PSU cost escalation numbers raise doubts

Written by Subhash Narayan | Prashant Mukherjee | New Delhi | Updated: Nov 14 2012, 07:56am hrs
Public sector companies which have delayed their projects by over a decade have witnessed a cost escalation of only up to 20%, show data from the ministry of statistics and programme implementation. This rate of cost overrun, much below what private companies report for comparable periods of delay, is a case of under-reporting, analysts say.

According to the latest report of the ministry which is in charge of monitoring major projects coming up in the central sector, in some cases, the project costs have remained the same even as the top management has rolled over several times.

Projects like Indian Oil Corporations Paradip Refinery, GAILs Jagdishpur-Haldia pipeline project and NTPCs Bongaigaon thermal power project have seen delays of 30-75 months, but reported cost escalation below 20%.

According to an official in the ministry, the low cost escalation in central sector projects is largely on account of old and obsolete data provided by the administrative ministries of the PSEs. The cost escalation will be 50-60% more than what is reflected in our report if we get authentic data from the ministries. The ministry artificially hold back any increase in cost of PSUs projects even though there may be delays of several years, the official said on condition of anonymity.

As per statistics ministry report, the Bongaigaon project in Assam has faced a delay of over 40 months but its revised cost of completion has remain unchanged at R4,375.35 crore. The project cost was approved in 2008. The Barh project in Bihar faced a delay of 75 months but has not reported any increased in cost as per the flash report.

GAILs Jagdishpur-Haldia Pipeline project faced a delay of over 30 months, whose project cost remained static at R7,596.18 crore.

The countrys largest state-run oil and gas explorer ONGC project for development of G1 and GS15 oil and gas field in various states faced a delay of 84 month since April 2003, when the project was conceived. The cost of the project has remained static at Rs 2,736 crore during the tenure with a minor variation in between.

The statistics ministry reports that out of 558 projects considered up to July 2012, three projects are ahead of schedule, 166 projects are on schedule and 268 projects are delayed. The total original cost of implementation of 558 projects when sanctioned was of the order of Rs 7,56,601 crores but this was subsequently revised to Rs 9,00,402 crores, implying a cost overrun of only 19%. On the other hand, Reliance Industries KG D6 gas block approved in 2007 has seen an escalation in cost from $2 billion to about $8 billion now, a three-fold increase in a span of five years.