CAG raps Power Finance Corp over loan

The Comptroller and Auditor General (CAG) has pulled up the Power Finance Corporation (PFC) for disbursing nearly Rs 100 crore to a private hydel power project without ensuring the promoter's compliance with stipulations in the loan agreement.

The irregular disbursement by PFC can result in a loss of the entire principal amount of Rs 100 crore as well as the interest amounting to nearly Rs 40 crore, CAG has said in its report on central public sector undertakings.

According to the CAG report, PFC has disbursed Rs 99.32 crore to the S Kumar promoted Shree Maheshwar Hydel Power Corporation between February 1999 and July 2000 for financing the construction of a hydel power station under consortium financing.

This was done without ensuring the promoter's compliance with pre-disbursement conditions as stipulated in the loan agreements, resulting in a risk of potential loss of Rs 99.32 crore, besides the loss of interest amounting to Rs 39.54 crore (till March 2003), the report has said.

As per the loan agreement and a decision of the PFC board of directors, the funds were to be released only after the promoters brought in equity as committed by them.

"Despite the pre-disbursement conditions not being fulfilled, PFC released Rs 99.32 crore," the report has said.

The promoters, however, had started defaulting in the payment of interest from October 2000 and till March 2003 the default interest had amounted to Rs 39.54 crore, the report has said.

Implementation of the project has been held up since February 2001 due to promoters' inability to bring in further equity, backing out of the foreign collaborators and non-release of further disbursements of loans by other financial institutions owing to default by the promoters, the report has said.

The CAG report says the PFC management has justified its decision to relax the disbursement conditions by stating that the institution has followed the same pre-disbursement conditions as followed by the lead financial institution of the consortium in accordance with its policy, and has relaxed the conditions in line with measures taken by the lead institution.

CAG has also pulled up Power Grid Corporation because of the delay of 30 months in the execution of a transmission system, resulting in an extra expenditure of Rs 217.22 crore. The delay has been attributed to the inexperience of a foreign contractor, as per the report.

CAG has also critisised PFC for not having exercised call option for early redemption of bonds despite the fact that there has been a downward trend in the rate of interest, resulting in an extra interest liability of Rs 3.88 crore, the report has said.