CAG of India writes to RAA for a special Joint Performance Audit on Punatsangchu I

In the backdrop of growing concerns over delays, cost escalations and other issues, the Comptroller and Auditor General of India (CAG) has written to the Royal Audit Authority (RAA) to do a joint Performance Audit on, “Implementation of Hydropower Power Project by the Punatsangchu Hydroelectric Project Authority (PHPA-I).’

Performance Audits are normally carried out to see if a particular agency or project is achieving economy, efficiency and effectiveness in the use of resources.

The Indian Cabinet towards the end of July approved Nu 93.7 bn as the new estimated cost for the P I project after considering it for a while. Coincidentally the letter from the CAG has reached the RAA in mid July 2015 around the same period.

What is notable is that the CAG and RAA are already doing regular annual joint audit reports on the accounts and operations of P I with the latest ongoing one for 2013-2014.

Earlier around three annual reports were already published at different stages of the P I construction.

Also, the Performance Audit for P I was originally scheduled for the earlier completion date of 2016-17. However, the CAG letter to RAA says that the performance audit should now be conducted between August to September 2015. In the case of Tala a Performance Audit was only done after the project was complete.

A senior RAA official on the condition of anonymity said that the CAG Audit letter could be linked to excessive delays and cost overruns in the project.

The official said that the CAG would also want a comprehensive picture of what was happening in the project so far. The official said that the CAG may also want to find out more things that what there was in the past annual reports of the P I.

The RAA official explained that while the normal annual audit reports looked at financial and operational issues the performance audit would not be limited to that but would have a broader scope.

The project was initially estimated to be around Nu 35 bn in 2006 but gradually shot up to around Nu 62 bn and then shot up to more than Nu 90 bn in part due to inflation but also due to the expensive dam relocation and right bank slip.

The last published annual joint audit report on P I threw up several issues.

The audit showed that Punatsangchu Hydroelectric Project Authority (PHPA) project management, Water and Power Consultancy Services (WAPCOS) and Central Water Commission (CWC) knew that that were geological weaknesses at the new right bank area as indicated by a preliminary Geological Survey of India (GSI) report but they still went ahead and approved the tendering of the dam on the same site.

This contributed to an additional Nu 3.5 bn in costs to strengthen the right bank and also delayed the project.

It also showed avoidable extra expenditure, overpayment, waste and irregularities coming to around Nu 1.4 bn. These included wasteful and avoidable expenditure, overpayment of profit margins to contractors, non recovery of amounts and irregular allowances and TA/ DA.

The project’s original completion date was November 2016 but with repeated delays especially with regard to the sliding area and dam relocation the latest completion date is now July 2019.

Apart from such known issues there are still concerns on the issues like dam depth and long term stability of the right bank even after repairs.

Some of these concerns have been expressed by people who work in Bhutan’s hydropower sector.

In the P I project 60 percent is loan while 40 percent is grant.

The letter to the RAA was sent on 14th July 2015 from the Director General of Audit CAG in Kolkata but there was some delay as the CAG was asked to follow protocol and send the letter from the main CAG in Delhi to the RAA in Thimphu.

With a new RAA Auditor General in office the matter is soon expected to be taken up.

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