The Commission had conducted prudence check of capital expenditure incurred by BESCOM for FY10 to FY12, while approving the Annual performance for FY13 and ARR for FY15. Based on the report of the consultant, who conducted the prudence check the Commission had disallowed interest and depreciation of Rs.7.29 Crores pertaining to 16Nos. of works which were considered as not meeting prudence norms. Further, considering the fact that the prudence check of capital investment being taken up by the Commission is first of its kind, the Commission had provided one more opportunity to BESCOM to justify the investment made on such works by furnishing sufficient justification duly supported by documents.
In response, BESCOMs had submitted its reply, but it was found to be not adequately supported with documents to justify the prudence of expenditure on those works. In view of this, the Commission decided to get the same validated through the consultant, who is conducting the prudence check of capital expenditure of BESCOM for FY13 & FY14.
The consultant has reviewed 16 no. of works and a separate report has been submitted. A summary of the finding is as under:
a) In respect of four works, amounting to Rs.73.16 lakhs, it is stated that no work has been taken up by BESCOM (even though they were given as completed works during the
earlier prudence check). Two works were belonging to DAS projects and seven works were completed in FY13 and thereafter (even though they were given as completed works during the earlier prudence check).
b) Only one work has been completed and are found to be meeting the requirement of prudence norms and
c) Two works are found to be not meeting the norms of prudence at all.
The Commission after reviewing the report has noted that, out of 16 works, two works are found to be not meeting the norms of prudence check,
Since BESCOM in spite of being given ample opportunities to justify and prove the prudence of these works, has not provided necessary justification, the Commission hereby decides to disallow a capex of Rs.1.64 Crores incurred towards works which have not met prudence norms. Hence an amount of Rs.2.36 Crores is disallowed in the APR of FY14. ii) Prudence check of Material Procurement process of FY13 & FY14:
The Capital investment works in BESCOM are executed on Total turnkey, Partial turnkey and labour contract. BESCOM procures major materials like, distribution transformers, poles, conductor and insulators etc and issues them to the partial turnkey contractor, and also to labour contractor. The partial turnkey contractors will execute the work as per award and includes some of the associated materials viz., crossarm, bolt & nuts, earthing materials etc required for completion of works for which payments will be made as per the quoted/accepted rates of the Tender. The complete materials for labour contract works will be supplied by the BESCOM for the will execute the works.
BESCOM at their Corporate Office will procure all the major materials like U.G.cable, A.B.Cables, Transformers, Poles, DTC meters and consumer meters. It was found that the cost of major material procurement forms around 24% and 12% in the capex of respective years and hence the major material procurement process was also reviewed as a part of prudence check of capital investment for the years FY13 & FY14. The Major materials are procured by the procurement wing at corporate office.
1. The action plan for procurement by the central procurement cell will start as early as 2 to 3 months in advance of the start of next financial year after the process of assessing the requirement of materials for works and general stock for the ensuing year. By a parallel and simultaneous process, the technical wing will also plan for the annual program of works to be undertaken in the ensuing year and approval will be obtained for the budgetary allocation for the planned works and special scheme works.
2. The general requirement of materials for the capital investment works for the ensuing year will be compiled at the procurement section, after obtaining the material requirement data from all the O&M division and O&M circle.
3. The same will be validated with the available historic/ logistic data of consumption of materials in each division in the past years. Special requirements of materials if any for the year under consideration will also be taken in to consideration.
4. The factual requirement of each major material for procurement purpose will be decided after taking into account the availability of such materials in stock of departmental stores and the availability of budgetary allocation for the purpose. 5. The store budget for procurement of materials will normally constitute about 65 to 70%
of the total capital expenditure envisaged for the ensuing year.
It is stated by the consultants that, on a perusal of records, it is found that BESCOM has considered all these aspects in prudence and procured the materials as per the requirement after due process of “e-tendering” duly following the transparency act. However the govt. of Karnataka has exempted the utilities from the above KTPP act in respect of purchase of materials directly from a few firms without calling for tenders. Some materials are also purchased through rate contract basis from the firms after necessary bidding processes.
It was found that the inventory of transformers in stock at all stores is of limited value when compared with quantum of work involved and the total transformers that exist in service. Only 1143 distribution transformers were found to be in stock against procurement of 23146 Nos of transformers, this shows that, only 4.94% of transformers were available in store stock which is reasonable.
a) Interest on loan: BESCOM’s Submission: