CAG Report reveals profit growth in state PSUs overshadowed by heavy losses
The Comptroller and Auditor General of India (CAG) report was tabled in the Assembly on Tuesday which revealed that the profit growth in state PSUs overshadowed by heavy losses.
Bhubaneswar: The Comptroller and Auditor General of India (CAG) report was tabled in the Assembly on Tuesday which revealed that the profit growth in state PSUs overshadowed by heavy losses.
According to the CAG Report, of the 29 Government Companies and Corporations, 18 SPSEs reported profits of Rs 7,073.21 crore in 2022–23, up from Rs 3,289.86 crore earned by 21 SPSEs in 2021–22.
The top profit-making SPSEs included Odisha Mining Corporation Limited (OMC), Odisha Hydro Power Corporation Limited (OHPC), Odisha State Police Housing and Welfare Corporation Limited (OSPHWC), and Odisha Forest Development Corporation Limited (OFDC).
Return on Equity (ROE) improved to 31.19% in 2022–23 (18 SPSEs), compared to 22.37% in 2021–22 (21 SPSEs). However, seven SPSEs incurred losses of Rs 794.98 crore in 2022–23, up from Rs 453.11 crore in 2021–22.
Have a look at the CAG Report:
As on 31 March 2023, there were 76 State Public Sector Enterprises (SPSEs) under the audit jurisdiction of the CAG consisted of 58 Government Companies, three Statutory Corporations and 15 Government Controlled Other Companies. Of these, summary of financial performance of 42 SPSEs (29 Government Companies and Corporations and 13 Government Controlled Other Companies) is covered in this Report.
These 42 SPSEs registered a turnover of 47,902.01 crore in 2022-23. The turnover relative to the Gross State Domestic Product of Odisha was 6.18 per cent.
The profit earned by 18 Government Companies and Corporations increased to 7,073.21 crore in 2022-23 from Rs 3,289.86 crore in case of 21 SPSEs in 2021-22. Seven Government Controlled Other Companies earned profit of 4.08 crore during the year 2022-23.
Accounts for the year 2022-23 were due from 61 Government SPSEs and 15 Government Controlled Other SPSEs. A total of 11 Government SPSEs and five Government Controlled Other SPSEs submitted their accounts for audit by CAG on or before 30 September 2023. Accounts of 50 Government SPSEs and 10 Government Controlled Other SPSEs were in arrears.
During 2022-23, CAG conducted supplementary audit of financial statements of selected Government Companies and Government Controlled Other Companies, after audit of these SPSEs by Statutory Auditors. The impact of significant comments of CAG issued as supplement to the Statutory Auditors’ report was Rs 166.61 crore on profitability and ₹480.08 crore on assets and liabilities.
During 2022-23 major Corporate Governance lapses noticed, as five of 27 SPSEs lacked the mandatory minimum of two independent directors, nine of 21 SPSEs did not appoint a woman director, and 20 of 51 SPSEs failed to hold the prescribed four Board meetings. Further, three of 35 SPSEs did not constitute an Audit Committee and four of 32 SPSEs had deficiencies in Audit Committee functioning in deviation to the Companies Act, 2013.
Odisha, a mineral-rich State holds 53 per cent of India’s iron ore, 73 per cent of bauxite and 100 per cent of chromite reserve, making the role of Odisha Mining Corporation Limited (OMC) critical for State revenue. As sole SPSE in mining sector, OMC undertakes excavation, processing and sale of minerals while complying with multiple provisions statutes like Forest Conservation Act, 1980, MMDR Act, 1957, MCR 1960, AMSAR Act, 1958 etc. A Performance Audit was conducted to assess the efficiency and effectiveness of OMC’s planning, production, sales, financial management and adequacy of monitoring and internal control systems.
Following are some important observations included in this Performance Audit:
- Out of 36 mining leases of OMC, 18 mines remained inoperative for periods ranging from six to over 35 years mainly due to delays in obtaining forest clearance caused by procedural lapses. As a result, OMC incurred avoidable expenditure of ₹163.36 crore during 2018-23 towards surface and water rent (₹9.09 crore) and manpower costs including watch and ward (₹154.27 crore).
- Under the MMDR Rules, 2015, mining leases granted to Government companies before 12 January 2015 were deemed extended to 50 years and the 2021 Amendment mandated payment of an additional amount equal to 150 per cent of the royalty payable. OMC executed (February 2022) a supplementary lease deed to extend the Unchabali iron ore mining lease from 2008 to 2058 despite mineable reserves being sufficient only up to 2028 making the extension unnecessary. This resulted in avoidable expenditure of ₹85.21 crore in 2022-23 towards additional royalty, stamp duty and registration fees and a further estimated liability of ₹232 crore towards additional royalty up to 2028.
- OMC failed to obtain Consent to Operate promptly after enhancement of Environmental Clearance for Daitari iron ore mine from 03 MTPA to 06 MTPA for one year (July 2021-July 2022), because of delayed filing of application and lack of follow-up with the State Pollution Control Board. As a result, OMC could utilise only 02 MTPA of the enhanced capacity, leading to short production of 01 MTPA and a potential revenue loss of ₹606.43 crore.
- OMC produced 29.47 million MT of minerals from 14 mines, either in excess of the quantity permitted as per the Environment Clearance or were extracted without obtaining Forest Clearance, resulted in payment of penalty of Rs 3,761.88 crore during 2017-22. Additionally, OMC paid Rs 602.27 crore during 2018-23 for production of 5.56 million MT of minerals from eight mines in excess of the quantities permitted under Consent to Operate and the Mining Plan.
- There were deficiencies in stacking of ore according to statutory parameters. OMC had not segregated ores according to their grades for stacking purpose in Gandhamardan-B, Kurmitar, Jhilling and Tiring Pahar mines. As a result, royalty was paid at the highest-grade rate leading to additional expenditure of ₹938.52 crore during 2018-23.
- OMC’s new Chrome Ore Beneficiation Plant (COBP) project suffered severe delays due to poor planning and execution, as installation of the new COBP awarded in October 2009 was completed only in February 2023 against the original scheduled completion of February 2011, resulted in a time overrun of 12 years and cost overrun of ₹48.09 crore. Further, closure of the old COBP from March 2017 and non-operationalisation of the new COBP led to idling of investment of ₹85.50 crore and loss of opportunity to beneficiate sub-grade ore, causing revenue loss of ₹61.16 crore during 2017- 23 due to sale of sub-grade ore without beneficiation.
- In Daitari iron ore mine, the raising contract provided for payment of electricity charges at a fixed rate of five per cent of the contract value to contractor. It was also stipulated for recovery of actual electricity consumption from the contractor. During 2018-23, OMC paid ₹36.48 crore to the contractor as five per cent of the contract value as electricity charges, even though the actual electricity expenses was only ₹10.69 crore and the same had already been recovered from the contractor. This has resulted in an undue benefit of ₹25.79 crore to the contractor due to an imprudent contractual provision.
- Raising contract agreements stipulated that any sub-grade material generated during mining operations to be treated as overburden and payment to be made at the applicable overburden rate. During 2018-23, 3.98 million MT of sub-grade ore generated in Gandhamardan-B, Kurmitar, Guali and Kodingamali mines was blended with high-grade ore and the contractor was paid at ore production rates instead of overburden rates, resulted in an excess payment of ₹32.64 crore to contractors.
- OMC did not timely adjust royalty paid to Government of Odisha in advance towards unlifted stock against the subsequent lifting of stock against fresh orders. In the process, it lost interest revenue of 41.22 crore on the amount remaining blocked.
- As per OMC’s approved pricing formula, the floor price of sub-grade chrome ore for e-auction sales was to be fixed based on the actual recovery rate of chrome concentrate and prevailing market price of ferro chrome. During 2021-23, OMC fixed the floor price considering the recovery rate at 38.76 per cent instead of the actual recovery rate of 42.30 per cent for subgrade chrome, resulted in lower fixation of floor price of sub-grade chrome ore and under-realisation revenue of ₹16.51 crore in case of Sukrangi and South Kaliapani mines.
Compliance Audit Observations:
- Procurement of coal from Odisha Coal and Power Limited through Roadcum-Rail mode using private railway siding and short lifting of 4.69 lakh MT of coal from Mahanadi Coalfield Limited under the agreed bridge linkage scheme resulted in avoidable expenditure of Rs 24.72 crore by Odisha Power Generation Corporation Limited.
- Odisha Power Generation Corporation Limited extended interest-free mobilisation advances to contractors in deviation of OPWD Code which permits only interest-bearing advances. This resulted in avoidable interest burden of ₹13.60 crore.
- OPTCL awarded a turnkey contract in February 2014 for implementation of an Advanced Metering Infrastructure system, scheduled for completion by August 2015 and later extended to July 2016. However, the project remained incomplete despite repeated extensions up to March 2020 due to nonconduct of mandatory User Acceptance Testing. Although OPTCL paid ₹5.37 crore to the contractor during 2014-15 to 2018-19, it failed to enforce contractual provisions requiring generation of secure, non-editable raw meter data, leading to discontinuation of the project in June 2022 and rendering the entire expenditure infructuous.
- Delayed payment of Goods and Services Tax on the supervision charges since introduction of the GST Act, 2017 resulted in avoidable payment of interest of Rs 2.56 crore by Odisha Bridge and Construction Corporation Limited.
- Odisha Coal and Power Limited, instead of enforcing the terms of the Mines Service Agreement against the Mines Operator, executed the work relating to shifting of villagers at its own cost by engaging another agency. This resulted in avoidable expenditure of Rs 2.39 crore and undue favour of the same amount to the Mines Operator.
