CHAPTER 16
MINISTRY OF PETROLEUM AND NATURAL GAS

Bharat Petroleum Corporation Limited

The Company’s decision to construct product depot at Muzaffarpur, ignoring parallel developments making the depot economically and operationally unviable, led to fruitless investment of Rs.7.94 crore.

Oil Co-ordination Committee (OCC) approved the setting up of a petroleum, oil & lubricant (POL) depot under the scheme of Additional Product Tankage (APT, 1989-90) by the Bharat Petroleum Corporation Limited (BPCL) at Muzaffarpur. The Company drew POL products for marketing in Bihar area from the Barauni refinery of Indian Oil Corporation Limited (IOC) which was facing acute product shortage due to inadequate crude oil input from Assam. Therefore, product inputs to this new depot at Muzaffarpur were planned from Haldia and Budge Budge by railway wagon and not ex-Barauni. A railway siding was planned to be constructed on cost-sharing basis with IBP Co. Limited, which was also allotted setting up of POL depot (8000-KL) at Muzaffarpur under the same scheme.

Construction work on the Muzaffarpur depot was started in 1995 and completed in September 1997 at a total cost of Rs.7.94 crore. In the meanwhile, the supply of POL products from IOC’s Barauni refinery was showing significant improvement. In a parallel development in 1996, the Company commenced the construction of a tap off point (TOP) near the Barauni refinery and proposed marketing terminal of IOC. The supply of POL products from IOC’s Barauni refinery improved further following the commissioning of Haldia-Budge Budge crude pipeline in February 1999.

Records show that the Muzaffarpur depot remained inoperative since its commissioning as the entire demand of Bihar area was now being met by transporting POL products by road from Barauni. In July 1999, BPCL informed IBP Co. Limited of its decision to withdraw from the railway siding project in view of economic unviability of their Muzaffarpur depot.

Thus, the Company ignored the implications of the development of the Haldia-Budge Budge pipeline when it undertook the construction of a depot at Muzaffarpur and made a fruitless investment of Rs.7.94 crore.

The Management stated (July 2000) that initially there was uncertainty in getting land for IOC’s plans of expansion of Barauni refinery and the crude pipeline was not fully developed. The Management further stated that by the time a clear picture of IOC’s plans and decision (1996) about Barauni TOP came to be known, 50 per cent work of the construction of Muzaffarpur depot was already complete.

The Management’s reply is not tenable because in 1993, at the time of purchase of land for the Muzaffarpur depot, the Company was aware of the IOC’s plan of laying the crude pipeline which was expected to improve the supply of POL products from Barauni refinery. Implementation of such a large project is a prolonged process and cannot be considered as uncertainty. Further, OCC had allotted the Company the construction of Barauni TOP in 1994-95. Hence the Company had ample scope to shelve the project in time considering the expected improvement in supply from Barauni refinery and thereby avoid the infructuous expenditure on Muzaffarpur depot.

The matter was referred to the Ministry in July 2000, their reply was awaited (October 2001).

BPCL acquired (March 1997) 85 acres of land from Paradeep Port Trust (PPT) on 25-year lease for setting up a LPG import terminal. As per terms of the lease, the Company was to pay a premium of Rs.12.00 lakh per acre of land and a ground rent of Rs.18000 per acre per annum. In March 1997, BPCL released Rs.11.24 crore to PPT towards land premium, development charges etc. However, it did not carry out any development work on the land except preliminary survey, soil investigation etc. till August 1998 at a cost of Rs.8.79 lakh.

In September 1998, PPT instructed the Company not to commence any project activity on the land, as Indian Oil Corporation Limited (IOC) was objecting to the LPG terminal on grounds of the safety of its refinery’s upcoming township on adjacent land. In September 2000, BPCL surrendered the land to PPT. It was refunded a sum of Rs.11.24 core after a deduction of Rs.77.40 lakh towards ground rent for the period upto 2000-2001. The entire expenditure of Rs. 86.19 lakh (Rs.77.40 lakh plus Rs. 8.79 lakh) incurred on the land proved infructuous. In December 2000, the Company lodged a claim with PPL for interest on the initial deposit for a period upto September 2000 but without any results so far.

Delay in surrendering the land by two years (September 1998 to August 2000) resulted in an avoidable payment of Rs.30.60 lakh towards ground rent, besides loss of interest of about Rs. 3.60 crore (@ 16 per cent on its initial deposit with PPT) for the period of two years.

The Management stated (June 2001) that they were not aware of proposed township of IOC. The land was not surrendered initially as it was expected that PPT would make an alternate land available to them.

The Management contention is not tenable because it was clear in September 1998 that BPCL would not be able to utilise the land due to IOC's objection and PPT's instructions. The land should have been surrendered immediately in September 1998 to avoid further payment of ground rent and blocking of fund with PPT. The Company could have made fresh payments to PPT as and when an alternate plot of land was made available by PPT.

The matter was referred to the Ministry in June 2001; their reply was awaited (October 2001).

The Company took more than 7 years in considering alternative use of surplus land taken on lease from Railways and incurred an avoidable expenditure of Rs. 3.24 crore on lease rent before surrendering the same.

A fire broke out in May 1983 at bottling plant of IOC at Shakurbasti. The Vasudevan Committee appointed by the Government of India to enquire into the fire incident recommended safety measures to avoid recurrence of such incident in future. These included shifting of LPG (Liquified petroleum gas) plant of all the oil companies from thickly populated areas. These recommendations were accepted by the Government.

BPCL had a LPG Plant at Shakurbasti, New Delhi on 18,893 square meters of land taken on lease from Railways. As a result of the Government decision, the Company stopped operation of its LPG plant at Shakurbasti from August 1990 and shifted equipment to Hariyala, Gujarat in January 1993. Since August 1990 when the operation of the plant was stopped, the Company had sufficient time to decide the alternative use of land but it failed to make an effective plan. Even without having any effective plan, it continued to occupy the surplus land for more than seven years after shifting (January 1993) the equipment and eventually surrendered it to Railways on 3 June 2000. The Company incurred an expenditure of Rs.4.98 (Rs.2.15 crore paid upto 31/3/1996 and 2.83 crore provided on the same basis) crore as lease rent for the period from February 1993 to May 2000 against which it has also received Rs. 1.74 (Proportionate recovery based on lease rent) crore from Oil Co-ordination Committee (OCC) towards reimbursement of rent under Administered Price Mechanism (APM) scheme.

The Management replied (April 2000) that the Company considered and explored various proposals for utilisation of this land including frontage for Company operated outlets, storing packed bitumen, lube filling facilities and construction of additional POL (Petroleum, Oil and Lubricant) tankage which were time consuming.

The reply of the Management is not tenable, as the Company had taken excessive time in considering various alternatives including increasing of POL facilities, which had already been prohibited by Oil Industry Safety Directorate in May 1990.

Thus due to delay in surrendering surplus land, the Company incurred an expenditure of Rs 3.24 crore besides burdening the OCC with Rs. 1.74 crore which could have been avoided by timely surrender of the land.

The matter was referred to the Ministry in June 2000; their reply was awaited (October 2001).

Due to non-placement of entire purchase order on the firm which has quoted lowest rates, the Company incurred an extra expenditure of Rs. 1.50 crore on the purchase of 1577 dispensing pumps from other firms at higher rates.

BPCL floated limited tenders (January 1999) on three firms for procurement of three types of Dispensing Pumps (DPs) for the years 1999-2000. After opening technical bids (February 1999) all the three firms were considered technically qualified. The rates quoted by M/s. Avery India Limited (Avery-L1) were found lowest for all three types of DPs. Instead of placing the order with L1, BPCL decided to negotiate with other two firms namely, M/s. Mercantile and Industrial Development Company (MIDCO-L2) and M/s. Larsen & Toubro (L&T- L3) for price reduction so as to match with the rates of L1. When both L2 and L3 firms refused to match their rates with that of L1, the Management finally placed orders (August 1999) on all the three firms for varying quantities viz., L1: 30 per cent, L2: 47 per cent and L3: 23 per cent. Out of total 2253 pumps purchased during 1999-2000 the Company purchased only 676 pumps from the L1 firm and the remaining 1577 pumps were purchased from L2 and L3 firms at an extra expenditure of Rs. 1.50 crore.

Thus, by not placing the entire purchase order on the firms which had quoted the lowest rates the Company incurred an extra expenditure of Rs. 1.50 crore on the purchase of 1577 DPs from L2 and L3 firms as detailed below:

The Management stated (July 2000) that till 1995-96, L&T and MIDCO held monopoly in electronic and mechanical dispensing pumps respectively. Except L&T no single supplier was in a position to meet the entire demand of oil industry and it was considered desirable to break the monopoly of L&T and bring in competition by encouraging new parties. Accordingly, M/s. Avery India Limited was inducted in the system in 1996-97 and initially an order for comparatively smaller quantity was placed on them to study their performance. With the improved performance the allocation to the new vendors was also increased, this was the reason that the allocation of L&T was reduced to 23 per cent in 1999-2000. As the performance of new model pumps introduced by M/s. Avery India Limited in 1998 was stabilising, it was not considered prudent to place the purchase order on it for maximum quantity. The Management further added that all the three parties were required to be retained in the system so as to ensure uninterrupted supply, reduce maintenance expenses and prevent loss of sales volume due to poor performance/breakdowns of pumps.

The Ministry stated (July 2001) that the percentage of procurement of pumps from all the three parties was decided even before opening of the price bids. The decision was taken at that point of time considering the proven performance, track records and technological aspects of the product.

The replies of the Management/Ministry are not tenable as it was known to the Management that all the three parties were responding positively to the requirements in respect of delivery, technical features and were also in a position to produce pumps of the required specifications. The Management was also aware that M/s. Avery India Limited had a technical know how from M/s. Gilbarco, USA and were importing complete assembly from their US collaborator. Moreover, the production capacity of the firm was 2400 pumps per annum while orders in hand on the date of placement of order was 310 pumps only. Thus, the above apprehensions of the Management were not based on facts and the order for the entire quantity could have been safely placed on L1 specially when there was a saving of Rs. 1.50 crore.

Chennai Petroleum Corporation Limited

The Company’s failure to take effective action to prevent furfural contamination in Naphtha resulted in loss of Rs.8.47 crore.

Chennai Petroleum Corporation Limited (CPCL) supplied (September 1996) 12937 MT of Naphtha through Indian Oil Corporation Limited (IOC) to a buyer who rejected it due to furfural contamination (Furfural (C₄H₃O-CHO)). The cargo was transshipped (October 1996) to an export tanker. IOC as marketing agency recovered (December 1996 and March 1997) from CPCL Rs.1.37 crore being the cost of tanker movement, transhipment etc.

Subsequently, it was decided (November 1996) in the Industry Coordination Meeting to export furfural contaminated Naphtha and loss, if any, would have to be borne by the Company. The entire stock of Naphtha was found to be contaminated with furfural again during April 1999. CPCL was forced to export 134116 MT of the product during May to July 1999 through IOC and suffered loss of Rs.7.10 crore as it had specifically agreed to bear the loss on account of export of furfural positive Naphtha due to poor price realisation.

CPCL accepted (July 2001) that loss of Rs.1.37 crore on account of transportation cost was to be borne by it. CPCL further stated that the lower realisation of Rs.7.10 crore was only notional and not to be considered as loss.

The reply is not tenable since the loss of Rs.7.10 crore was real and the export of the Naphtha was made by CPCL on the clear understanding that the under recoveries on this account would be borne by it.

Thus, failure of CPCL to effectively prevent furfural contamination in Naphtha, inspite of rejection by domestic customers had resulted in loss amounting to Rs.8.47 crore.

The matter was referred to the Ministry in July 2001; their reply was awaited (October 2001).

Hindustan Petroleum Corporation Limited

The Company constructed and commissioned three aviation turbine fuel tanks without ensuring its requirement. This resulted in avoidable expenditure of Rs.3.25 crore.

Hindustan Petroleum Corporation Limited (HPCL), inter alia, constructed and commissioned (May 1998) three aviation turbine fuel (ATF) tanks at Vijayawada at a cost of Rs.3.25 crore as a part of the Visakhapatnam - Vijayawada Pipeline Project. The exclusive purpose of constructing these tanks was to store 12000 MT of ATF received through pipeline from Visakhapatnam for eventual despatch to Secunderabad by Rail Wagons. However, before taking up the construction of these tanks, HPCL did not ensure ATF linkage to Vijayawada Terminal from the Oil Coordination Committee (OCC), which decides the market linkages and movement of petroleum products. As a result, there had been no pumping of ATF through the Visakhapatnam-Vijayawada Pipeline so far (October 2000). The ATF tanks at Vijayawada constructed at a cost of Rs.3.25 crore had been lying idle since commissioning.

It was also observed that since there was no local consumption of ATF at Vijayawada and the Detailed Project Report (DPR) of Visakhapatnam-Vijayawada Pipeline envisaged extension of the line upto Secunderabad, there was no need for providing the ATF Tanks at Vijayawada.

The Management stated (April 2001) that the tankages originally provided for ATF was not idle and was put to use for handling actual throughputs of Naphtha and Kerosene. It further added that additional tankages would be considered at the appropriate time considering the ATF demand at Vijayawada in future.

The reply is not tenable in view of the following:

1. The actual deliveries of Naphtha at Vijayawada commenced only from September 2000 by which time the two tanks meant for storage of Naphtha were already commissioned. Hence the usage of ATF tanks for Naphtha was not based on an actual requirement.
2. In addition to the three ATF tanks, two other tanks meant for storage of kerosene were also commissioned in March 1998 and as per the DPR, these tanks were sufficient to handle the delivery requirements upto 5.74 lakh MT of Kerosene which was anticipated by 2006-2007 as per the demand projections. Since the actual deliveries of Kerosene during 1999-2000 (3.28 lakh MT) and 2000-2001 (3.42 lakh MT) were much less than the anticipated deliveries, there was no need to use ATF tanks for storage of Kerosene during the period.
3. HPCL was fully aware that local consumption of ATF at Vijayawada was negligible and the entire projected requirement of ATF was meant for Secunderabad. Therefore, the need for construction of additional tanks at Vijayawada for storage of ATF in future seems remote.

Thus construction of ATF tanks at Vijayawada without ensuring the ATF linkage to Vijayawada lacked justification and resulted in avoidable expenditure of Rs.3.25 crore.

The matter was referred to the Ministry in August 2001; their reply was awaited (October 2001).

HPCL constructed 17 kilometres long pipeline in 1992 at Pirpau Jetty owned by Mumbai Port Trust (MPT), which interconnected its various lube plants viz., Lube Refinery, Mazagaon Blending Plant and Wadi Bunder Blending Plant. As a part of their modernisation programme, MPT decided during 1994 to extend the jetty by about 2.5 kms deeper into the sea to get the advantage of additional draft for berthing of large size tankers. The new jetty was to be in operation by November 1995. Accordingly, MPT advised all owners of the pipelines including HPCL to extend their existing pipelines upto the new jetty so as to avoid any interruption in loading and unloading operations. The way leave permission was also granted by the MPT in May 1995 to HPCL inter alia on the following terms:

1. HPCL to guarantee traffic load of at least 0.50 lakh MT per annum through the pipeline; and
2. monthly way leave fee at the rate of Rs. 2.43 lakh for the period from June 1995 to September 1995 and Rs. 2.53 lakh from October 1995 to September 1996 with further annual increase on first day of October every year at compounded rate of 4 per cent was to be paid by HPCL.

The Management approved (June 1995) the extension of pipeline at an estimated cost of Rs. 3.50 crore on the grounds that it would result in a saving of Rs. 7.36 crore (approximately) per annum on the transportation of lube oil products to Chennai by coastal movements as compared to road. The savings were anticipated mainly on freight, handling charges and purchase tax. The project was completed in October 1996 at a total cost of Rs. 2.28 crore but it could not be commissioned owing to dispute with the Indian Oil Blending Limited (Wholly owned subsidiary of the Indian Oil Corporation Limited) (IOBL) on sharing of capital/operating expenses on loading arm. For sharing of loading arm, IOC had proposed (April 1996) to share the actual cost of loading arm on 50:50 basis and share the operating expenses on pro rata basis of actual thruput which was, however, rejected by HPCL. Subsequently, due to severe congestion at new jetty, the MPT advised HPCL to continue to handle their small size vessels through old jetty. Since HPCL operates smaller size vessels, it proposed to use the facilities through old jetty and decided to withhold the line hook up activity with loading arm of IOBL. But due to limited loading capacity at the old jetty and use of small size vessels, the products as anticipated could not be transported through sea and had to be transported by road also.

Therefore, the anticipated savings of Rs. 7.36 crore by completely resorting to coastal movements remained unachieved besides locking up of Rs. 2.28 crore on the idle pipeline. Besides, HPCL had also to pay the agreed way leave fee to MPT every year on this extended portion and had paid Rs. 1.13 crore between the period from October 1996 and March 2001 without any use.

The Ministry stated (May 2001) that it was a directive of MPT to extend the pipelines to new Pirpau Jetty. The offer of the IOC on sharing of expenses towards loading arm was not acceptable to HPCL as it would have lead to pay more of Rs. 75 lakh every year. The dispute on sharing of cost had, however, been sorted out (September 1999) and based on the agreement the cost of loading arm would be shared equally. As regards the coastal movement to Chennai was concerned the Ministry added that this was currently not feasible due to technical reasons at the receiving location and the payment of way leave fee for the extended portion was a fixed cost payable as per the agreement with the MPT for the facilities which were not discontinued.

The reply of the Ministry is not tenable due to the following:

1. the oil companies did not make any concerted efforts to appraise the MPT regarding the non viability of the project in view of the fact that the lube products were decontrolled and the traffic of thruput before extending the pipelines was only 9300 MT during 1995-96 against the guaranteed thruput of 50000 MT per annum;
2. the dispute regarding sharing the cost of loading arm with the IOC could have been settled in April 1996 when almost an identical option to share the cost as agreed to in September 1999 was given to the HPCL; and
3. above all, Management admitted in July 1999 that the preliminary study indicated that the economics of chartering independent vessels were unfavourable for coastal movements to Chennai and Kolkata. As regards the technical reasons (Non availability of pipeline facilities from jetty at Chennai port to HPCL's terminal)  are concerned this was neither perceived at the time of initiating proposal nor subsequently any efforts were made to overcome this problem. This indicated that the investment decision was not based on sound appraisal of the project.

Thus, by acting on the unrealistic advice of the MPT and projecting an unworkable economics for the investment without conducting proper feasibility study of the project, the expenditure of Rs. 2.28 crore on the extended pipeline remained idle since October 1996. Besides, HPCL had to pay Rs. 1.13 crore towards way leave fee (till March 2001) for the extended pipeline to MPT and also invited annual recurring liability for future.

HPCL receives LPG in railway wagons at its Jatni Bottling plant supplied by (a) its Visakh terminal and (b) Gas Authority of India Limited (GAIL) at Vijaipur. Railway charges freight on the basis of carrying capacity of wagons irrespective of quantity actually loaded in the wagons. It was observed that in many cases there had been under loading of LPG in wagons that varied between 2.48 per cent and 10.31 per cent. As a result, HPCL had to bear dead freight being the freight for the difference between carrying capacity of the wagons and actual loading. During the period from August 1991 to December 1999, the dead freight amounted to Rs.24.35 lakh in case of underloading of wagons by HPCL itself at its Visakh terminal and Rs.39.29 lakh in the case of underloading of wagons by GAIL at Vijaipur.

At Visakh terminal, the LPG loading in wagons was observed by HPCL by magnetic dip rods. There did not exist any computerised system for automatic counterchecking of the quantity of LPG loaded in the wagons. Absence of such automatic loading system at Visakh resulted in underloading in wagons in many cases and the consequent dead freight. The Management stated (May 1999) that the tank wagons being a mobile pressure vessel, system of high level alarm and automatic closing after reaching particular level did not exist anywhere. The Ministry stated (November 1999) that it was industrial practice in handling such hazardous material to keep some safe margin at the time of loading of wagons. The reply of the Ministry/Management is not tenable because at Mangalore installation of HPCL, there existed a computerised loading system and no case of underloading was noticed there.

Regarding underloading of wagons by GAIL, HPCL stated (April 2000) that, as they had no direct control on loading operation at Vijaipur, claim had been lodged with GAIL for recovery of Rs.39.29 lakh. However, HPCL could not recover any amount from GAIL so far (June 2001).

Thus, due to lack of effective loading system at its Visakh terminal and non-recovery of dead freight from GAIL, HPCL had to bear an avoidable expenditure of Rs.63.64 lakh (Rs.24.35 lakh plus Rs.39.29 lakh).

IBP Co. Limited

The Company’s belated decision to construct product depot at Muzaffarpur without assessing its economic viability in the then prevailing conditions led to fruitless investment of Rs.6.31 crore.

Oil Co-ordination Committee (OCC) approved setting up by IBP Co. Limited (IBP) of petroleum, oil & lubricant (POL) depot (8660-KL) at Muzaffarpur on rail fed basis, under the scheme of Additional Product Tankage (APT) in 1989-90. The depot was to meet the POL requirements of Bihar area. The railway siding was to be constructed on cost sharing basis with Bharat Petroleum Corporation Limited (BPCL) which was allotted setting up of POL depot (6000 KL) also at Muzaffarpur under the same scheme.

In 1993, IBP acquired 13.65 acres land at a cost of Rs.45.75 lakh for the Muzaffarpur depot. In a parallel development, the Company also got sanction to construct POL depot (15000-KL) at Barauni under APT-VIII Plan (1992-97). In April 1996, the Company started the construction of Barauni depot on priority basis. In November 1997, the Company decided to construct the Muzaffarpur depot on a smaller scale (950-KL instead of 8660-KL) on rail fed basis with a view to use it as an alternate source to the Barauni depot.

Engineering, procurement and construction (EPC) contract for construction of 950-KL Muzaffarpur depot was awarded in January 1999 and the depot completed in March 1999 at a cost of Rs.4.20 crore (including finance charges upto February 2000). The Muzaffarpur depot could not be made operative due to non-availability of the railway siding.

In July 1999, BPCL informed IBP of its decision to withdraw from the railway siding project in view of economic non-viability of their Muzaffarpur depot. The Company had already spent a sum of Rs.1.56 crore on the railway project by July 1999. In March 2000, the Company also decided to back out from the railway siding project apprehending the economic non-viability of the project and by that time it had incurred an expenditure of Rs.2.11 crore.

Thus, the Company’s decision to construct the Muzaffarpur depot and the railway siding without assessing its economic viability led to an infructuous expenditure of Rs.6.31 crore (Rs.4.20 crore plus Rs.2.11 crore).

While accepting the above facts, the Management stated (June 2001) that they were reviewing putting up the railway siding on an exclusive basis considering immense benefits of rail-fed depot at Muzaffarpur. The Management’s reply is not tenable because Board of Directors of the Company has already decided to stop the construction of railway siding considering escalation in its projected cost and consequent economic non-viability of the Muzaffarpur depot.

The Management’s decision to construct a mini alternate depot at Muzaffarpur lacked commercial prudence considering that it was aware of the development of the giant Barauni depot only 115 kms away from Muzaffarpur, which would supply POL products to a vast area of Bihar.

The matter was referred to the Ministry in June 2001, their reply was awaited (October 2001).

IBP Co. Limited (Company) acquired a closed Cryocontainer manufacturing plant at Bhiwadi from Rajasthan State Industrial Development and Investment Corporation Limited (RIICO) in the year 1993. The unit was acquired at a cost of Rs. 1.10 crore with a view to meet projected increase in demand for the Cryocontainers mainly in the foreign markets. Besides, it was also considered strategically better to acquire another unit to minimise any impact of labour unrest at its Nasik plant so as to avoid disruption in production.

After its acquisition in February 1993 the Company further invested Rs. 18 lakh on its refurbishment to make it operational as it was closed for about two years before its taking over from RIICO. Regular production at the Bhiwadi plant was started in September 1993. However, within one year of its take over, the operations were suspended in 1994 and have not been resumed since then. The main reasons put forward by the Management for suspending the activities were consolidation of production and augmentation of Cryocans manufacturing activities at its another plant at Nasik.

It was noticed in Audit that against the projected increase in demand of 18500 in 1993-94 to 23500 in 1996-97 Cryocontainers the actual sale decreased from 15967 in 1993-94 to 13294 in 1994-95 and to 10529 in 1997-98. Further, the anticipated growth in export also could not materialise as the samples sent by the Company failed in test before the stringent international quality standard. It was also noticed in Audit that there was no evidence on record to indicate any augmentation or utilisation of surplus staff as envisaged by the Management while deciding to close the plant.

After a period of about four years in 1998 the Management constituted a committee to re-examine the possibilities of restarting the production in this plant with a view to tap the anticipated future market potential of Cryocans in India and abroad. The committee observed that the anticipated growth in demand of Cryocans could be well met by its Nasik plant itself and restarting Bhiwadi unit was not economically viable. Therefore, in its resolution of July 1999 the Management decided to dispose it off so as to save the recurring expenditure of Rs. 15.00 lakh per annum being incurred on its maintenance. Tenders for disposal were invited in July 2000 but no offer was received there against.

Thus, due to incorrect assessment of future demand for the Cryocans coupled with failure to exploit foreign markets, the investment of Rs. 1.28 crore made on the purchase of this plant became infructuous. Besides the Company had also incurred an avoidable expenditure of Rs. 53.51 lakh on the maintenance of closed plant from 1994 -1995 to 31 March 2001.

The Management stated (June 2000) that the decision to purchase the plant was based on a projected increase in demand of cryogenic containers of aluminium make especially in the export market from 1992-93 to 1996-97, though domestic market was becoming stagnant. The decision was also taken to gain an edge over the technology since M/s. DAAPS cryogenics Private Limited (from whom the assets were acquired by the RIICO) had a technology tie up with M/s. MVE, the world leaders in the container field. By buying the Bhiwadi Plant, the Management ensured that such technology did not get into the hands of anyone else and created an entry barrier for the new competitors. As regards anticipated growth in export market was concerned that could not materialise, mainly due to failure of certain containers in foreign market.

The Management's reply indicated incorrect assessment of demand and of their inability to meet the stringent international quality standards, which resulted in failure of their containers in the foreign markets. Their main objective of gaining technological edge and preventing competition by buying the Bhiwadi plant also remained unachieved as the Bhiwadi plant could hardly be run for a year after buying. Further the high claim of acquiring the plant with latest technology was also exposed by the fact that there was no buyer for this plant as indicated by the tenders floated in July 2000.

The matter was referred to the Ministry in January 2001; their reply was awaited (October 2001).

Indian Oil Blending Limited

The decision of the IOBL to start commercial production of grease on the basis of process conceived in the laboratory, which required further stabilisation resulted in the production of substandard product and the production had to be stopped. Consequently the plant commissioned in March 1997 for the manufacture of greases at a cost of Rs. 6.40 crore continues to remain idle.

Indian Oil Blending Limited (IOBL) manufactures lubricating oils and greases in its blending plants at Trombay and Vashi. Lithium based grease was being produced at the plant at Vashi. Since its raw material, Lithium Hydroxide was being imported, the Management approved (March 1994) establishment of facilities to produce Aluminium and Titanium based (G 92) greases on single shift basis at a cost of Rs. 4.15 crore. These greases were expected to be good substitutes to Lithium based greases by using indigenous raw material. The project was conceived on an estimated demand of 1500 MT during 1994-95 and 3000 MT per annum by 2000.

In January 1996, while submitting revised proposal for the approval it was brought to the notice of the Board that after several trial operations, the process for the formulations of Aluminium based G-92 greases using indigenous raw material had been developed at R&D Centre of IOC. Further it was stated that a proposal for the commercial production process package had also been finalised after deliberation at length with the representatives of IOC’s R&D Centre and consultant. Accordingly the project with 3000 MTPA capacity on a single shift basis approved in 1994 was revised to double shift basis at an estimated cost of Rs. 6.00 crore. The Management also expected net profit of Rs. 5.37 crore per annum with pay back period of 12 months besides saving in foreign exchange equivalent of Rs. 2.00 crore per annum on replacement of imported raw material. The project was completed in December 1996, at a cost of Rs. 6.40 crore and started trial productions from March 1997.

The process when transferred from laboratory level to the plant was found taking 12 hours to complete one batch against the laboratory completion time of 8 hours. Besides, the Titanium grease produced was not of the required standard and the product needed further stabilisation. Resultantly the small quantity of Titanium based grease produced could not be sold and its cost of production amounting to Rs. 45.88 lakh could not be recovered.

The production of Aluminium bases grease even on trial basis had not been commenced so far though raw materials for its manufacture were imported in January 1997 and April 1999 at a cost of Rs. 8.30 lakh. The material had to be imported, as the material identified from the indigenous source could not be used due to its not conforming to specifications.

The plant was used for the manufacture of Titanium based greases and the production from March 1997 to September 1999 was as under:

The production of Titanium based grease was stopped from October 1999 as its quality did not confirm to the required specifications. Out of 25.29 MT of grease despatched to various regions of the IOC for effecting sales only 6.62 MT could be sold (February 2000).

The Management stated (March 2000) that R&D Centre was modifying the process and expected to come out with suitable recommendations by April 2000. The Management further added (January 2001) that the demand for Aluminium and Titanium based greases could be developed/estimated only after R&D completed its research and development work for which field trials were being undertaken.

The reply of the Management indicates that a proper appraisal of the project was not carried out before proceeding for commercial production. This not only resulted in idle investment of Rs. 6.40 crore on the project since 1997 but also further loss on the production of substandard Titanium grease produced at a cost Rs. 45.88 lakh which was awaiting disposal.

The matter was referred to the Ministry in April 2000; their reply was awaited (October 2001).

Indian Oil Corporation Limited

The Company’s decision to set up a paraffin wax plant based on Assam Crude as feedstock, the availability of which in future was uncertain, led to unproductive investment of Rs.38.01 crore as for want of Assam crude the plant could not be run successfully since its commissioning in January 1999.

In January 1992, Indian Oil Corporation Limited (IOC) decided to set up a plant to produce 30000 MT paraffin wax per annum at Barauni Refinery at an estimated cost of Rs.41.50 crore. The project was scheduled to complete in 36 months from the date of approval (i.e. by January 1995). One of the main considerations for setting up the plant was the quality of Assam crude which was ideal for production of paraffin wax.

In a parallel development, IOC prepared (April 1992) a feasibility report for construction of a pipeline from Haldia to Barauni for transportation and use of imported crude. Main reason for laying down the pipeline was the short availability of Assam crude due to which the refinery was operating only at 55 per cent capacity. It was also envisaged in the report that the situation about availability of Assam crude was likely to worsen in future after the commissioning of new refineries and expansion of existing refineries in Assam. However, this aspect was not considered at the time of setting up the paraffin wax plant that was to use Assam crude.

The paraffin wax plant was commissioned in January 1999 (after a delay of about four years) at a cost of Rs.38.01 crore. In the meanwhile, the supply of the Assam crude was drastically curtailed and the Barauni Refinery started receiving and processing imported crude. The Company’s efforts to produce paraffin wax from low sulphur imported crude proved abortive. After commissioning of the project, it could manage to produce only 1859 MT paraffin wax in two years during 1999-2000 and 2000-01, as against the installed capacity of 30,000 MT per annum.

Thus, the Company’s decision to set up the paraffin wax plant based on Assam crude as feedstock, without recognising its adverse supply situation, led to an unproductive investment of Rs.38.01 crore.

The Management stated (July 2001) that the Assam crude would not be available for Barauni Refinery in future and therefore, innovative changes in the plant were under way to produce paraffin wax from Malaysian and Nigerian crude. The fact remains that putting up the plant based on Assam crude, ignoring the adverse situation about its availability, was not a prudent commercial decision and led to unproductive investment of Rs. 38.01 crore.

The matter was referred to the Ministry in June 2001; their reply was awaited (October 2001).

IOC, Southern Region entered (July 1996) into an agreement for supply of Aviation Turbine Fuel (ATF) to airlines of M/s. NEPC Airlines and M/s. Skyline NEPC limited (NEPC) for the period July 1996 to June 1997 on credit basis despite overdue claims of Rs.13.56 crore as on 1 June 1996. With a view to secure the outstanding amount, IOC also got (May 1997) deeds of hypothecation executed and obtained the right to take possession of the three aircraft (2 belonging to M/s. NEPC Airlines and 1 belonging to M/s. Skyline NEPC Limited) so as to sell the same without any recourse to Court of Law in case of default in payment by NEPC. NEPC defaulted and the supplies were stopped on 3 June 1997.

IOC chose further to enter into an agreement on 19 September 1997 for resuming fuel supplies on cash and carry basis. The agreement also provided for sale and lease back of the three hypothecated aircraft by NEPC for payment of dues to the extent of Rs.18 crore within three months of the start of fuel supply on cash and carry basis. NEPC failed to fulfil its obligations under this agreement also. IOC’s legal notice (April 1998) to the customer to hand over possession of the aircraft failed to evoke any response. The customer removed (May 1998) two engines of one of the aircraft thereby depleting its value. As of 31 March 1999, the amount due from the customer worked out to Rs. 18.41 crore.

The Management replied (May/July 1999) that the credit worthiness of the customer was studied and 21 days credit facility was approved by competent authorities and that the supplies were continued in view of part payments and promises to liquidate the arrears made by the customer.

The reply is not tenable as a sum of Rs.13.56 crore was already due as on 1 June 1996 from NEPC when the credit limit of Rs.6.75 crore was approved in July 1996. The credit worthiness of the customer was, therefore, questionable even on the date of fresh agreement.

The value of the hypothecated aircraft stood diminished due to the removal of engines by the customer, even as the hypothecated aircraft bore the statutory first charge to Government of India towards payment of arrears of Inland Air Travel Tax (Rs.19.03 crore as on June 1998).

The Company’s petition for winding up of M/s. NEPC is pending in the Hon’ble High Court of Madras (July 2000). Besides, the Statutory Authorities were holding (April 2001) the physical possession of grounded aircraft for recovery of their dues.

The chances of recovery being remote the Company had provided for entire amount of Rs.18.41 crore as doubtful debts in its accounts. Thus, the failure of the Company by allowing credit beyond the customers creditworthiness and accepting hypothecation of assets on which first charge already remained with the statutory authorities for payment of statutory dues had resulted in loss of Rs.18.41 crore.

The matter was referred to the Ministry in June 1999; their reply was awaited (October 2001).

Wrong classification of heavy petroleum stock as residual fuel oil resulted in avoidable payment of excise duty amounting to Rs. 14.30 crore.

Mathura Refinery of IOC cleared heavy petroleum stock (HPS) in the name of residual fuel oil (RFO) between October 1984 and February 1988. The rates of excise duty for HPS were higher than the rates for RFO. Consequently, Central Excise Department issued show cause notices claiming Rs. 18.73 crore towards short payment of excise duty.

Against the notices, the Management defended (June 1994) its action by stating that they had classified HPS under RFO on the basis of permission given (February 1984) by the Superintendent, Central Excise Department (CED) to maintain a single register for these products. The permission given by the Superintendent was based on a letter (December 1983) from Member (Budget), Department of Revenue, Central Board of Excise and Customs (CBEC) to the Chairman cum Managing Director of IOC. IOC also stated that the HPS and RFO were different nomenclature of the same product as both the products were residuary products derived from refining of crude petroleum.

The Department of Central Excise in reply to the above defence of IOC stated that the clarification (December 1983) by the Member (Budget), CBEC was provisional and specifically mentioned that in the case of difficulty in regard to any particular fraction which was not coming within the purview of RFO, it may be brought to the notice of department for taking remedial measure. IOC Management misinterpreted the contents of the letter (December 1983) as permission to treat HPS as RFO.

Moreover, Central Excise Department did not take any cognisance of the correspondence exchanged between IOC and Member (Budget) CBEC/the Superintendent CED treating it as personal, as the clarifications were not endorsed to the Commissionorates. The Commissioner Central Excise, Kanpur-II concluded (May 1998) that benefit of lower rate of duty applicable to RFO could not be given to HPS and confirmed the demand of Rs.14.30 (Considering the demand for Rs.4.43 crore pertaining to period in excess of 6 months as time barred) crore. IOC paid the amount in March 1999 under protest and referred (September 1998) the matter to the Committee on Disputes for seeking permission to file stay and appeal with Central Excise and Gold Appellate Tribunal, New Delhi. The permission from Committee was still awaited though a period of more than two years has elapsed (September 2001).

Further, due to time lag between the clearance of the product under concessional rate (1984 to 1988) and paying the difference now (March 1999), IOC could not recover the amount from either the customers or Pool Account.

The Management stated (March 2001) that single register for HPS and RFO was made with the approval of the Superintendent, Central Excise Department and letter from the Member, (Budget) CBEC.

The reply of Management is not tenable in view of the fact that the same defence had already been rejected by the Central Excise Department, treating these letters as personal communication.

Thus, due to misinterpretation of contents of correspondence with the Member, (Budget) CBEC and consequently, wrong classification of HPS under the tariff schedule of RFO, IOC had to incur an avoidable expenditure on excise duty amounting to Rs.14.30 crore.

The matter was referred to the Ministry in May 2001; their reply was awaited (October 2001).

The Company’s hasty decision to install untested newly designed burners in all its three boilers at once on vendor’s recommendation, without financial safeguards against unsatisfactory performance of the same, resulted in an infructuous expenditure of Rs.3.71 crore as the new burners did not yield any fruitful results.

Bharat Heavy Electricals Limited (BHEL) carried out performance tests for IOC to find out ways to improve efficiency of boilers in refineries. It suggested that the Company replace the existing burners of boilers with newly designed ‘R’ type burners as these would take a steam load of 110 MT per hour against the average load of 95 MT per hour being taken by the former. This was expected to improve the productivity of turbo-generator as well as fuel efficiency.

IOC’s Haldia refinery invited (November 1994) tenders for supply of one set of burner based on BHEL’s specifications. Of the four vendors who responded to the enquiry, only BHEL was found to be technically acceptable. The Company’s Board of Directors approved (December 1994) the installation of newly designed ‘R’ type burners in 2 of its 3 boilers at Haldia Refinery at an estimated cost of Rs.4.82 crore. To avail a discount of Rs.24 lakh the Refinery unit placed (April 1995) a purchase order on BHEL for 3 sets of burners (for 3 boilers) in place of two sets as was approved by the Board of Directors. The date of delivery was November 1995. However, BHEL delivered the first set of burners in January 1997 and the second and third set of burners in November 1997. Reasons for delay in supply of burners were not on record.

Since their commissioning in September 1997, the new burners fitted in boiler no. 1 did not perform satisfactorily for a number of reasons. BHEL executed many modifications/ rectification of the burners. The burners ultimately became operational in March 1999; however, most of the lacunae could not be resolved by BHEL. Moreover, the boiler could achieve an average steam load of only 90 MT/hour, as against the projected steam load of 110 MT/hour.

Against an invoice value of Rs.4.23 crore for supply of the burners IOC released Rs.3.05 crore to BHEL, in addition to Rs.27.05 lakh for erection and commissioning of the burners. Of the three sets, the Company had installed only one, while retaining one as spare. It also decided (October 1999) to return one set of the new burners to BHEL. However, the Company was yet to receive BHEL’s response accepting the same.

While accepting the facts, the Management stated (July 2000) that the old boilers could still deliver full load with existing burners and hence the new ‘R’ type burners were not installed in other two boilers. They further stated that no compensation was asked from BHEL because one new burner was in operation and the Company retained Rs.1.18 crore from BHEL’s dues.

Management’s reply is not tenable for the following reasons:

The new burner did not enhance the boiler’s performance. In fact, the old burners are still operational and delivering full load in the boilers. The Management had not seen it fit to replace the existing burners with the new ones in the other two boilers, hence, the entire expenditure of Rs.3.71 crore (Rs.3.32 crore paid to BHEL plus Rs.38.57 lakh being the cost of associated material) had proved infructuous.

The performance of the new ‘R’ type burner was untested and decision to install it was taken up only on the advice of BHEL, who were incidentally also the short-listed vendor for the boiler. The Company failed to insert a suitable performance guarantee clause in the purchase/job order providing for reimbursement of full cost by BHEL in case of unsatisfactory performance of the same.

Thus the Company’s hasty decision to install untested ‘R’ type burners in all its boilers, without adequate financial safeguards against unsatisfactory performance of the same, resulted in an infructuous expenditure of Rs.3.71 crore.

The matter was referred to the Ministry in July 2000, their reply was awaited (October 2001).

Failure of IOC to estimate the requirement of fuel oil for supply to National Fertilizers Limited and consequently non-declaration of its intended end use to the Customs Department even after knowing about the planned shut down of the Mathura Refinery resulted in avoidable expenditure of Rs. 2.67 crore on custom duty.

IOC entered into (August 1993) an agreement with National Fertilizers Limited (NFL) for supply of fuel oil from its Mathura Refinery. According to the agreement, the month wise supply was to be made as per the requirement intimated by NFL on the first day of each quarter. If the Company failed to deliver the agreed fuel oil, NFL would be entitled to purchase the quantity at the risk and cost of the Company.

During the third and fourth quarter of the previous year, IOC planned a shutdown of the Mathura refinery from 15 to 29 February 1996 but did not plan the source from where it would fulfil the consequent shortfall in the availability of fuel oil for supply to NFL. On 5 February, the Company agreed to NFL that it would supply the fuel oil with excise duty paid @ 10 per cent on the stipulation that duty drawback would be claimed by NFL.

Imported oil was exempt from the custom duty for use in the production of fertiliser. The Company imported (from 18 January to 26 February 1996) 60,986.51 KL fuel oil and paid a custom duty of Rs. 10.56 crore. Out of this, the Company supplied (from 19 February to 9 March 1996), 17,533.79 KL imported fuel oil as indigenous fuel oil was not available on account of shut down of Mathura Refinery.

However, while importing the fuel oil, the Company did not declare to the Customs Department that a part of the fuel oil being imported was meant for manufacturing fertilisers. Therefore, it could not claim the refund of Rs.2.67 crore being the custom duty paid on oil supplied to NFL.

The Company instead of billing the actual custom duty paid by it at the rate of 30 per cent towards ad-valorem (ADV) and 10 per cent on account of counter veiling duty (CVD) amounting to Rs. 2.67 crore and forwarding the Bill of Entry to NFL for claiming the duty drawback, billed only 10 per cent excise/custom duty. Further it could also not claim the refund of custom duty, as the end use of oil was not declared in time before the Customs Department. In the absence of receipt of documents for claiming the duty drawback, NFL deducted Rs. 80.55 lakh towards custom/excise duty billed to NFL from the amount due to the Company, which had been contested by it.

The Management admitted (June 2001) that decision to move the fuel oil to NFL was taken after clearance from the Customs Department; therefore, it was not possible to give undertaking about intended use of fuel oil for manufacturing fertilisers. Hence, the refund of the duty could not be claimed.

Thus, even after knowing about the planned shut down of the refinery and contractual commitment to supply fuel oil, it failed to estimate the requirement of NFL and consequently did not declare the intended end use of the fuel oil to the Customs Department. This resulted in avoidable expenditure of Rs. 2.67 crore on custom duty.

The matter was referred to the Ministry in July 2001; their reply was awaited (October 2001).

At the end of 1996, Digboi Refinery of IOC commissioned a gas based co-generation captive power plant (CPP) comprising of three units of 8.5 MW each. The full load test of CPP was complete by September 1997. Before commissioning the CPP, the refinery was drawing power from five power contractual loads of Assam State Electricity Board (ASEB), besides using power from its own diesel generating (DG) sets.

CPP was found capable of meeting the entire power requirement of the refinery. Therefore, after September 1997, there was no necessity to continue with the contractual loads of ASEB, which attracted minimum demand charges even if no power was drawn. Since September 1997, the refinery had not consumed any power from four of the five contractual loads and consumed only marginal power from one contractual load.

The refinery applied for disconnection of two of the five contractual loads in December 1998 and for one in June 1999, which were disconnected in March 1999 and December 1999 respectively. Another contractual load of industrial category, which was marginally utilised after September 1997, was converted to domestic category from April 2001 with a reduced load. One contractual load was still retained as a standby although the refinery had drawn no power from it since September 1997. During the period September 1997 to April 2001 the Company paid Rs 2.42 crore to ASEB towards the minimum demand charges without the consumption of power.

The Management contended (July 2001) that there were occasional CPP power failures, during which period power was drawn from ASEB to meet temporary needs. The Management’s contention is not sustainable because captive power generation was more than sufficient to meet the refinery’s entire requirements. Moreover, the Company utilised marginal power from only one of the five connections since September 1997, which constituted 0.62 to 1.43 per cent of the monthly contractual load of that single connection. This power requirement could have been managed by utilising the 10 standby DG sets of 9.5 MW capacity, which the Company owned.

Thus, the Company incurred avoidable expenditure of Rs.2.42 crore towards the minimum demand charges as it failed to surrender all the five contractual loads of ASEB, even as its needs were being met by the CPP.

The matter was referred to the Ministry in June 2001; their reply was awaited (October 2001).

Absence of effective controls on overtime resulted in abnormal payment per employee per month for 300 hours to 520 hours.

According to the rules of the Company overtime should only be authorised under exceptional circumstances. On an average, there are 720 hours per month, out of which normal working hours @ 9 hours per day for 26 days work out to 234 hours. Further, Section 52 of the Factories Act, 1948 prohibits working for more than 10 days consecutively without a full day holiday. This leaves a balance of only 414 hours for which an employee can avail overtime. A normal human being also needs some time for rest and sleep. Therefore, any figure of overtime in excess of 300 hours is prima facie suspect and over 400 hours virtually impossible.

A review of records of overtime for the period April 2000 to December 2000 revealed that out of 89 cases reviewed, 51 employees were paid overtime allowance for periods ranging between 300 to 520 hours per month. A further detailed review of all the 253 cases involving payment of overtime in excess of Rs.25,000 per month for May and June 2000 revealed the following:

From the above, it would be seen that Mathura Refinery paid overtime allowance for 300 to 520 hours in 180 cases involving a financial implication of Rs.58.80 lakh for the months of May and June 2000.

The Management stated (April 2001) that increase in the number of overtime hours was due to increase in the number of equipments, various inspection, maintenance, emergency shutdowns, and reduction of workmen. Further, overtime was only paid after certification by sectional heads of departments.

The reply of the Management is not tenable as the payment of overtime for such number of hours was improbable and indicated absence of effective controls.

The matter was referred to the Ministry in May 2001; their reply was awaited (October 2001).

Oil and Natural Gas Corporation Limited

In January 1988, Oil and Natural Gas Corporation Limited (ONGC) approved construction of a Group Gathering Station (GGS) at a cost of Rs. 2.54 crore at Demulgaon (Eastern Region). The GGS was initially planned (1988) with a view to handle a capacity of 1000 Tonne per day (TPD) of oil which was subsequently increased to 1314 TPD in December 1990. The cost of GGS was also revised (July 1989) to Rs. 16.46 crore and further to Rs. 19.60 crore in April 1994. As against the completion schedule of December 1992, the GGS was completed at a cost of Rs. 18.05 crore in December 1999 and finally commissioned in June 2001. The cost over run was to the extent of Rs.15.51 crore as compared to the original estimate of January 1988 and a time over run of over 8 years.

Since 1988 to March 1995, the production at Demulgaon field remained below 300 TPD, which was far below the projections made. Eastern Regional Business Centre of ONGC expressed (June 1993) doubts on the utilisation of the GGS in view of the receding production potential of the field. The downward projections were further substantiated in February 1994 when reassessment of production profile of Demulgaon field was made. ONGC, however, continued with the construction of the GGS on the ground that after incurring an expenditure of Rs. 4.33 crore it would be difficult to turn back.

The table below indicates the projections made in 1990 and 1994 vis-à-vis actual production thereaginst:

From the table it could be seen that actual production during all these years remained much below the production anticipated in 1990 and even in 1994. This indicated that the anticipated production was unrealistic and resulted in creation of facilities much in excess of their actual requirement by investing Rs. 18.05 crore.

The Management stated (August 1999) that the prediction of reservoir performance was fraught with uncertainties and was highly probabilistic in nature. This was a case of parallel engineering for early production from projected wells and similar to creation of production facilities while the development of oil field was underway, keeping in view the peak requirement envisaged. Many a time expectations of earth science do not come up as predicted as in this case and the infrastructure developed for the same was utilised at a later stage as and when the requirement became evident.

The reply of the Management is not tenable due to the reasons that the development of infrastructure should directly co-relate and keep pace with the production trend. In June 1993, when it was evident that production of oil was much below the designed capacity of 1314 TPD of the GGS, the Management should have reconsidered the construction of GGS. Further, eight GGSs were available nearby to take care of the then and future production anticipated in 1994 besides surplus handling capacity available at nearby GGS IV. This was also evident from the fact that in spite of inordinate delay of over 8 years in commissioning the GGS, ONGC had not faced any problem in handling of the oil production at Demulgaon till June 2001.

The matter was referred to the Ministry in June 2001; their reply was awaited (October 2001).

ONGC deployed its drill ship on site GI-AD without adequate weather and other data analysis and drilling work could not be carried out due to adverse weather conditions. Consequently, the drill ship had to be taken to another location and the entire expenditure amounting to Rs. 13.78 crore incurred on this site proved to be infructuous.

As per approved drilling plan the ‘Sagar Vijay’ (drill ship) of ONGC was scheduled for deployment at location KKDW - A in Kerala Konkan region in west coast area. In May 1997 the Marine Survey Group of ONGC was requested to expedite action for carrying out the Oceanographic and Geo-technical Survey of site KKDW-A and other two deep water locations in East Coast. The total expected time for sailing, anchoring, drilling and production testing was estimated at 150 days. Expecting peak monsoon period by July 1998 in the region, it was decided in February 1998 to deploy the ship at another location GI-AD in Krishna Godavari region on the East Coast. The decision to deploy the drill ship was taken without waiting for the survey report and without any data of the speed of the current at various depths of the new location. Reliance was placed on available surface current data of the nearby locations. The drill ship operated by M/s. Sedco Forex International Drilling Inc. at operational charges of US$ 28000 per day sailed out of Cochin Shipyard on 21 February 1998 and reached the location GI-AD on 3 March 1998.

The operational parameters of the drill ship required inter alia that the speed of the current should not be more than 2 knots. It was thus essential for any drilling operations to ensure that sufficient weather window was available with the speed of the current being below 2 knots. Meanwhile, ONGC also requested Geological Survey of India (GSI) to carry out engineering survey of this location in February 1998 on urgent basis. The survey was conducted by the GSI between 14 February 1998 and 19 February 1998. It was noticed that the speed of the current (about 1.8 to 2.4 knots at 5 metre depth and 1.6 to 4.0 knots at 30 metre depth) was above the operational parameters of the drill ship.

Due to high speed of the current at the location, the drilling work could not be carried out. A meter to measure the speed of the current when activated on 16 March 1998 also confirmed an average current speed of 3.5 knots with a maximum of 4.58 knots during the period. Instead of immediately shifting the drill ship to another location the Management allowed it to remain on the site. After waiting till 29 March 1998 ONGC finally decided on 30 March 1998, to shift the drill ship to another location where the current was observed to be within the working parameter and the drill ship finally sailed away on 10 April 1998. During the period from 21 February 1998 to 9 April 1998 the expenditure of Rs.13.78 crore (operation and management service: Rs. 5.56 crore, sea and air logistics: Rs. 7.71 crore and remote operating vehicle services: Rs..51 lakh) were incurred on the maintenance of drill ship on this location without performing any drilling operations.

The Management in their reply (April 2000) admitted that though the drill ship was not used for drilling, it was used to undertake penetration tests and also to gather useful real time data regarding current. The Management further stated that the deployment of the ship was made on site GI-AD after analysing the historical data available from international agencies like Noble Denton Associates and AH Glenn Associates on which depends the marine movements/activities all over the world.

The Ministry further added (May 2001) that drill ship remained on location GI-AD and carried out anchor handling operations. It was sheer misfortune that a suitable weather window could not be available despite waiting for a considerable period of time.

The reply of the Ministry/Management is not tenable, as the historical data of that particular location was not available and historical data of the nearby location considered in this case can at best be indicative in nature. The Management should have ensured itself by measuring meteorological and oceanographic parameters in the relevant area for a sufficient long time before moving the drill ship. Moreover, utilising the drill ship which involved a high operating cost for preparatory works like penetration test, gathering data regarding current etc. clearly indicated that proper assessment of all these parameters were not carried out before selecting the site for drilling.

Thus, the decision to deploy drill ship at site GI-AD without adequate data analysis and subsequent belated action to shift it to another location resulted in an infructuous expenditure of Rs. 13.78 crore during the period from 21 February 1998 to 9 April 1998 on its maintenance without any drilling work.

The Eastern Regional Business Centre (ERBC) of ONGC planned to drill at location BHB-A in Mizoram during the year 1994-95 and accordingly approved (May 1994) the construction of approach road and other civil works at a cost of Rs. 2.89 crore. ONGC, however, did not prepare the ‘Geo-Technical Order’ (GTO) a prerequisite for carrying out drilling on the ground that the collection of data was in progress. Civil works awarded between September 1994 and January 1996, were completed by July 1996 at a cost of Rs. 2.06 crore.

While civil works were in progress, ERBC decided (December 1995) to stop incurring fresh expenditure on the site as drilling parameters were under review in view of the high pore pressure of the underground structure. In March 1996, ERBC finally decided to keep further expenditure on this location in abeyance, as it was not possible to drill the well with any of the available rigs in the region. ERBC further decided not to include the site in their future drilling plans. Though fresh works were discontinued, the ongoing works were allowed to continue. The total expenditure of Rs. 2.06 crore incurred on the site up to July 1996, thus, proved to be wasteful.

The Management in reply stated (September 2000) that the technical problems at the drill site were an after development and that the completed civil works would be put to use in future.

The reply is not tenable as no investigation of the site was undertaken before taking up these civil works and ERBC did not have a drilling rig capable of drilling to the proposed depth of 4000 metres. Regarding future utility of the civil works, the site had suffered massive landslides over the road formation in km 4 to km 11 stretch by October 1995 and ERBC also noted in April 1996 that road pavement (including earthwork) was susceptible to scouring due to rain water as major portion of it (km 3 onwards) was not provided with Bituminous surfacing. Therefore, the completed civil works could not be put to use till date (September 2001).

The matter was referred to the Ministry in May 2001; their reply was awaited (October 2001).

Failure in finalisation of tenders within the validity period, ONGC had to re-invite tenders at higher rates for hiring of jeeps for its Mehsana Project, which resulted in an extra expenditure of Rs.1.11 crore for the period from June 1999 to May 2001.

Mehsana Project of ONGC invited three tenders on 22 December 1998 for hiring 220 jeeps on single shift basis, round the clock basis and on emergency basis. The tenders were invited in two parts, technical bid and price bid. All the three tenders were valid for a period of 120 days from the date of opening (i.e. upto 29 May 1999). The technical bids were opened on 29 January 1999 and it took 80 days (29 January 1999 to 18 April 1999) for verification of details. The price bids were opened on 19 April 1999 and the Tender Committee (TC) took about a month to deliberate on the price bids. The recommendations of the TC could finally be submitted for approval on 31 May 1999 when the validity of the bids had expired on 29 May 1999. Consequently the tenders had to be scrapped as the bidders did not agree to extend the period of validity. Fresh tenders were invited and opened in September 1999. The fresh tender for emergency jeeps was finalised in January 2000 and was effective from 1 February 2000. The fresh tenders for other two categories were finalised in March 2000 and were effective from 1 April 2000. The rates offered in the fresh tenders were substantially higher as compared to the rates of earlier tenders. On comparing the rates of both the tenders ONGC incurred an extra avoidable expenditure of Rs.1.11 crore during the period from June 1999 to May 2001

The Enquiry Committee constituted by ONGC to analyse the reasons for delay in finalisation at every stage vide their report of 3 August 1999 did not hold anyone responsible for the delay. The Committee reported that at least 12 days could have been saved prior to opening of price bids and after receipt of complaint of one bidder on 4 May 1999, three weeks time was taken for its examination. The Group General Manager (Logistics) in his advisory note of 16 August 1999 further observed that even for preparation of comparative statement, 17 to 19 days were taken.

The Management in its reply stated (January 2001) that:

1. The preparation of comparative statement involved meticulous scrutiny of all Regional Transport Office papers e.g. registration book, insurance, road tax, permit, fitness etc. in respect of minimum 17 vehicles per bidder for single shift jeeps, 6 vehicles per bidder for round the clock jeeps and 6 vehicles per bidder for emergency jeeps. Besides, scrutiny of other details such as solvency certificate, bank guarantee, experience certificate, certificate of provident fund number etc. and other details were also involved in each tender.
2. The approval process at Regional level had to follow the prescribed channels for verification at each level.
3. Members of the Tender Committee were busy in discharging other responsibilities and it was expected that bidders would extend the validity, which unfortunately they did not.

The reply of the Management on procedural delay is not tenable since Mehsana Project was having a running contract for jeeps for all the three categories and the background of the limited parties in the fray including procedural delays were well known to the Management. The existing contracts for hiring of jeeps effective from September 1996 were valid for two years i.e. upto 30 September 1998. These were extended with mutual consent in piecemeal for a further period of one year and 6 months, i.e. upto March 2000.

Thus the failure of the Management to process and finalise the first tender within the validity period of 120 days resulted into an extra avoidable expenditure of Rs.1.11 crore for the period from June 1999 to May 2001 on the award of subsequent tenders at higher rates.

The matter was referred to the Ministry in May 2001; their reply was awaited (October 2001).

In Gandhar oil and gas field of ONGC an uncontrolled flow of gas occurred from well G 402 on 15 March 1998. Keeping in view the emergency, ONGC engaged M/s. Wild Well Control Inc. USA (WWCI) in March 1998 as consultants. The snubbing operations work was awarded to M/s. Hydraulic Well Control Inc. USA (HWCI) on 10 May 1998 at a cost of US$ 2.58 million. Further ONGC was to arrange custom clearance for equipment and explosives including clearance from Director General of Civil Aviation (DGCA) for landing of contractor’s aircraft in India. Explosives required for the snubbing operations were included in the scope of materials to be mobilised by the HWCI.

When the work was awarded in May 1998, neither the consultant (WWCI) nor the contractor (HWCI) identified the types of explosives required for snubbing operations. The detailed specifications of these explosives were furnished by HWCI to the ONGC only on 24 June 1998. After this, ONGC applied for the clearance of DGCA, which was granted on 29 June 1998. ONGC also failed to foresee the implications of importing identified explosives in India in the absence of valid import licence. ONGC’s application of 30 June 1998 for granting of licence to import explosives was cleared by the Chief Controller of Explosives, Nagpur (CCE) on 16 July 1998. The required explosives arrived at the port on 22 July 1998 and were immediately put to use on site 23 July 1998.

Meanwhile due to delay in import of explosives, HWCI suspended snubbing operations at the well for 15 days from 8 July to 22 July 1998. ONGC had to pay standby charges amounting to US$ 0.24 million (equivalent of Rs. 1.06 crore calculated at conversion rate of exchange of 1US $ = Rs. 43.63) for 15 days at the rate of US $ 16187 per day on idling of equipment for want of explosives.

The Management stated (May 2001) that the type of explosives required for the job could not be ascertained during LOI stage as finalisation of basic device depends upon condition of well which in turn decide the exact nature of explosives to be used. The detailed specifications of explosives were necessary and the same could be obtained from HWCI only by 24 June 1998. Further as per laid down procedure, the clearance of DGCA was pre-requisite and after approval the case was moved for explosive licence to CCE Nagpur. In addition it also needed listing in the gazette and clearance from various authorities as the required explosives were imported for the first time.

The reply of the Management is not tenable, as ONGC had engaged WWCI as its consultant for advice and assistance in planning and execution of work at well G-402. The consultant had inspected the well before award of snubbing operation on 10 May 1998 and the contractor had also interacted on 18 May 1998 at USA with their suppliers but failed to identify the type of explosives required for snubbing operations till 24 June 1998. No responsibility for this was fixed on the consultant for this delay. Besides, ONGC being responsible for arranging import licence for import of explosives did not initiate immediate action after award of work in May 1998 and applied for import licence only after 50 days i.e. on 30 June 1998.

The matter was referred to the Ministry in June 2001; their reply was awaited (October 2001).

As per bid evaluation criteria obtaining necessary clearance from the regulatory authorities was the responsibility of the contractor before putting crew boats on hire with ONGC. The release of payment by the ONGC for the period when crew boats were awaiting required clearance resulted in an infructuous expenditure of Rs. 80.79 lakh.

ONGC hired (September 1997) crew boats from M/s. Hind Offshore Private Limited, Mumbai (HOPL) for a period of two working seasons at a daily charter hire rate of US $ 1895. As per clause 1.13 of the contract, “on hire” would mean the period when the crew boat was deployed for charterer’s operation after due clearance from all regulatory authorities. Bidding document {clause 13 B (III)} for the tender made it clear that the responsibility for obtaining all clearances from the concerned authorities rested exclusively with the bidder. Accordingly HOPL offered their boats during the first season (September 1997) after obtaining all clearances including those from the naval authorities.

At the commencement of the second season, ONGC asked (8 September 1998) HOPL to offer their boats on hire survey on or before 15 September 1998. HOPL gave their readiness for on hire survey on 15 September 1998 but the boats could only be hired from 25 November 1998 due to delay in obtaining naval clearance. The reason for delay was the change in the procedure for obtaining naval clearance, which was now to be obtained from the Ministry of Defence/Naval Headquarters at New Delhi instead of Western Naval Command, Mumbai.

HOPL claimed hire charges amounting to US $ 0.27 million (equivalent to Rs.1.17 crore) for the period from 15 September 1998 to 24 November 1998 stating that securing naval clearance was the responsibility of ONGC as this was the second year of the contract. The contractor also indicated to invoke the arbitration clause in case such payment was not made. The claim of HOPL about the responsibility of the ONGC to obtain naval clearance was however not based on any terms of the contract.

A committee formed by ONGC to consider the claim of HOPL inter alia observed (January 2000) that due to change in the policy regarding obtaining clearance from the Naval Headquarters at Delhi there had been post contractual changes in the procedure. Therefore, it became incumbent upon ONGC to be an equal partner for arranging any such clearance. Further in new tender (August 1999) for charter hire of crew boats, it had been made categorically clear that obtaining Naval clearance would be the responsibility of ONGC. This may reinforce the contractor’s contention if ONGC resorted to arbitration. Keeping this in view, the Committee recommended that HOPL may be paid hire charges for 70 days from 15 September 1998 to 24 November 1998 at the rate of US$ 1326.52 per day per crew boat excluding cost of fuel and profit margin of 10 per cent. Accordingly the payment of US$ 0.19 million (equivalent of Rs. 80.79 lakh at conversion rate of 1US$ = Rs. 43.50) was released to the HOPL in respect of two non-operative crew boats.

Thus the decision of the ONGC to release the payment to HOPL for the period when the boats remained non operative for want of licence resulted in infructuous expenditure of Rs. 80.79 lakh.

The Management admitted (June 2001) that as per bid evaluation criteria obtaining necessary clearance from the appropriate Government Agency was the responsibility of the contractor. Accordingly HOPL mobilised the vessels after obtaining all the clearances including naval clearance immediately after issuing the letter of intent in October 1997 for the first season. It was only in September 1998 (second season) when HOPL offered vessels for on hire survey it was noticed that Naval clearance which was hitherto being given by the Flag Officer, Defence Advisory Group, Mumbai had to be obtained after clearance from Ministry of Petroleum & Natural Gas and Ministry of Defence/Naval Headquarter. Since the procedure was very elaborate and time consuming it would have been wrong on the part of ONGC to expect the contractor to anticipate such changes and be prepared for subsequent eventualities.

As admitted by the Management it was HOPL who was responsible for obtaining necessary clearance from the concerned authorities as per criteria for evaluation of bids. Subsequent changes in procedure do not absolve HOPL from this responsibility.

The matter was referred to the Ministry in May 2001; their reply was awaited (October 2001).