How Not To Work?

The CAG has flayed the state government’s contract management systems and indicted it for entering into bad deals. A Kashmir Life report.

Policymakers in the government made their efforts to neutralize the impact of the Power Development Department (PDC) agreement with NHPC, India’s hydropower giant, under which it is operating and managing the state’s flagship Baghlihar Power Project. The flaws in the deal were detected only after the agreement was signed and payments were made.
The project was being run by state engineers prior to the NHPC takeover. They are still running it in different capacities.

The PDC skipped handing over the complete project to the NHPC. It only parted with electrical part and retained the mechanical and civil side with its staff. “We are not paying them every bit because we have not handed over (to) them what they were supposed to takeover for maintenance,” a top official told Kashmir Life. “It is a two year contract and we are supposed to pay them Rs 148.20 crore but so far we have not even paid them even Rs 70 crore.” The contract is ending by September2011.

“We have a complete team working on the project and they know how to manage it,” a senior engineer informed. “Some of the engineers who were trained and transferred are being redeployed on the project.” Engineers working on the project said it is a better machine that is easy to handle.

In April 2009, when the state government decided to ink the operation and Maintenance (O&M)deal with NHPC, there was hue and cry in Kashmir. People within and outside the government said the decision was unnecessary as it prevents the local talent from delivering. Exactly after two years, the Comptroller and Auditor General (CAG) of India has said almost the same thing while offering the details of how the policymakers in the state faltered.

The electro-mechanical contractor – M/S Voith Siemens and VA, as per the agreement, trained the company staff in handling of the equipment. During 2004-05, the CAG says as many as six officers including an executive engineer, an assistant executive engineer, an assistant engineer and three junior engineers, were flown to Germany by the contractors for training. The PDC that owns the project paid the contractor Rs 4.62 crore for the training in February 2010.

Post training, the CAG says, “Two of these officers were repatriated to their parent departments while the services of others could not be utilized as two of them belonged to mechanical and civil disciplines and could not be deployed on power house operational duties.” It is a universal practice that the contractors train the staff for running the plant.

It happened in J&K as well but the trained eventually turned out to be blue-eyed – a ‘wrong selection’.
With the result PDC inked an O&M agreement with the NHPC in March 2009. By May 2010, the PDC had released Rs 51.58 crore to the NHPC. Under the agreement, the NHPC charged Rs 74.10 crore for running the power house for a year. NHPC took over the project in September 2009.

Apart detecting these wrongs the CAG identified a set of compromises made by the state government while implementing the project. The project awarded in April 1999 was supposed to be ready by December 2004 at an investment of Rs 3899 crore. It was handed over to the state in parts in April 2009 with time overruns of 51 months and cost overruns of Rs 2020 crore.

The government revised its costs thrice – August 2004, April 2008 and October 2009, which finally came to Rs 5827 crore. But contractors could only coerce the government to do more because the PDC had skipped managing financial closure of the project in time. By the time the financial closure was achieved, PDC had spent Rs 2366 crore – most of which had come by diverting the plan funds to the project. Even after the financial closure PDC skipped paying contractors as per the routine. Unprecedented snowfall in January2005 and torrential rains in July 2005 added to the delay and the costs.

While the project is operational, the CAG says that delay in constructing alternative roads and bridges in submergence areas prevented the reservoir from being filled totally. Against the envisaged depth of 840 meters above sea level (MASL) it continues to be static at 836 MASL.

 “This has also reduced cushion for floods substantially,” the report says.  The CAG has lamented over J&K state’s contract management systems. It had signed an agreement providing granting extension of time (EOT) for completing the project and making contractor entitled to additional payment of costs arising from the time extension.

The PDC granted EOT to the contractors eight times between 2005 and 2009 which cost it Rs 196 crore. “Delay in civil works, resulted in five extensions in time in respect of electro-mechanical contractors and payment of Rs 106.86 crore on account of cost escalation due to EOT (Rs 77.88 crore), extension in defect liability period (Rs 24.10 crore) and preservation charges (Rs 4.88 crore) to the contractors,” the CAG report says.

“This also led to continued supervision by consultants due to which additional expenditure of Rs 69.23 crore was incurred beyond Rs 60.77 crore payable to consultant as per schedule.”
The CAG has identified undue favours to the contractor as also questioned the operational performance of the project. A number of allied works are still being executed on the project, it added.

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