CHAPTER 4
MINISTRY OF COAL

Bharat Coking Coal Limited

Process rejects generated in washeries during washing of raw coal are saleable products. In Moonidih Washery of Bharat Coking Coal Limited (Company), the stock of process rejects was being regularly verified by the area Management.

In May 1996, when the stock was physically verified as on 31 March 1996 by a team of Coal India Limited, the book stock of rejects as on date was changed from 12.82 lakh MT to 7.07 lakh MT. There was a variation of 5.75 lakh MT because the quantity of rejects despatched was reflected as 6.13 lakh MT in the report of annual measurement of saleable stock as on 1 April 1996, whereas quantity of rejects actually despatched came to only 0.38 lakh MT as per the washery’s statement.

There was no documentary evidence to demonstrate how 5.75 lakh MT of rejects had been used outside washery premises. The shortages resulted in a loss of Rs.14.24 crore (5.75 lakh MT @ Rs.247.71 per MT).

The Management stated (November 1999) that the stock of 5.75 lakh MT rejects was dumped outside the washery premises using departmental transport. These had been used for levelling a stadium and for levelling and filling up roads, wall and ponds. It stated that it was not possible to measure the process rejects due to non-availability of ground contours.

The Management’s reply is unacceptable, as they had been unable to produce any documentary evidence in support of their claim of having used the rejects for different purposes as stated in reply vis-à-vis failure of measurement of process rejects.

It is not possible to accept the contention that rejects valued at Rs. 247.71 per MT were utilised as filling up material as against the normal practice of using earth for such purposes being the far cheaper alternative.

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

Magnetite is used as solution for separation of clean coal from refuse by Float and Sink method. A major part of material is recovered, reprocessed and reused. Bharat Coking Coal Limited (Company) had fixed norm for consumption of Magnetite separately for each of the 7 washeries for the period between 1966 and 1988. The norm varied from 0.5 Kg to 1.5 Kg per tonne of raw coal washed.

The Company constituted (September 1995) a High Level Committee to review of norm of consumption of Magnetite keeping in view the ageing of the washeries and other constraints. On the basis of recommendation of the Committee, the norm was revised upward to 0.97 Kg and 3.5 Kg per tonne of raw coal washed.

A review of consumption pattern of Magnetite for the years 1995-96 to 1999-2000 revealed that in spite of upward revision of the norms, actual consumption continued to be higher than the revised norm in 5 out of 7 washeries of the Company. The percentage of excess consumption over the revised norm for the above period ranged from 3 to 226 per cent. This resulted in excess consumption of 0.41 lakh MT of Magnetite valued at Rs. 5.01 crore for the same period.

The main reasons for the excess consumption were absence of proper upkeep and maintenance of equipment leading to inefficient operation of Ball Mills and Magnetite separators and leakage in pipe lines, pumps and sumps and lack of awareness amongst the workers about wastage of valuable material.

The Management replied (September 2000) that the Committee fixed certain ideal norms of consumption and unless all assumptions were set out it was not possible to achieve the norm in real operation. It also stated that to a great extent the objectives (of containing excess consumption of Magnetite) had been achieved. The Ministry reiterated (October 2001) the views of the Management.

The reply is not tenable in view of the fact that despite the upward revision of norms, consumption continued to be high. The Company also maintained that higher consumption of Magnetite could be attributed to the necessity of maintaining strict control over the quality of the washed coal. In reality, the Company continued to face deductions for poor quality of the coal supplied to customers and there was no record to prove that this was a conscious decision.

Thus, due to lack of proper upkeep of the equipment and control over the consumption of Magnetite, the Company suffered a loss of Rs. 5.01 crore due to excess consumption of the same for the period from 1995-96 to 1999-2000.

The Jhilia Nala passes on the western boundary of New Liakdih Open Cast Project (NLOCP) of Bharat Coking Coal Limited (Company) from north to south. The Nala carries catchment water from up stream areas during rainy season. In order to prevent water flowing/seeping into the quarry during rainy season, overburden from the quarry was being dumped regularly between the Nala and the quarry to act as embankment.

As advised by Director General (Mines Safety), the Company on 30 May 1998 awarded to three contractors the work of construction of embankment all along the Nala to a length of 200 metres as a permanent measure. The aim was to strengthen the embankment and prevent the quarry from being inundated with water from the Nala. It awarded the work to contractors with no experience in execution of flood protection works. Although the Company stipulated one month’s time for completion of the work, it delayed releasing the work order and drawings to the contractors. Consequently, the contractors left the work incomplete on 12 July 1998. By this time about 75 per cent of the work was completed.

In August 1998 the Nala overflowed due to rains which, in turn, led to heavy seepage of water beneath the partially constructed embankment. Hence the quarry was flooded with rainwater. Not finding de-watering feasible, the Company finally abandoned the quarry in September 1998.

As a result of inundation and the consequent abandonment of the quarry, equipment valued at Rs. 7 lakh and coal stock on the quarry bed valued at Rs. 7.65 lakh were lost. Besides coal reserves of 0.43 lakh MT valued at Rs. 52.75 lakh (net realisable value) were rendered irrecoverable. As per the claim made by the contractors, the value of work done was Rs. 6.58 lakh.

The Ministry inter alia stated (August 2001) that the inundation of the quarry was an instance of force majeure and beyond its control though precaution was taken well in advance.

The reply is not tenable for the following reasons:

1. the Company awarded the work to contractors with no experience in execution of flood protection works. The works were taken up during monsoon season, that too without obtaining the drawings in advance;
2. the contractors failed to carry out back filling of the gap between the retaining wall and existing embankment after construction;
3. the contractors disturbed the existing embankment with filled up overburden. This allowed seepage into and consequent inundation of the quarry; and
4. the Company delayed in giving regular drawings and work order. This led to suspension of the work mid-way by the contractors.

Thus defective planning and faulty execution of work by inexperienced contractors by the Company led to the inundation of the quarry and consequent avoidable loss of Rs. 73.98 lakh being the value of equipment, coal stock, coal reserves and cost of construction of embankment.

Coal India Limited

In terms of an agreement entered into in November 1992 with North East Frontier Railway (NFR), Coal India Limited (CIL) avails of a “credit note cum cheque” (CNCC) facility for payment of freight and other charges on the traffic booked by it. Under this arrangement, CIL issues a CNCC drawn on a designated bank in lieu of cash towards payment of freight and other charges for the traffic booked from Rail Stations at Ledo, Lumding, New Bongaigaon, Kamakhyaguri and Baragalai and New Guwahati. On receipt of CNCC the traffic is booked on ‘paid basis’ by the Railways. In case the CNCC is dishonoured on presentation, the traffic booked initially on ‘paid basis’ is treated as ‘to pay basis’ and a surcharge at 15 per cent (10 per cent upto 14 January 1995) of freight charges is levied. In order to ensure timely payment of CNCCs on presentation by Railways, CIL was required to maintain sufficient funds in the designated bank to honour the CNCCs issued.

Between March 1993 and March 1995, Railways presented CNCCs aggregating to Rs. 22.66 crore issued by CIL towards payment of freight to the designated bank (Central Bank of India, Guwahati). These were, however, dishonoured, as CIL had not maintained sufficient funds in their bank account. As a result, Railways treated the freight paid Railway receipts (RRs) as freight to pay RRs and levied (May 1996) surcharge aggregating Rs. 2.43 crore. CIL paid (April 1999 and March 2000) Rs. 1.85 crore in cash and Rs. 58 lakh by way of adjustment against claims due to it. Railways also claimed (December 1999) interest amounting to Rs. 53.44 lakh due to delay in payment of surcharge. Its request for waiver of interest was pending with Railway Board.

The Company while accepting the facts of the case stated (February 2001) that steps had since been initiated in CIL to ensure that no such incidence is allowed to recur ever again.

The Company failed to establish proper mechanism to ensure that its commitments towards payment of Railway freight are monitored and honoured as and when these arise. By failing to ensure availability of sufficient funds in the designated bank account, CIL incurred avoidable expenditure aggregating to Rs 2.43 crore.

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

Mahanadi Coalfields Limited

Government of Orissa with effect from 2 April 1992 allowed 10 per cent concessional rate of tariff for domestic consumption of electricity over industrial consumption provided that the units consumed for colony were metered separately. This concession was withdrawn between 7 September 1993 and 20 May 1996.

The Orient Area of Mahanadi Coalfields Limited (Company) had been using electricity for industrial as well as for colony consumption. As there was no separate metering arrangement for colony consumption, the Area Office continued to pay for colony consumption also at tariff applicable for industrial consumption prior to 6 September 1993 and after restoration of concessional tariff on 21 May 1996. The Orient Area had two separate connections for colony consumption without separate metering arrangement. The Area Office segregated the colony consumption and arranged separate metering of two service connections to avail of the concessional rate of tariff for colony consumption. However, this was done only from March 1998 and June 1998 respectively.

Thus, due to delay in installation of separate meters for colony consumption the Company had foregone concessional electricity tariff to the tune of Rs. 1.09 crore for the period from May 1996 to March/May 1998.

The Ministry while concurring with the observation of the Audit indicated (December 2000) that it has taken a serious view of lack of action before 1993 and after 1996 to avail concessional rate of domestic consumption of electricity and advised the Company to enquire into the matter and fix responsibility.

Neyveli Lignite Corporation Limited

Belt Reconditioning Plant (BRP) of Neyveli Lignite Corporation Limited (Company) had an installed capacity of 12960 metres per annum to recondition the used steel cord conveyor belts. The capacity of the BRP was further augmented with commissioning of a new machine with capacity of 19440 metres in July 1997. Keeping in view the increase in curing time from 1.5 minutes per mm to 2 minutes per mm for improved quality, the total capacity of the two plants was reassessed as 24300 metres per annum (90 metres per day for 270 days/year) for all sizes up to 2400 mm width.

The Company estimated (November 1998) a total shortage of reconditioned belts by 7398 metres for 1998-99 and 1999-2000 after taking into account available stock of belts and performance of the BRP for the previous year.

To meet the shortfall, the Company placed (June 1999) an order with an outside agency for reconditioning of 800 metres of 2000 mm width belt at negotiated rate of Rs. 9360 per metre as against Rs.4067 per metre being the cost at which the Company was reconditioning the belts at BRP. The extra expenditure due to off loading reconditioning work to outside agency was Rs.59.44 lakh.

The records revealed that the proposal approved for reconditioning work to outside agency, the Company did not take into account the actual capacity of 24300 metres per annum of BRP. Also, the cost-benefit analysis of internal reconditioning versus outsourcing was not made correctly.

The Management replied (October 1999/ July 2000) that the capacity achieved by BRP in the past was taken into account after considering the various ancillary systems on which the plant was dependent. They further stated that the Company’s in-house reconditioning lasted only 8000 hours running whereas the outside agency had assured 27000 hours running of their reconditioned belts. The Ministry endorsed (August 2000) the views of the Management.

The reply is not tenable, as BRP had reconditioned more than the estimated quantity of belts during 1998-99 and 1999-2000. As against the Company’s projected requirement of 15690 metres of 2000 mm width belt upto March 2000, 17194 metres were actually reconditioned during the same period, which was more than the projected requirement. Thus, even after reconditioning more of the belts than projected, BRP had sufficient spare capacity to recondition 800 metres of reconditioning work outsourced to an outside agency. Thus the outsourcing of work was clearly not necessary and was avoidable. As regards to the evidence on 27000 hours of satisfactory performance of reconditioned belts the Company expressed inability to produce the same.

Thus, as a result of incorrect estimation and unjustified outsourcing of reconditioning work, the Company incurred an amount of Rs.59.44 lakh, which was avoidable.

Northern Coalfields Limited

The Company appointed an Agent for handling imported consignments in spite of having an in-house clearing and forwarding department to handle imported consignments resulting in an avoidable expenditure of Rs. 2.16 crore towards agency commission.

The Northern Coalfields Limited (NCL) is one of the 8 subsidiaries of Coal India Limited (CIL). The CIL has a separate clearing and forwarding (C&F) department to handle imports of all its subsidiaries. Except NCL, all the subsidiaries of CIL route their imports through this department. NCL utilised the services of C&F department for clearance of imported consignments upto June 1992. NCL appointed M/s. Balmer Lawrie & Company Limited (BLC) as their C&F agents initially for one year which was renewed for 8 years upto July 2001 to handle imports on payment of commission at 0.5 per cent of CIF value from 1 July 1992. This was done on the plea that the C&F department was not able to do expeditious clearance of imported consignments.

NCL paid BLC Rs. 2.16 crore by way of agency commission between 1992-93 and 2000-01. This payment could have been avoided largely had the Company utilised the services of C&F department of CIL as was done by other subsidiaries. The agreement with BLC had, however, been terminated with effect from July 2001.

The Management while justifying the appointment of BLC as C&F agent, stated (March 2001) that there had been inordinate delay in clearance of imported consignments and the C&F department of CIL was not in a position to cater to the need for expeditious release of consignment from the port.

The reply is not convincing because seven out of eight subsidiaries were availing the services of C&F department of CIL without any complaint and the C&F department is adequately geared upto accept the tasks of all subsidiaries. Further the Company should have reviewed the strengths and capabilities of C&F department of CIL, before extending the period of agreement with BLC from time to time.

Thus, the expenditure of Rs. 2.16 crore incurred by way of agency commission could have been avoided largely, if NCL had availed the services of C&F department of CIL as was done by other subsidiaries.

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

South Eastern Coalfields Limited

South Eastern Coalfields Limited (Company) used to despatch coal from Chhaal, Dharam and Mand underground mines to its consumers directly from the pit-heads. In October 1992, it decided to set up a Central Sales Centre (CSC) at Chhal block of Raigarh area to despatch coal produced from these mines, without, however, envisaging any benefits therefrom. The Project Report (May 1993), also, did not mention any benefits arising from the setting up of the CSC and no cost benefit analysis was carried out.

The construction of the CSC was completed on 5 May 1996 at a total cost of Rs. 93.40 lakh. It, however, could not be operationalised till 1 August 1999 because of delay in completion of approach road and ramp of the CSC and non-availability of a transformer for power supply. Meanwhile, one of the three mines (Mand), expected to produce one third of the total coal to be sold from CSC, was to be closed with effect from 1 November 1997 due to adverse geo-mining conditions and poor quality of coal.

Even after the commencement of operation by the CSC, it could not fetch business, as the consumers were reluctant to bear high dump charges of Rs. 42 per tonne, being the cost of operation of the CSC. As a result, the sales from the remaining two mines (Chhaal and Dharam) plummeted to almost half as compared to the period prior to the operation of CSC. This eventually forced (30 September 2000) the Company to reduce the dump charges from Rs. 42 to Rs. 14 per tonne, which was less than half of the cash cost of operation. This established the futility of setting up of the CSC which remained idle for the first 39 months of its completion and thereafter, has not been able to recover even its cash cost.

The Ministry admitted (March 2001) that the entire expenditure of Rs. 93.40 lakh was not commercially justified and directed the Company to fix the responsibility for the lapse. The Committee constituted by the Company recommended (6 April 2001) closure of the CSC on the grounds that the consumers were being charged extra without any value addition and space at the CSC was restricted, which would always remain a constraint. However, it did not hold anyone responsible for the infructuous expenditure of Rs. 93.40 lakh.

Thus, injudicious setting up of the CSC without carrying out any cost benefit analysis resulted in an infructuous expenditure of Rs. 93.40 lakh.

Western Coalfields Limited

The wage structure and terms and conditions of service including fringe benefits of the employees in the Coal Industry are regulated by the recommendations of the Central Wage Board for Coal Mining Industry as accepted by the Government of India. National Coal Wage Agreement - V (NCWA-V) accepted by the Government of India, inter alia provided that in the coalfieds areas, where the employees were provided with residential quarters by the Management and also electricity from the bulk supply obtained from the Electricity Boards, they would be entitled to a free consumption of 30 units per residential quarter per month on a uniform basis. It further provided that for consumption beyond this, they would be required to pay at the same rates at which the electricity supply undertakings charged the Coal Companies. The agreement was effective from November 1994.

Audit scrutiny in case of Western Coalfieds Limited (Company) revealed that the consumption of electricity by the employees was in excess of the limit and no recovery was made from the employees in contravention of the terms and conditions of the NCWA-V. During the period from April 1999 to March 2001, for which complete records were made available, the electricity consumed in excess of above limit worked out to Rs.105.50 crore.

The Management stated (May 2000) that electricity charges were not being recovered from the employees due to non-installation of meters in their residential quarters. They further stated (December 2000) that if recovery of electricity charges beyond 30 units were enforced without the consensus of the local trade unions, it would result in strike and unrest, causing huge loss to the Company on account of loss of production etc.

The reply is not tenable since installation of meters was not an insurmountable problem. In fact, non-installation of meters would encourage the employees to resort to injudicious use of electricity for their energy needs. Further, recovery of electricity charges beyond the permissible limit was to be effected in accordance with the NCWA-V, which has the approval of the trade unions.

Thus, due to non-recovery of electricity charges from the employees, the Company suffered a loss of Rs. 105.50 crore over the period of two years.

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