The Telegraph
Since 1st March, 1999
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SAIL pulled up for coal import snag

New Delhi, Feb. 14: The Comptroller & Auditor General of India’s commercial audit wing has criticised SAIL for losing up to Rs 344 crore on coal imports when Australian mining majors took advantage of rising coal prices and suspended contracted supplies.

In an interim report, the office of the principal director of commercial audit, has taken the steel major to task for letting MIM/Xstrata, which had a long-term contract, go short on 37 per cent of contracted supplies in 2003 and 2004. However, flooding in MIM/Xstrata’s mines in June-July 2003 and November-December 2003 had led to production shortfalls of only 22 per cent and 13 per cent in 2003 and 2004, respectively. SAIL suffered a supply crunch in vital coking coal during this period and at times had to shut down certain plants. SAIL was forced to buy coking coal from global markets at high spot rates. A probe was later started on the purchase of coal at spot rates.

The audit report, which is now with the steel ministry, says, “The extent of the force majuere (stoppage of supplies) declared by MIM/Xstrata was not proportionate to the suspension of deliveries by MIM to SAIL. MIM/Xstrata was taking undue advantage of rising coking coal prices using the pretext of force majuere ... SAIL had not obtained adequate evidence to indicate that the impact of force majuere was borne proportionately by other customers.”

Anglo Coal also declared force majuere against SAIL in January-August 2004 leading to a backlog of 9.2 lakh tonnes of high-grade coking coal used in steel furnaces. The twin force majueres resulted in a 12 per cent decline in SAIL’s production for the first quarter of 2004-05, a time when steel priecs were rising. Interestingly, the mines suffered these damages soon after coal prices started rising and they started sending force majeure notices between November 2003 and January 2004.

The audit report says, “SAIL’s action on MIM/Xstrata (which commenced in June 2003 was grossly delayed.”

Even more damning is the report’s statement that SAIL, which tried to buy coal at spot rates to make good the gap in supplies, has “very poor track record tendering for coal imports. Between November 2000 and December 2004, for a total quantity of 3.625 million tonnes of coal, SAIL could procure only one shipment of 45,000 tonnes or just 1 per cent of what it tendered”.

The report adds “the fact remains that repeated tendering without finalisation of orders did affect SAIL's credibility in the international spot market. By contrast, other central PSUs like MMTC and STC acted as trading agents and actually supplied coking coal to SAIL when it failed to procure coking coal on its own”.

The delay in buying coal, the auditors conclude, resulted in a loss of some Rs 344 crore for the steel major. SAIL chairman V.S. Jain told The Telegraph that “auditors will always have a point of view which does not necessarily tally with that of business managers. The important point is that the report does not accuse any particular director or division of any wrongdoing. It has tried to pin point policy and procedural lapses”.

SAIL's coal purchases have always been a matter of controversy. Soon after steel minister Ram Vilas Paswan took over, a committee comprising former SAIL chairman Arvind Pandey and a former Coal India chief was set up to go into coal import decisions taken by a board level committee whose nodal officer was the then marketing head S.K.Rungta.

Rungta is being considered for Jain’s job as the PSU chief executive is scheduled to retire later this year. The Public Enterprises Selection Board has recommended him for the job citing an excellent track record.

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