non-reconciliation of dues from DRDA by TANCEM resulted in non-recovery of dues of more than ₹50 crore.

TANCEM which is the nodal agency for Amma Cement Supply Scheme was procuring cement from PCMs without any agreement and hence, it could not impose any legal action against them for short supply of ordered quantity which deprived supply of required quantity of cement to the needy beneficiaries. The quality of cement supplied by the PCMs was not ensured by TANCEM and they were not insisted for production of BIS certificate. Instances of misappropriation of cash and shortage of cement were noticed at godown levels.

TANCEM failed to implement the recommendations stipulated in the Energy Audit reports and also has not implemented the pollution control measures properly. Further, Audit observed that Ariyalur unit of TANCEM placed work orders during 2018-21 by splitting the contract to bring the monetary value within its delegation of powers.

• What do we recommend?

TANCEM’s net worth has been decreased gradually and ended up in negative during 2020-21. Hence, TANCEM may work out a strategy to formulate a long-term plan for improving its financial position to recover itself from the eroded net worth.

TANCEM failed to claim the eligible input tax credit within the validity period which resulted in rejection by the tax authorities. Hence, TANCEM has to fix responsibility for the omission in claiming input tax credit.

Since TANCEM has not specified separate clause in the tender conditions for deduction of cess amount from the contractor, no cess was deducted. Hence, TANCEM may initiate appropriate steps to recover the cess amount from the contractor apart from fixing responsibility for non-recovery of cess amount.

TANCEM, despite being a state-owned PSU, failed to obtain Environmental Clearance (EC) for eight out of nine limestone mines. It operated the mines illegally for extraction of limestone and consequently became liable to pay a penalty and royalty. TANCEM may ensure stoppage of illegal mining and explore the possibilities of other sources of limestone till obtaining EC. Further, it may  fix responsibility for not following the statutory clearances in obtaining EC and pursue with the Government at appropriate level to obtain EC at the earliest for all the quarries.

Both the Ariyalur and Alangulam units of TANCEM failed to utilise the full installed capacity at all the three stages of production (raw meal, clinker and cement) and consequently incurred loss of production. TANCEM also incurred additional expenditure due to purchase of lower grade coal, excess consumption of clinker beyond the stipulated norm and excess consumption of electricity.Hence, TANCEM may avoid stoppage of production due to controllable factors, take appropriate action for modernisation of old factories, ensure consumption of coal and electricity within the norms and ensure supply of stipulated grade of coal.

TANCEM’s contract management in establishment of new expansion plant at Ariyalur was tardy as higher contract price was fixed due to erroneous fixation of base price, deviating the tender condition while award of work and extension of undue benefit by waiver of entire Liquidated Damages (LD) despite delays attributable to contractor. Therefore, TANCEM needs to fix responsibility for fixing erroneous base price, for deviating the tender condition while award of contract and for the decision on waiver of LD.

TANCEM has not adopted the right sales strategy for supply of cement to Government departments and incurred recurring losses. TANCEM also failed to reconcile the data with District Rural Development Agency (DRDA) regarding supply of cement which led to non-recovery of dues. Hence, TANCEM may review the proportion of sales to Government and open market and take up the issue of loss on account of Government supplies to fix a better price so as to benefit the Government and to improve the financial position of the Company. It may fix responsibility for non-finalisation of contract in time. Further, TANCEM may also co-ordinate with government and reconcile the dues and take steps for early recovery of the same.

TANCEM, being the nodal agency for Amma Cement Supply Scheme failed to execute any formal agreement with PCMs and hence, it could not enforce them to supply the ordered quantity.  At godown level, irregularities in the form of   misappropriation of cash, shortage of cement, etc., were noticed.  Hence, TANCEM may enter into valid agreements with the PCMs for ensuring adequate supply of cement to the beneficiaries of the scheme and fix responsibility for non-execution of agreements. It may take up the issue of cost of administrative expenses at appropriate level and get it increased in order to avoid further losses due to implementation of the scheme. Further, it may closely monitor the supply of cement at the godown levels and ensure that the collection proceeds are remitted without delay apart from fixing responsibility for the lapses.

TANCEM has not implemented the mandatory recommendations stipulated in the Energy Audit reports and has not adhered to the pollution control measures. Ariyalur unit placed work orders by splitting the contract to award the works within the delegation of powers. Hence, TANCEM may ensure implementation of recommendations contained in the energy audit report in its financial interests and pollution control measures. It should avoid splitting of the contract as the same violates Tamil Nadu Transparency in Tenders Act, 1998.

Download Audit Report

• Report No. 12 of 2022- Performance Audit on Tamil Nadu Cements Corporation Limited 2021,Government of Tamil Nadu
  _{(33.72 MB) Download}