For a project whose costs escalated from the estimated Nu 35 bn at 2006 price levels to around Nu 97 bn today, one would have expected the Punatsangchu Hydroelectric Project Authority Management (PHPA) -I to be more thrifty but an audit report shows otherwise.
A joint audit report of the audit agencies of Bhutan and India shows avoidable extra expenditure, overpayment, waste and irregularities that come to around Nu 1.3 bn.
Though the report of the Royal Audit Authority (RAA) of Bhutan and Comptroller and Auditor General (CAG) of India covers only a one year period from 1st April 2012 to 31st march 2013 several issues were noticed.
Extra profit to two contractors of Nu 47.41 mn
In two specific instances the PHPA in violation of Central Water Commission (CWC) guidelines had given Nu 47.41 mn in overpayment to two contractors.
In the first case with Larsen and Toubro the RAA found that the rate for the quantity of work exceeding beyond the bill of quantities saw the contractor’s profit margin being fixed at 25 percent when the CWC guidelines allow only 20 percent. The additional five percent margin resulted in overpayment of Nu 10.45 mn.
In another case Hindustan Construction Company (HCC) also in a similar case got a profit margin fixed at 25 percent by PHPA instead of the legal 20 percent. This resulted in overpayment of Nu 36.60 mn.
There was also another case of additional payment of 365,000 to HCC.
Wasteful and avoidable expenditure of Nu 1.245 bn
RAA found that the Empowered Joint Group Secretariat composing of just one executive engineer and four support staff like messenger, office assistants and two rivers had procured two Honda CRVs and one Toyota Hilux costing Nu 4.35 mn in total. RAA said the purchase was both unreasonable and uneconomical.
The report found that in a Bill submitted by GIL the executed work was much higher than the estimated Bill of Quantities meaning an analyzed rate would have to be paid instead of the agreed lowest bid. The approved analyzed rates were 201 percent and 244 percent of the BOQ rates meaning extra expenditure of Nu 21 mn.
Similarly in a bill submitted by HCC approved analyzed rates for additional works were 121 percent and 217 percent of BOQ rates leading to extra expenditure coming to Nu 225.1 mn.
In another case with L&T RAA found that Nu 812.39 mn worth of additional works were done above the BOQ. The RAA says that the cost implication will be higher when the payments are made at analyzed rates.
At the time of the audit Nu 762.39 mn owed to three companies had crossed the 90 days and so there would be additional financial burden at 10 percent penalty of Nu 99.50 mn.
The report noted an expenditure of Nu 11.7 mn for building the Kamichu National Highway Bypass with the intent of quarrying a stone quarry in the area for HCC. However, after the road had already been built the quarry was not found to be viable with the road built becoming useless.
The consultant WAPCOS had not done due diligence in selecting the quarry which was 26 km from the dam and 15 km from the powerhouse. As a result the contractor L&T had to buy stones from additional distances of 45 km to 99 km for which the project incurred an additional transportation charge of Nu 56.35 mn.
PHPA had paid Nu 115.5 mn to BHEL as insurance costs but BHEL actually spent only Nu 106.6 mn as they took the insurance from the insurance company for a shorter time than agreed. Records show that in spite of the authority having full knowledge of actual amount being less than the contract amount, the authority did not take up the matter with the supplier to regularize the discrepancy. The report says this resulted in a Nu 8.9 mn avoidable liability for PHPA.
Also the report points out that of the money paid to BHEL there is a Nu 3.54 mn component of service tax which is refundable from the Indian government. However, the authority here did not include the amount as ‘receivables service tax’ which would lead to a risk of not recovering the amount from GoI in the future.
WAPCOS had charged PHPA around Nu 2.5 mn for advertisement and publicity and business promotion but the report says that the bills supplied are not acceptable.
A dental chair of Nu 492,875 from Unicorn Denmart could not be used due to improper installation by the supplier while a Nu 172,000 ECG machine from Medical Equipment and Devices was found dysfunctional.
Non recovery of amount of Nu 147.8 mn
The PHPA-1 hired WAPCOS from India as a consultant and the payments made included Nu 118.2 mn in service tax charges from August 2010 to March 2013. As per the agreement between Bhutan and India all service tax charges paid to Indian agencies will be refunded by the Indian government to PHPA.
However, PHPA-I did not initiate any action to recover the amount owed to PHPA from the government of India. The report says, “Even after three years from the first date of payment of service tax, the lackadaisical approach of the authority in getting the refund of the service tax was not acceptable.”
The PHPA Chief Financial Officer said that such service tax amount would be adjusted with the loan amount at the end of the project but the report says there is no such agreement for adjusting service tax with loan nor did the authority approve any such proposal.
In another case WAPCOS was paid Nu 70 mn in advances in May and November 2008. However, PHPA did not collect the required 10 percent simple interest on the advance as required by the CPWD manual of India. As a result PHPA lost Nu 28.5 mn in interest.
The report points out non levy of liquidated damages for late delivery of Nu 383,000 against Ugen Trading, Nu 206,000 against Tata motors, Nu 360,059 against Jorphel enterprise, Nu 113,364 against Ugyen Trading, Nu 40,950 for Wipro GE Healthcare and Nu 49,908 against Medical Equipment and Devices.
Irregular allowances and TA/DA of Nu 21.78 mn
As highlighted in an earlier letter to the government the RAA report points out Nu 3.21 mn in irregular payment allowances to government employees.
It says from July 2011 to December 2013 Dasho Yeshi Wangdi as the then Director General, Department of Hydropower and Power Systems was paid 40 percent house rent allowance and 30 percent project allowance as honorarium for shouldering the responsibility of member secretary of the EJG.
Executive Engineer Tashi Dorji got Nu 710,718 in similar allowances for being engineering officer to the chairman from July 2009 to June 2012. Similarly Chief Engineer Karma Tshewang got Nu 300,618 from 15th November 2012 to December 2013.
Other staff who got paid were Personal Assistant Pema Choki (Nu 477,007), Peon Jurmi Yeshi (Nu 292,912) and driver Karma (Nu 311,231) from April 2009 to December 2013.
RAA also found Nu 112,431 in inadmissible payments made to Chief Engineer Y.K Dhir from October 2012 to December 2013.
The report says that such additional payment from the project was not approved by the government and these officials were not on deputation so the payments are inadmissible.
The RAA found that between 2010 and 2013 PHPA staff were found to be travelling 50 days to as high as 336 days a year. 11 top level management of PHPA consisting of the MD R.N Khazanchi, Joint Managing Director Dasho Phuntsho Norbu and other collected Nu 17.63 mn in TA/DA for a three year period. The MD collected Nu 1.75 mn, Director Finance V.K Choubey collected Nu 2.35 mn, Director Technical Y.K Sharma collected Nu 1.16 mn, Chief Adm Sonam Dawa got Nu 913,089 and the JMD Nu 878,870.
RAA also uncovered Nu 943,283 in TA/DA payment to Chief Financial Officer Debdas Ganguly, Chief Engineer Y.K Dhir, CE Contracts A.S Chaudhury and SE J.S Bajwa for when they were actually on leave.