special audit report of nec schemes

8/6/2019 Special Audit Report of Nec Schemes

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SPECIAL AUDIT REPORT OF NEC SCHEMES

Reference:

Endorsement of Letter No. Pr.cum PAO/DoNER/IAW/2010-11/104-112 dated: 08.03.2011

issued by Sr. Accounts Officer (IAW).

Subject of Audit:

(a) Releases made by NEC under the scheme for improvement of Air Connectivity in the

NER with reference to release made to Alliance Air (An Air India Subsidiary)

(b) Releases for construction/improvement of Airport to State Governments under the

Scheme for Strengthening of and improvement of Airport in North Eastern Region.

a. Lengpui Airport Aizwal, Mizoram.

b. Passighat and Tezu in Arunachal Pradesh.

Members of Special Audit Party under the supervision of Dy.C.A., NE, MHA, Shillong:

i. Sh V K Singh, Accounts Officer

ii. Sh Mahesh Kumar, Accounts Officer

iii. One member from NEC or DoNER (to be nominated by NEC/DoNER)

Scope of Audit:

i) The audit to cover the locations in Mizoram, Arunachal Pradesh and Kolkatta in

addition to Shillong. ii) The audit to cover the financial as well as administrative aspect of each item on the

basis of the record available and provided to the audit party by the Scheme

implementing agencies concerned i.e. NEC, Alliance Air and Public Works Division

III (Project) at Aizwal, Mizoram.

Constraints:

i) Under the constitution of the audit party one member from NEC or DoNER ( to be

nominated by NEC/DoNER) was required to join the audit. However, despite

repeated requests no name was recommended till the date of departure of the auditparty and ultimately no one from NEC/DoNER joined this audit.

ii) While gathering information regarding financial releases made by NEC to Scheme

implementing agencies, it was observed that no funds have been released for

Construction/Strengthening of Airports at Passighat and Tezu in Arunachal Pradesh.

Hence, the audit party had no reasons to visit Arunachal Pradesh.



iii) To review the scheme for improvement of Air Connectivity in the NER with reference

to release made to Alliance Air, the Audit Party visited their Operational office at

Kolkatta. Captain Sanjay Gupta, In Charge, AASL (Ops) E/R vide his letter No.

AASL/CAL/11 dated 15.3.2011 informed that all documents and items are available

at their Headquarter, Delhi. The audit party, thus, with the permission of Supervisorof the Audit Party Dy.C.A.,NE, MHA visited the Headquarter of Alliance Air situated

in Delhi for further scrutiny of record and information available there.

iv) In compliance of the Letter No. Pr.cum PAO/DoNER/IAW/2010-11/104-112 dated :

08.03.2011 issued by Sr. Accounts Officer (IAW) this party visited the Aizwal and

approached the Civil Aviation Department, Government of Mizoram, who informed

that they have no role in execution of the said work and the same was got executed

through the Executive Engineer, Public Works Division III (Project) at Aizwal,

Mizoram. This party then approached the said Division and conducted the audit.

v) In response to requisition of several items of record relating to tendering for the

work Strengthening of Lengpui Airport runway pavement, Public Works Division

III (Project) at Aizwal, Mizoram informed that the tender was not called by this

Division as such material required is not available in the Division. The Audit Party

personally met the Executive Engineer of the Division to find out why the related

records were not collected before issue of the Letter of Intent and signing of

Agreement. It was assured that the requisite records will now be obtained and

produced to audit but the same was not provided. Hence, the Audit Party had no

option except to conclude the audit without scrutiny of the said items of record.

vi) All the payments made to Alliance Air for air connectivity in NE Region are on On

Account basis and the MOU signed with effect from 2002-03 is still in force with

certain amendments. Since, the work has not been completed and full/final

payment has not been made/settled, the exact and final financial implications

cannot be worked out at this stage. However, the financial implication as on today

have been worked out by taking payments made as final and the same are

incorporated in the Audit Observations.

AUDIT OBSERVATIONS

During the course of special audit, scrutiny of record revealed some irregularities,

lapses, omissions and deficiencies which have been scheme-wise detailed as under:

Releases made by NEC under the scheme for improvement of Air Connectivity in

the NER with reference to release made to Alliance Air (An Air India Subsidiary)



1. Avoidable loss due to payment for the lapsed period .82 Crores: The MOU between Airline

Allied Services Limited a wholly owned subsidiary of Indian Airlines Limited (known as Alliance

Air) party of the First Part and North Eastern Council, Ministry of Development of North Eastern

Region, Government of India (known as NEC) party of the Second Part was made and signed on

the 4

th

day of August, 2004.U

nder the conditions of MOU

the first party was agreed to provide4 ATR-42-320 Aircrafts for air connectivity in North Eastern Region for a period of five years

effective w.e.f. the year 2002-03, for which the Second party will give compensation of .175

crores (i.e. .35 crores per annum). No reasons are available on record for incorporating the

period from 1.4.2002 to 4.8.2004 which had already been lapsed at the time of MOU. This

clearly shows that flights operated by Alliance Air in the NE Region during period from 1.4.2002

to 4.8.2004 was as per the trade practice of the Alliance Air without any settled terms and

conditions and the payment made for this period was thus, unwarranted and the same could

have been avoided by NEC. As per the information provided by the Airlines vide their letter

dated 24.03.2011 Date of first flight of the requisite four ATRs is 25.12.2002, 16.01.2003,

7.03.2003 and 08.03.2003 respectively which are much later than the effective date of the

MOU. Even no record of flights made by the Airlines in NE Region or performance reports if

any, provided by the Airlines is available on record in NEC.

2. Loss to NEC due to non-recovery for deficiency in performance .29.54 Crores: In each

ORDER for release of payment of Grant under the MOU for air connectivity in NE Region it has

invariably been incorporated that A bar chart showing time frame for completion of work

(item-wise) would be submitted by the Airline Allied Services Ltd to NEC Secretariat within

three months from the date of issue of each order. Further, quarterly physical and financial

report should be submitted by the Airline Allied Services Ltd regularly to the Advisor (T&C), NEC

Secretariat, Shillong. However, no such bar chart, quarterly financial and physical report was

available on record in office of the Airlines or provided to this audit party by the NEC Secretariat

which shows that the bar chart/reports have neither been prepared or submitted to the NEC till

January, 2008 and the Grants were released to the Airlines without ensuring the compliance of

the terms and conditions of the MOU or recovering the proportionate amount for deficiency in

services as per the terms and conditions or the MOU. In absence of the performance report the

quantum of deficiency cannot ensured and the loss thus, cannot be calculated. In this regard it

is worth mentioning that the NEC has made some deductions on the basis of the performance

reports which were received after 2008 onwards. However, if the deficiencies are taken onaverage for the period for which the reports were submitted i.e. 2008,2009,2010 the average

deficiency in service comes to 16.88% and proportionate amount of recovery for the period

from 2002-03 to 2007-08 worked out to . 29.54 crores.

3. Loss due to increasing financial support to Alliance Air from back date .8.57 crores: Under

the terms of MOU amended for the year 2009 financial support to Alliance Air was approved for



.38.5 crores vide Administrative Approval dated 05.03.2009. The first party i.e. Alliance Air

provided the air connectivity to NE Region on the said financial support during the entire

Calendar year. However, on 25.03.2010 when the entire Calendar Year was about to close,

without receiving any protest/demand NEC issued another Administrative Approval revising the

said financial support from

.38.5 crore to

.47.07 crore w.e.f. 1.1.09 to 31.12.2009. This hasresulted into loss of .8.57 crore to NEC.

4. Loss due to short recovery for deficiency in performance as per MOU .15.65 Crores: Under

the Clause 10 of the terms and conditions of MOU dated 20.12.2007 for the year 2008;

extended for the year 2009 vide Administrative Approval dated 05.03.2009 and also dated

25.03.2010; further extended for the year 2010 vide MOU dated 10.11.2010 Performance by

the party of the second part (read as Alliance Air) is the essence of the MOU. It would be the

bounden duty of the party of the second part to strictly adhere to the capacity provisioning and

schedule of flight per week given in its Appendix. In case service or any part thereof are not

provided for the reasons within the control of the Airline, the subsidy payable shall be deducted

at pro-rata basis in terms of the capacity provisioning agreed.

Further, Clause 8 of the terms and conditions of the aforesaid MOUs and Administrative

Approvals provides Either Party shall not be responsible for any failure to perform due to

unforeseen circumstances or to causes beyond their reasonable control, including but not

limited to act of God, war, riot, embargo, act of civil or military authority, fire, floods, accidents,

terrorist activities, strikes, fuel, energy, labour or materials. In the event of any such delay

parties would differ the date of executing their responsibilities for a period equal to the time of

such delay.

As per the record provided to this Audit Party, NEC has deducted an amount of . 5

Crores for the year 2008 and .2.0769 Crores for the year 2009 on account of deficiency in

service out of the said subsidy on Pro-rata basis on the basis of the performance report

submitted by the Airlines. However, the Performance Reports of the Airlines has justified some

of the missing flights by stating the same could not be made operational due to Technical/

Engineering reasons, Non availability of Crew, shortage of ATR etc. which are well within the

control of the Airlines and the same are also required to be termed as deficiencies for the

purpose of pro-rata recovery but the said lame excuses have been accepted by the NEC and no

recovery for such deficiencies have been made. The total amount of recovery on account of

deficiencies within the control of Airlines for the years 2008, 2009 and 2010 worked out to

.22.73 crores but as per the record provided by NEC only . 7.0769 Crores have been proposed

and recovered on account of deficiencies in performace which has resulted into short recovery

of .1565.31 Lacs for the said period of three years.



5. Undue benefit to Airlines due to non- implementation of terms and conditions of MOU:

Under the Clause A (b) of the terms and conditions of MOU dated 04.08.2004 Guwahati airport

shall be made primary operational base for improving air connectivity to airports in NE Region

by Alliance Air. Further, under clause 3.2.2 of terms and conditions of MOU dated 20.12.2007

and the MOU

dated 10.11.2010 At least one aircraft would be based at Guwahati Airport forearly morning departure in order to facilitate the passenger movement to /from/ within the

Region. In case of failure of Alliance Air to place aircraft at Guwahati compensation .15,000/-

per night would be recoverable by NEC. A margin of 20% to cover contingencies including

weather/ operational and technical reasons would be kept while recovering the compensation

from Alliance Air. A quarterly report about placement of aircraft at Guwahati would be

submitted by Alliance Air to NEC.

However, it has been gathered from the record that the Guwahati has not been

operational base for air connectivity in NE Region till date. This has resulted into considerable

financial saving to Alliance Air on making infrastructure i.e. hangers, offices, base staff etc. and

Kolkata has been retained as primary operational base. Due to non-shifting primary

operational base to NE Region at Guwahati the air-connectivity within the NE Region has been

suffered by providing additional flight to Kolkata for more commercial benefit and the purpose

of providing financial support/subsidy is defeated.

Further, after incorporation of penalty clause in the MOU dated 20.12.2007 onwards,

the Alliance Air has been parking one aircraft at Guwahati as Night Halting (as per the copy of

quarterly report provided to Audit) but the purpose of Night halting/parking is defeated

because the same is operated from its operational base at Kolkata as no authorized official isavailable at Guwahati to take on the spot decision on the basis of the facts and circumstances.

Even as per report one aircraft has been parked as Night halt at Guwahati but time of its

departure from Guwahati has not been mentioned to see whether there was actually early

morning departure in order to facilitate the passenger movement to/from/within the Region.

As such the purpose of obtaining Quarterly report is also defeated. These reports have been

accepted by the NEC as valid for proof.

6. Improper air connectivity provided by Airlines: A review of quarterly performance reports

submitted by Alliance Air revealed that the Airlines is focused only on the profitable air routes

and left some of the routes at all e.g. January and April, 2008 Kolkata/Shillong/Tezpur/Kokata,

Kolkata/shillong/Jorhat/Kolkata, Kolkata/Aizwal/Kolkata; February and March 2008 - Kolkata/

Shillong/Tezpur/Kokata, Kolkata/Aizwal/Kolkata. The air connectivity remained suspended on

some routes every month throughout the period covered by this audit. This has defeated the

purpose of providing ATR frequency in the North East as Annexure to the MOU. It also shows



the intention of the Airlines not to follow the terms and conditions of the MOU despite a hefty

amount is paid to them by NEC every year.

7. Improper drafting of MOU: A review of MOUs revealed that the terms and conditions have

not been drafted keeping in view the nature of work as such the desired results could not be

achieved. i) Sectors/air routes have not been agreed with frequency for the desired air

connectivity in NE Region. ii) Penalty clause not incorporated for non-compliance of any terms

or condition of MOU or for deficiency in services. iii) Under clause A(g) of MOU the

performance of the scheme will be reviewed in 2005-06 by DoNER/NEC/MOCA and thereafter

as required. Since, no performance report has been furnished by the Airlines it was not possible

to review the scheme. When the scheme was to be reviewed in 2005-06, why the MOU was

signed for five years upto 2007.

Releases for construction/improvement of Airport to State Governments

under the Scheme for Strengthening of and improvement of Airport in NorthEastern Region.

a. Lengpui Airport Aizwal, Mizoram.

b. Passighat and Tezu in Arunachal Pradesh.

1. Avoidable Loss of .6.36 Crores due to delay in completion of work: The work for

strengthening of Lengpui Airport runway pavement was got executed by PWD Project Division

III through contractor by calling tenders vide IFB No. 3/EE/PD-III/2007-2008 dated 07.02.2008.

Time & Date of Bid Opening was 1300 Hours on 25.2.2008. Para No. 8 of the said IFB provided -The bid for the work shall remain open for acceptance for a period of 90 days from the date of

opening of bids This implies that the work is scheduled to be awarded within a period of

90 days from the date of opening i.e. on or before 25.05.2008. Para No.1 under column 6 for

the said bid further provide that the Period of completion of the work is 4(four) months i.e.

25.09.2008. However, as per the record made available to audit the work was awarded vide

Agreement No. 6/EE/PD-III/2008-09 on 30.09.2008 and the work was actually completed on

25.02.2010, as mentioned in the Executive Engineers Completion Report. This clearly shows

that had the work been completed as per the scheduled time frame, it could have been

completed 17 months earlier.

In this regard it is worth mentioning that as per the Benefit Analysis of Lengpui Airport

Strengthening work the said work will provide financial benefit of .22.46 Crores within 5 years

after the completion of work. Thus, by delaying the completion of work by 17 months the State

Government suffered a loss of . 636.366 Lakhs (worked out on proportionate basis).



2. Deviation of funds provided by NEC .53.45 Lakhs: As per Para 3 of the Letter dated

22.2.2010 of EE, PWD, Project Division-III addressed to the SE, PWD, Project Circle and amount

of .71,56,938 will be utilized for installation of ILS (Instrumental Landing System) at Lengpui

Airport. However, the S.E. (Monitoring) on behalf of Eng in Chief, PWD vide his letter dated

24.02.2010 allowed the deviation of funds for installation of ILS to tune of

.53.45 Lakhs on thecondition that the said amount shall be replenished when the fund/sanction for installation of

ILS at Lengpui Airport is received. But the said amount of .53.45 lakhs have not been

replenished till the date of Audit.

3. Irregular payment for Agency Charges amounting to .75.23 Lakhs: NEC has accorded

Administrative Approval of .14.92 Crores for Strengthening of Lengpui Airport runway

pavement in Mizoram as Grant debitable to the Major Head 3601- Grant-in-Aid to State

Government, 05- Grants for special plan/schemes, 05.101- Schemes of North Eastern Council,

02 - Special Development Projects, 02.00.31 - Grants in Aid, to Mizoram Government for

execution of the work through their state PWD. The amount of Grant included an amount of

.75.23 lakhs (@ 6.5%) which is not justified in view of the fact that the amount has been paid

as Grant in Aid to the State Government for their Project and the work was also executed by

the same State PWD (the agency of the same State Government). Hence, the amount on this

account claimed by the State Government/approved and paid by the NEC is irregular which is

loss to NEC and undue benefit to the State PWD. Till the date of Audit an amount of .36.11

Lakhs have already been claimed and utilized by the State PWD on this account.

4. Irregular payment of Equipment Advance to Contractor .43.09 Lakhs: Under Para 2(b) of

IFB No. 3/EE/PD-III/2007-2008 dated 07.02.2008 the bidder should possess the following Plantsand machinery:

i. Computerized Hot Mix Plant (minimum 80-100 TPH capacity).

Ii Electronic sensor Paver having minimum width 7.5 mtr.

However, as per available record the contractor brought the above plant/machinery of

different/lower specification at site for execution of the work and the department accepted the

same for granting the Equipment Advance of . 43.09 Lakhs for bringing HMP Drum Mix Model

capacity 45-60 TMP and Hydraulic Sensor Paver. This has not only resulted into compromising

the quality of work but also irregular payment on account of Equipment Advance which is

undue benefit to the contractor.

To be continued

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