wpeBC.jpg (2353 bytes)

OFFICE OF CHIEF CONTROLLER OF ACCOUNTS

MINISTRY OF SURFACE TRANSPORT

GOVERNMENT OF INDIA

ABOUT OFFICE    ABOUT US    CONTACT US      OTHER LINKS

[ Home ] [ Up ] [ Contents ] [ Accounts ] [ IA MANUAL ] [ OTHER PUBLICATIONS ] [ Search ] [ Accounts at A Glance ]

 

[ Home ] [ Up ] [ Spl Audit Report ] [ Observations ] [ Issues ] [ Lighthouse Act ]

SPECIAL AUDIT

Inspection Report of Special Audit in respect of the Project "Replacement of Seven Submarine Pipelines connecting the Marine Oil Terminal, Jawahar Dweep and Pir Pau marifold at Mumbai Port."

 

Background

Mumbai Port Trust owns and operates multi user and multi-cargo Marine Oil Terminal (MOT) at Jawahar Dweep (JD), Mumbai. Three MOT berths constructed in 1955 handle crude Oil and its product, transported to HPCL and BPCL refineries at Trombay, through submarine and land pipelines between JD and Pir. Pau (PP).

These pipelines have been in operation since 1955 and have outlived its design Life of 20 years. Project under audit is to replace these pipelines with higher diameters including provision of new manifold at PP & JD.

The project was sanctioned by the Govt. at an Estimated Cost of Rs.165.15 crores (Aug’ 94 prices) with a foreign exchange component of Rs.85.07 Crore vide MOST’s letter No.PD-11011/3/BPT dated 28.3.95. The estimate was based on the cost indicated by EIL in the DPR (June 1993). The project was scheduled to be completed by Dec.,97 within 34 month from March’95

Initially the proposal was to replace the Old pipeline, but subsequently it was observed, as per suggestion from consultant M/s KRJ Brown, Singapore that the construction of new manifolds at JD and PP is also required to be replaced as they had also outlived their design life (Annexure I). Hence the original cost estimate (OCE) has been revised to Rs.270.08 crores (excluding IDC) in April, 98. The RCE is, thus, more by Rs.104.93 crore (63.5%) to the OCE. MBPT sanctioned the RCE on 14th July, 98 and before the approval of RCE from Govt./Ministry the MBPT awarded the contract to Hyundai Heavy Industries Ltd. Korea on 21st Jan. 99 at a cost of Rs.243 crores and the work is expected to be completed by the end of June, 2000.

To fix the responsibility for time and cost for over runs, the standing committee meeting under the chairmanship of AS&FA, in connection with the Revised Cost Estimate, was held on 22.3.99.

The standing committee has recommended that the persons responsible for not preparing the RCE in time, not seeking its timely approval and awarding the contract without taking the Govt. approval for the RCE needs to be identified and responsibility shall accordingly be fixed. The committee further suggested that a special audit of this project at this stage would be desirable.

On the recommendation of standing committee the special audit of this project "Replacement of existing seven submarine pipeline between MOT and Jawahar Dweep and Pir Pau at Mumbai Port was conducted by Sh. K. Immanuel, PAO(NH), Sh.J.L. Ramnani, AAO and Sh. Y.N. Subedi, AAO from 13.12.99 to 22.12.99. Shri Ajay Shanker Singh, Dy. Controller of Accounts supervised the special audit from 20.12.99 to 22.12.99.

 

Finding of Special Audit

  1. Approval of RCE

Under section 93(1) of MPT Act 1963 the prior sanction of the Govt. is necessary for any Revised Cost Estimate which exceeds the original cost estimate to the limit prescribed by the Govt. from time to time. Further according to section 92(1) of the MPT Act 1963 to debit the expenditure from Revenue head to Capital head of Account, the prior approval of the Govt. is necessary. However, this was also pointed out by the Financial Advisor and Chief Accounts Officer vide his letter No.FA/Awe-I-86(86) Pt-XII dt. 16.6.98 to the Secretary and Sh.D.B. Kulkarni, Project Director (Annexure II). But to no avail. The board awarded the contract to Hyundai Heavy Industries Korea on 21.1.99 without getting prior approval from the ministry for their RCE which contravenes the rules ibid. Thus the MBPT committed the liability without prior approval from the Ministry. Despite the advise of FA & CAO board decided to do so hence Secretary, MBPT is considered to be responsible for committing this blunder.

 

While reviewing the files furnished to audit, it was observed that all files contain only the correspondence. These files do not contain the notes portion as the project office does not maintain the notes. In the absence of which it could not be ascertained that where the files has been held up and for how much time span. The observation in audit was made purely on verifying the correspondence.

Following two letters found in the file emphasised the need to enter into contact at an early date

  1. Secretary MOST written to Chairman MBPT vide letter dt. 7.7.98 urging him to enter into contract at an early date.
  2. Jt. Secretary DEA to BPT Chairman vide L.No.5/31/96 ADB dt. 30.11.98 has urged to expedite the contract.

 

Findings :

Above mentioned letters, however, did not put any pressure on MBPT to not

follow the prescribed procedure. Infact letter (ii) very effectively communicates to gear-up to enter into the contract within the assured time frame which is lacking (ii). Record management is not proper.

 

2. Appointment of M/s Engineers India Ltd.

M/s E.I.L was appointed as consultant vide MOST letter No.PD/16011/2/91/BPT dt. 23.5.92 for

Preparation of Detailed Project Report (DPRs) of 2 project .

    1. Replacement of submarine Pipelines.
    2. Modernisation of Marine Oil Terminal. M/s E.I.L. submitted their report on Replacement of submarine pipelines in 6/93.

A British firm M/s Scott Wilson Kirpatrick (SWK) was appointed by Asian Development Bank (ADB) in 1993 to review the reports prepared by M/s EIL on the above schemes under a Technical Assistance Scheme agreed upon between Govt. of India and A.D.B.

Accordingly S.W.K. reviewed the report and approved both of them finally in 6/93.

Bombay Port Trust in the Board meeting held on 9.6.93 sanctioned amount of Rs.159 Cr. for replacement of sub marine project vide TR-327 dt. 9/9/93. Cost of which was updated to 165.15 cr. and submitted to Govt. of India for approval. SWK recommended two lines of 48" diameter for crude Oil which was not accepted. However it did not object to any of the findings of EIL. SWK was appointed by ADB and it conducted its study on the behest of ADB. EIL’s findings were found to be useful and implemented as it is, except one addition. New manifold was suggested by the present consultant M/s KRJ Brown at Pir Pau and Jawahar Dweep. Justification given by the consultant are not in conformity with the observations of M/s EIL(Annexure I).

EIL in its observations on design has taken into consideration the pressure on lines, drop of pressure in transit and pressure required at Pir Pau marifold without any replacement. It says "the new pipelines shall be connected to the existing lines at Jawahar Dweep and Pir Pau Marifold by hot tapping upstream or down-stream (as the case may be) of the valves on the existing pipelines so that the change-over does not affect the normal line operation and its operational flexibility."( Sub-para 2 of para 6.5 of report of EIL). However, the new consultant found that it is necessary to have new manifold at Pir Pau and Jawahar Dweep because of the technical reasons. The new addition has costed Rs.48.43 crores. Moreover on enquiry it was revealed that existing manifold in working perfectly and its maintenance expenditure is of routine nature which is insignificant. Though it may have lived its theoretical operational life but in practice it is in a healthy state and may continue so for may more years. This aspect has not been looked into by BPT while giving green signal to this part of the project. They have not taken pains to seek explanation from M/s KRJB on the report submitted by M/s EIL Annexure-IIIand M/s Scott Willson .

 

Findings :

It appears they have simply agreed to the observations made by the consultant, despite knowing fully well that it is an additional component which was not suggested by M/s EIL or M/s Scott and accordingly not included in the original DPR submitted to Ministry which was approved subsequently.

Despite M/s EIL & Scott recommendations BPT decided to change the manifolds at JD and Pirpau. This was stated in the point of reference for the appointment of new consultant (Annexure-IV). New manifold was decided to be erected by BPT keeping in mind the age of the existing manifold. During discussion at later stage it was also stated by the Project Director that safety feature and other parameters of the old manifold do not confirm to the present international standard. However, neither any attempt was ever made to increase the safety or change other parameters to make the existing manifold internationally acceptable nor this kind of analysis was carried out by BPT.

New manifold was justified only if users beyond the manifold namely BPCL and HPCL also agree to change their pipe lines and associated facilities. After a series of meetings and discussions with them (Minutes of such meetings or discussions relevant to this context are not available) it was agreed by BPCL and HPCL that they would carry out necessary changes as desired by BPT. However, why, how and when BPT desired these changes are not explicitly mentioned. On 10th Sept., 1993 Oil Coordination Committee (OCC) confirmed the commitment of BPCL and HPCL vide its letter No.OCC/GPV/8002/816/10th Sept. 1993.

It was pertinent to mention that construction of new manifold is not a decision independent of laying of pipelines by HPCL and BPCL, hence financial feasibility and Economic feasibility should have been carried out by incorporating the expenses involved in these changes. From macro point of view cost on new pipe lines of BPCL and HPCL are consequential to new manifolds. Hence the feasibility, both financial and economic are not complete and Project cost reflected in records is much less than the actual. Unfortunately this aspect has not been looked into and cost involved in construction of new manifold is reflected as direct cost to be borne by BPT only. Further, on review of the files it has been observed that the project was delayed due to its being linked to modernisation of MOT. Before the Govt.’s sanction for the project namely "Replacement of 7 Submarine Pipeline connecting the marine Oil Terminal, Jawahar Dweep and Pirpau marifold at Mumbai Port" the MBPT has invited for short listing of the consultant by an advertisement dated. 13.8.94. The due date for the receipt of bids were upto15.9.94. However it was extended upto 29.9.94.

3. Delay in finalisation of tender for Pre Qualification (P.Q.) of consultant was due to the following reasons.

  1. Comparative statement of the 12 tender received were prepared on 19.10.94 by Chief Mechanical Engineer and the same was forwarded to the Chief Engineer MBPT.
  2. The. Dy. Chief Engineer forwarded offers to (i) FA & CAO (ii) Chief Mechanical Engineer for their scrutiny and finalising terms of reference on 30th Sept. 94. The Chief Mechanical Engineer sent his comments only on 24.11.94. On 7.11.94 the FA & CAO sent a letter with the remarks that their office is going through the offers Preparation of draft scrutiny report and finalisation of terms of reference will be done by the CMEs office.

(iii) The Chief Engineer prepared the scrutiny report on preparation of shortlisting of consultants on 13.3.95. However, the tender committee meeting was held on 16.3.95 and forwarded to MBPT Board for approval. MBPT Board has approved the 9 P.Q. firm on 27.3.95 vide resolution No.118 dt. 28.3.95.

(iv) On 28.8.95, CE sent the list of a PQ consultant to ADB for their guidelines. Though at that time the MBPT was not in favour of taking loan from ADB. In the meantime on 25.7.95 the MBPT asked all the 9 PQ to submit the technical and financial proposal by 25.9.95 and meeting with the PQ consultant was fixed on 28.8.95 at the site. On 15.8.95, the ADB send MBPT some observation stating that as per ADB guideline only 7 firm to be selected as PQ instead of 9.

(v) On 22.8.95, the CE replied to ADB that at that point it is not feasible to select 7 out of 9. However at the time of submission of technical and financial proposal, some firms will automatically back out.

(vi) The ADB approved the shortlisting of 4 consultant on 25.9.95 and requested to submit

  1. Draft consultant report prior to evolution of proposals.
  2. Evaluation report including ranks of shortlisted firms.

(c) The Negotiation Committee’s evaluation which the MBPT sent to ADB only on 23.10.96.

(vii) Board also approved the shortlisting of consultant on 26.9.95. In between the tender committee was formed on 1.8.95 as per ADB’s guidelines.

(viii) On 25.9.95, MBPT received the technical & financial proposals from 4 consultants. On the same day CE sent the technical & financial proposal to 3 member of committee viz. (1) CME (2)FA & CAO and (3) Dy. Conservator for evaluation and remarks on that and fixed the date of 11.10.95 for meeting of the members. But the meeting was held on 18.11.95, 11.12.95, 3.1.96, 12.1.96 and 15.1.96 instead of 11.10.95 as fixed earlier by CE.

(ix) Finally the findings came only on 18.1.96. Board approved the ranking of 4 PQ consultants on 31.1.96 and send to MOST for their approval only on 20.2.96.

  1. Reminder issued to MOST on 10.4.96. On telephone conversation it has been observed by MBPT that the Ministry has not received that letter with annexure. However, the MBPT again sent the copies of that letter and annexure on 18.4.96.
  2. On 2/7/96, Director (PD) MOST faxed MBPT to furnish a panel of consultant of international repute alongwith bio-data.

(xii) On 3/8/96 CE requested MOST for sending their approval for ranking of consultant.

(xiii) On 11/9/96, CE again reminded ADB for their approval for ranking of consultant.

(xiv) On 23/10/96 CE dispatched the Draft consultant contract to ADB as per telephone conversation with ADB.

  1. On 5/11/96 ADB approved the ranking of consultant and directed to commence negotiation with first ranked firm viz. KRJB.

(xvi) On 6/11/96 CE wrote back to Director (PD) MOST sending the approval of ADB with the request for Ministry’s approval.

(xvii) On 14/11/96 Govt. sent fax conveying its approval of the ranking of consultant.

(xviii) On 29/11/96 after the approval of the Govt. the Chairman, MBPT recommend the visit of the official consisting of one Dy.C.E. and One Supdt. Engg. to visit Chennai Port Trust (CPT). On 2nd and 3rd Dec. 96 for getting conversed with the detail as CPT have also appointed consultant following ADB guidelines for Ennore Project.

(xix) 1/1/97 MBPT sent revised sample draft agreement, deleting the clause 4/01, as suggested by ADB for approval.

(xx) 22/1/97 ADB vide fax-approved procedure to be followed for contract negotiations.

(xxi) 2/2/97 Negotiation held with first ranking consultant (KRJB). On 25/2/97 MBPT approved the appointment of consultant KRJB vide TR 64. On 26/3/97 Govt. also conveys approval of appointment of consultant. On 17/4/97 ADB also approved the Aptt. of consultant. Subsequently, on 24/4/97 the agreement between KRJB and MBPT was signed.

Findings :

  1. It may be seen from the above chronological events that the main delay was due to consulting the ADB for appointment of consultant even though prior to calling the bids for the Pre-Qualification, their was no move to go in for loan from ADB. It was also suggested by the Ministry that when the MBPT is intended to complete the project from their internal resources, then there is no point to consult ADB. Even if ADB loan is found attractive BPT should have gone for it after doing proper ground work and preparation required for getting the loan from ADB. BPT is already aware (as it has got ADB loan for other projects) of these procedures so it should have projected the time and cost components accordingly. It appears that Board did this exercise in a hurry which finally resulted in delay and cost over-run.

(b) It may be seen from the above that a time of 5 months has been taken for the preparation of scrutiny by the Chief Engineer. From discussion it emerged that this office is not fully equipped to carry out this type of exercise in a tight time frame. Moreover, the kind and nature of documentation required for ADB loans was not perceived hence delay was bound to be there. Board should have geared-up placed adequate and appropriate personnel to handle such technical job.

(c) Event (x), above clearly reflects the poor co-ordination and follow-up papers for the approval of 4 PQ consultants were sent to MOST, however, no follow-up was done. MBPT reminded MOST on 20.5.96 i.e. after one month and 2 days where as the keeping in view of the urgency of the project the MBPT should have reminded after every 15 days. MBPT should have followed the case more closely and not lost 50 days only to find the papers have not reached MOST, New Delhi. No attempt was made to trace the lost papers. If loss is due to postal negligence, it should have been ascertained otherwise efforts should have been made to find the persons responsible for misplacing important papers. This needs to be taken to its logical conclusion.

(d) It is also seen that whenever any clarification is sought by Ministry or ADB, the Chief Engineer sent it to the (i)FA & CAO (ii) Project Director (iii) Chief Mechanical Engineer and (iv) Dy Conservator for their comments. The above officers took 2 to 4 months to give their comment on every event instead of taking combined meeting to take immediate decision keeping in view the urgency of matter.

 

ADB Loan matter

At the invitation of Govt. of India a loan apprising mission of ADB visited India from 4.12.94 to 16.12.94 to appraise the proposed "Third Port Project". Division visited the project area and held discussion with the officers of MOST and the MBPT. Govt. requested the Bank to provide a loan of $ 150 million from its ordinary capital resources to finance the project in all ports.

Initially MBPT decided to go for the replacement of submarine projects from its own resources and conveyed the same to MOST, New Delhi. MOST vide their letter No.PD/11011/1/3/93 BPT dt.28.3.95 has accorded sanction of Rs.165.15 crores for the above project to be completed within 34 months i.e. by Dec. 97 but extended the time upto Dec.,99 with a request to come up with RCE by 2/98 vide MOST letter dated 28.11.97.

The Financial Adviser and Chief Accounts Officer vide his letter no. CA/T/ADB/ T.P.P.(94)13155 dt. 17.8.95 informed the Secretary that the BPT is capable of meeting the entire fund requirement for the scheme which will occur in stages from its own resources and as such there appears no need for going in for ADB loan. However, if taking the scheme away from the ADB system is unavoidable, the Boards approval may be obtained in principle to raise loan from ADB loan. The Board decided to go for ADB loan and passed a resolution No.299 dt. 22.8.95 in the Board’s meeting held on 22.8.95 and decided that the Chairman, MBPT should negotiate with ADB in this matter.

 

Director (PD) vide his letter No.PD/14014/11/93-PDF dt. 12.3.96 informed Dy. Secretary (FB) Deptt. of Economic Affairs, M/o Finance that only 2 cases of MBPT i.e. Replacement of submarine pipe lines at Bombay and Modernisation of MOT at MBPT may be taken up for ADB assistance.

In letter No.PD/11011/2-BPT dt. 31.5.96 Dir (DP) informed the Chairman MBPT that Secretary (SFT) has desired that MBPT may also make comparable cash flow analysis between two sources which is more beneficial to MBPT. MBPT was reminded by MOST vide letter No.PD/14014/19/96 dated 1.7.96.

MBPT vide their letter No.CE/CF/226 Dir(TPP)/4617 dt. 19.7.96 informed Director (PD), MOST that the Board vide Resolution No.202 dt. 9.7.96 has accorded approval in principle to avail of ADB funding for two projects i.e. Replacement of submarine pipelines and modernisation of MOT.

MOST vide letter No.PD/14014/11/93-PDF dt. 22.1.97 confirmed the approval of Deptt. of Economic Affairs for ADB loan and asked Chairman MBPT to initiate further necessary action.

ADB vide its letter dt. 29.9.97 informed the Chairman MBPT that the Board of Directors of the Bank approved the loan amounting to $ 97.8 million US $ 51.8 million for submarine pipelines project. Accordingly loan agreement was signed between G.O.I. MBPT & ADB on 25.9.98. Loan has become effecting from 6.1.99.

 

FINDINGS :

Had the MBPT not opted for ADB Loan and met the expenditure of replacement of submarine pipelines from its internal resources the work could have been started earlier and cost overrun for this project could have been avoided. More over it is beyond comprehension that same FA & CAO advises to go ahead with internal resources and later finds that internal capital is costlier.

Even if it is found that loan from ADB is cheaper all pros and cons associated with processing the loan should have been analysed. Time, manpower and expertise required to handle cases of ADB laon should have been anticipated before giving approval to it. MBPT has failed in doing so.

 

 

 

Bank allocation/MBPT component and total estimated cost

As per ADB’s estimate

Name of Project Bank allocation MBPT Total estimated

US $ (M) component cost US $(M)

US $(M)

------------------- ------------------ -------------- --------------------

  1. Replacement of submarine

    2. Pipelines 35.70 16.10 51.80

  2. Replacement of MOT

Berths 17.60 19.90 37.50

3. On shore pipelines 11.80 7.90 19.70

4(a) Consultancy services

(US $ 7.0 M) 20.70 11.40 32.10

  1. Contingencies

Physical & price

Contingencies

  1. Interest during

Construction 12.00 -- 12.00

------- ------- --------

Total 97.80 55.30 153.10

------- -------- --------

 

 

Project proposal

Unit Original RCE Variation %

Total Cost Cr. 165.15 286.60 121.45 73.53

Foreign Ex.

Requirement Cr. 85.07 190.07 105.00 123.43

Project Completion

Time Yr. Dec.97 June 2000 30 months

Change in FE rate from Rs.31.61/US $ to Rs.42.5 US $

Details of ADB Loan

Item Amount

(Million US $)

Submarine pipeline works 35.70

Others 25.70

Equipment 3.70

Consultancy 7.00

Interest & Commitment charges 12.00

Unallocated 13.70

Total 97.80

 

[ Home ] [ Up ] [ Spl Audit Report ] [ Observations ] [ Issues ] [ Lighthouse Act ]

[ Contents ] [ Accounts ] [ IA MANUAL ] [ OTHER PUBLICATIONS ] [ Search ] [ Accounts at A Glance ]

Last modified: September 12, 2000

This page is designed and maintained by  Dy.CA(A)

O/O Chief Controller of Accounts.