New Delhi: The modernisation and expansion programme of state-owned steel major SAIL has been marred by project delays and its implementation has been inefficient at all stages, including tendering and cost overruns, government auditor CAG said Wednesday.
Coming down hard on the state-run steel giants' awarding of contracts for the modernisation and expansion programme (MEP), Comptroller and Auditor General (CAG) said execution of all projects across all plants resulted in high prices.
The prices obtained through tender during 2006-08 were 70 -100 percent higher than the cost estimates and total cost of proposed MEP projects rose from Rs 43,142 crore approved by SAIL Board during 2006-07 to Rs 77,691 crore during 2008-09, an increase of 80 percent, it pointed out.
"Project planning, tender finalisation, project execution and monitoring of MEP implementation were not efficient at all stages of project management cycle," CAG said in its report that was tabled in Parliament today.
SAIL failed to implement MEP within planned timelines and the capacity expansion at Salem steel plant (SSP) only could be completed by September 2010, it added.
The integrated commissioning of capacity expansion projects in five integrated steel plants has been delayed by over four years and is now scheduled for completion during 2015, it said.
On the awarding of contracts, the apex auditor said: "The capacity of the equipment suppliers and contractors were limited. Simultaneous implementation of all the MEP projects across all plants within the compressed timelines stretched their capacity and resulted in high prices."
SAIL management had option to stagger capacity building plan in phases to allow the prices of equipment and works to calm down. But the SAIL Board chose to continue with its earlier decision, CAG said.
"20 contracts valuing Rs 10,556 crore were awarded on single qualified bid basis which was Rs 2,125 crore (25 percent) higher than the cost estimates updated for all scope creep and price escalation up to opening of price bids," it said.
Similarly, 20 contracts valuing Rs 6,600 crore were awarded on two qualified bid basis which was higher than the cost estimates by Rs 578 crore (9.6 percent), it added.
"In 13 contracts the awarded price was higher by 33-75 percent than cost estimates and 10 of them were not re-tendered. In the absence of sufficient competition the reasonableness of the ordered price could not be verified in audit," CAG said.
Out of 153 projects of Rs 20 crore and above, awarded during 2008-13, SAIL took more than two years in 25 cases and more than three years in 87 cases in completing the tender finalisation process, it added.
The average time taken was 37 months which was four times more than the 9 months prescribed in the internal guidelines of the company, the auditor said.
"SAIL did not have a clear and transparent policy for dealing with cases which could be re-tendered or negotiated, threshold for acceptance of quoted prices which were higher than cost estimates and split of main package into number of sub-packages to obtain more competition," CAG said.
All the 104 contracts of Rs 100 crore or more were not completed within the scheduled completion time stipulated in the contracts. Delay in 21 contracts was between 1-2 years, in 39 contracts 2-3 years, while in 38 contracts it was more than three years, it added.
CAG pointed out that SAIL's market share to India's total saleable steel had decreased from 25 percent in 2004-05 to 14.6 percent in 2013-14.
"Due to delays in completion of capacity expansion in five integrated steel plants by over four years on which Rs 49,565 crore has already been spent as of December 31, 2014, obtaining of envisaged annual gross margin of Rs 9,438 crore has also got delayed," it added.
CAG has suggested that SAIL may adequately document the lessons learnt from the ongoing implementation of MEP. This would be a useful document to serve as a guide for future capacity expansions.
"Company may revisit the existing policies, procedures and practices with regard to project management and contract procurement and execution and strengthen them to adequately mitigate risks of time and cost overrun in future ventures," it added.
The company may strengthen their project monitoring system at all levels. There should be appropriate monitoring mechanism at the Plant and the Board level that would not only monitor but should have the authority to take corrective action as well as fix responsibility at each stage of delay, it recommended.
