CHAPTER – 7

REVIEW OF FINANCIAL
PROGRESS OF PROJECTS
 REVIEW OF FINANCIAL PROGRESS OF PROJECTS

7.0 FUNDS REQUIREMENT FOR PROJECTS IN QUARTER-8 (APRIL TO JUNE,

2020)

The implementation of Integrated Unit (IU) project at Kutch, Captive Power

Plant (CPP) project at Kutch and Cement Grinding Unit (GU) project at Surat
has been commenced from 1st July, 2018. M/s. Sanghi Industries Ltd. (SIL) has
not given any budget for quarter-8 (April to June, 2020) and informed that the
unutilized budget of quarter-5 (July to September, 2019) is sufficient to take
care of funds requirement for quarter-8 (April to June, 2020) for capacity
expansion project.

7.1 REVIEW OF FINANCIAL PROGRESS OF PROJECTS FOR AND UPTO

QUARTER-8 (APRIL TO JUNE, 2020)

It is informed by SIL that during quarter-8 out of unutilized budget of quarter-1

(July to September, 2018), LC’s were opened for Rs. 0.00 Cr against future
supplies and payment of invoices was made for Rs. 0.09 Cr, out of unutilized
budget of quarter-2 (October to December, 2018) LC’s were opened for Rs.
0.00 Cr against future supplies and payment of invoices was made for Rs. 0.00
Cr, out of unutilized budget of quarter-3 (January to March, 2019) LC’s were
opened for Rs. 0.00 Cr against future supplies and payment of invoices was
made for Rs. 0.00 Cr, out of unutilized budget of quarter-4 (April to June, 2019)
LC’s were opened for Rs. 0.00 Cr against future supplies and payment of
invoices was made for Rs. 5.71 Cr and out of unutilized budget of quarter-5
(July to September, 2019) LC’s were opened for Rs. 0.00 Cr against future
supplies and payment of invoices was made for Rs. 33.41 Cr. A statement of
section wise budget versus actual and variances for IU, CPP and GU, Surat
projects upto quarter-8 are enclosed as Annexure - 7.1.

The summary of the financial progress (with GST) in quarter-8 (April to June,
2020) and upto quarter-8 (July 2018 to June, 2020) of Integrated Unit (IU) and
Captive Power Plant (CPP-II) projects as well as for the entire project is given
below:

  PROJECTS COMPLETION STATUS (Rs. in lac)

For Quarter-8 Upto Quarter-8

Name of Projects
(April to June, 2020) (July 2018 to June, 2020)

  (Budget) (Actual) (Completion) (Budget) *(Actual) (Completion)

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 REVIEW OF FINANCIAL PROGRESS OF PROJECTS

         
73807.6
Integrated Unit (IU) 0.00 0.00 0% 83046.11 89%
9
         
Captive Power 22306.1
0.00 0.00 0% 22726.90 98%
Plant (CPP) 5
         
@ Grinding Unit
0.00 0.00 0.00 0.00 0.00 0.00
(GU) at Surat
         
96113.8
Total 0.00 0.00 0% 105773.01 91%
4
NOTES:  
1) *Actual upto quarter-8 also includes payments made during quarter-8 out of unutilized budget of
quarter 1, quarter-2, quarter-3, quarter-4 and quarter-5 and Rs. 11.16 Cr. paid by SIL prior to 1 st
disbursement out of their own sources.

2) @ As M/s. L & T have filed a petition before NGT against the Pollution Clearance granted by
Government of Gujarat to SIL for putting up a Greenfield Cement Grinding Unit (GU) at Surat
and as decided by the consortium, the physical and financial progress of Cement Grinding Unit
(GU) at Surat has not been considered here and deferred for the time being.

3) The commencement date of the project is 1st July, 2018

The summarized financial progress (without GST) upto quarter-8 (July 2018 to
June, 2020) of Integrated Unit (IU) and Captive Power Plant (CPP) projects as
well as for the entire project as percentage of total Revised Project Cost as on
30.06.2020 is given below:

Sl. Name of the Project Budget Actual

No.
1 Integrated Unit-Sanghipuram 92% 82%
2 Captive Power Plant (CPP-II), 84% 81%
Sanghipuram
  Total Projects 90% 82%

7.2 REVIEW OF EXECUTION OF CONTRACTS / P.O. / W.O. OF HARD COST

OF THE PROJECTS

The status of execution of contracts/P.O./W.O. of hard cost of IU and CPP-II

projects as on 30.06.2020 is given below:

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 REVIEW OF FINANCIAL PROGRESS OF PROJECTS

Present status of execution of contracts/P.O./W.O. of hard cost of

the projects as on 30.06.2020
  Integrated Unit CPP-II
(IU)
  As % of total hard As % of total
cost of the project hard cost of the
project
(A) Plant & Machinery, Electricals &
Instrumentation
 
Crystallised 70% 85%
Ready to execute 0% 0%
Material cost 0% 0%
To be executed at appropriate time 1% 0%
Sub Total (A) 71% 85%
     
(B) Civil works & Structure    
Crystallised 28% 15%
Ready to execute 0% 0%
Material cost 0% 0%
To be executed at appropriate time 1% 0%
Sub Total (B) 29% 15%
     
Total (Plant & Machinery and Civil    
works)
Crystallised 98% 100%
Ready to execute 0% 0%
Material cost 0% 0%
To be executed at appropriate time 2% 0%
Total (A+B) 100% 100%

7.3 REVIEW OF REVISED PROJECT COST OF IU & CPP-II AS ON 30.06.2020

AND COST OVERRUN OF PROJECTS

SIL has submitted the revised project cost of Integrated Unit (IU) and CPP-II as
on 30.06.2020. It is observed that during quarter-8 (April to June, 2020), the
total project cost overrun (net of repeated orders) has increased by Rs. 5.51
crore i.e. cost overrun increased from Rs. 8.12 crore as on 31.03.2020 to Rs.
13.63 crore as on 30.06.2020.

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 REVIEW OF FINANCIAL PROGRESS OF PROJECTS

The details of original approved project cost, revised project cost as on

30.06.2020 and cost overrun as on 30.06.2020 of Integrated Unit (IU) and CPP-
II projects are given below:
  REVISED PROJECT COST ESTIMATES (WITHOUT GST) - INTEGRATED UNIT
(IU) & CAPTIVE POWER PLANT (CPP-II) AS ON 30.06.2020
      (Rs. In lac)
SL. DESCRIPTION AS PER ORDERED TO BE REVISED SAVINGS(+) /
NO. APPROVED ORDERED PROJECT EXCESS(-)
PROJECT COST
COST

    (A) (B) (C) (D=B+C) (E=A-D)

(A) INTEGRATED UNIT          
1.0 Land and site development 270.00 375.23 10.00 385.23 -115.23
2.0 Buildings and other civil          
structures
2.1 Labour 6,597.98 7,260.32 0.00 7,260.32 -662.34
2.2 RCC 2,648.77 2,764.38 101.28 2,865.66 -216.89
2.3 TMT 4,853.68 4,761.45 61.50 4,822.95 30.73
2.4 Structural Steel 5,685.62 4,033.43 570.96 4,604.39 1,081.23
2.5 Other costs 167.40 288.71 6.52 295.23 -127.83
  Sub-total (2.0) 19,953.46 19,108.29 740.26 19,848.56 104.90
3.0 Plant and Machinery          
3.1 Total cost of Mechanical and 46,821.30 44,375.10 421.67 44,796.77 2,024.52
Electrical equipment
3.2 Less: Capital cost of Packing -1,480.42 .00 .00 .00 -1,480.42
Plant included in sub para
3.1 above but not putting up
by SIL
3.3 Mining machinery (Surface 631.80 .00 .00 .00 631.80
Miner)
3.4 Less: Capital cost of Mining -631.80 .00 .00 .00 -631.80
Machinery (Surface Miner)
included in sub para 3.3
above not considered by SIL
  Sub-total (3) 45,340.88 44,375.10 421.67 44,796.77 544.10
4.0 Engineering & Know How 325.00 656.67 17.11 673.78 -348.78
4.1 Expenses on foreign 10.00 .00 1.00 1.00 9.00
technicians and training
abroad of local technicians
  Sub-total (4) 335.00 656.67 18.11 674.78 -339.78
5.0 Miscellaneous Fixed          
Assets (MFA)
5.1 Furniture 20.00 295.26 2.58 297.84 -277.84
5.7 Equipment for Distribution of 5,069.56 4,798.23 189.16 4,987.39 82.17
Power
5.13 Fire Fighting Equipment 30.00 8.35 5.00 13.35 16.65
  Sub-total (5) 5,119.56 5,101.85 196.73 5,298.58 -179.03

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 REVIEW OF FINANCIAL PROGRESS OF PROJECTS

  Total Hard Cost(1 to 5) 71,018.89 69,617.15 1,386.78 71,003.93 14.97

6.0 Expenses incurred which .00 936.53 .00 936.53 -936.53
were not considered in the
approved project cost as
per Annexure-A
7.0 Pre-Operative Expenses          
7.3 Traveling Expenses 100.00 80.29 .00 80.29 19.71
7.4 Insurance Charges during 143.40 165.02 .00 165.02 -21.62
construction period
7.5 Financial expenses 372.13 440.41 .00 440.41 -68.28
7.6 Miscellaneous Expenses 100.00 124.51 .00 124.51 -24.51
(Post Mail/ Legal, etc.)
7.7 Salaries During 500.00 638.80 .00 638.80 -138.80
Implementation Period
7.8 Start up Expenses 200.00 .00 200.00 200.00 .00
7.9 Electricity/Water during 27.00 .04 .00 .04 26.96
construction period
  Total (7.0) 1,442.53 1,449.07 200.00 1,649.07 -206.54
             
8.0 Interest during 3,810.60 2,605.98 1,204.62 3,810.60 .00
construction period
             
9.0 Contingencies 2,550.81 .00 .00 .00 2,550.81
             
10.0 Margin Money for Working 1,617.79 .00 1,617.79 1,617.79 .00
Capital
             
  Total Cost (A) 80,440.62 74,608.73 4,409.19 79,017.92 1,422.71
             
(B) CAPTIVE POWER PLANT          
(CPP-II)
1.0 Land and site development 25.00 36.37 .00 36.37 -11.37
2.0 Buildings and other civil          
structures
2.1 Labour 1,483.40 1,535.51 0.00 1,535.51 -52.11
2.2 RCC 505.20 760.46 28.73 789.19 -283.99
2.3 TMT 718.73 959.47 .00 959.47 -240.74
2.4 Refractory 125.87 34.54 .00 34.54 91.33
2.5 Other cost 51.24 3.82 11.00 14.82 36.42
  Sub-total (2.0) 2,884.44 3,293.81 39.73 3,333.53 -449.10
3.0 Plant and Machinery          
3.1 Total cost of Mechanical and 13,662.73 14,897.23 9.36 14,906.59 -1,243.86
Electrical equipment
  Sub-total (3) 13,662.73 14,897.23 9.36 14,906.59 -1,243.86
4.0 Engineering & Know How 75.00 97.31 .00 97.31 -22.31
4.1 Expenses on foreign .00 .00 .00 .00 .00
technicians and training
abroad of local technicians
  Sub-total (4) 75.00 97.31 .00 97.31 -22.31
5.0 Miscellaneous Fixed          
Assets (MFA)
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5.1 Furniture 25.00 .00 15.00 15.00 10.00

5.7 Equipment for Distribution of 2,344.48 2,841.32 7.04 2,848.36 -503.89
Power
5.13 Office machinery & 15.00 .00 8.83 8.83 6.17
equipment
             
  Sub-total (5) 2,384.48 2,841.32 30.87 2,872.19 -487.72
  Total Hard Cost(1 to 5) 19,031.65 21,166.05 79.95 21,246.00 -2,214.36
6.0 Expenses incurred which .00 1,248.38 .00 1,248.38 -1,248.38
were not considered in the
approved project cost as
per Annexure-B
             
7.0 Pre-Operative Expenses          
  Establishment 45.00 5.44 .00 5.44 39.56
  Rent & Taxes 16.00 .00 .00 .00 16.00
7.3 Traveling Expenses 45.00 13.08 .00 13.08 31.92
7.4 Insurance Charges during 24.07 17.91 .00 17.91 6.16
construction period
7.6 Miscellaneous Expenses 118.76 51.27 .00 51.27 67.49
(Financial exps., Post Mail/
Legal, etc.)
7.7 Salaries During 90.00 92.77 .00 92.77 -2.77
Implementation Period
7.8 Start up Expenses 45.00 .00 45.00 45.00 .00
7.9 Electricity/Water during 18.00 .00 .00 .00 18.00
construction period
  Total (7.0) 401.83 180.47 45.00 225.47 176.36
             
8.0 Interest during 1,207.87 501.38 706.49 1,207.87 .00
construction period
             
9.0 Contingencies 500.77 .00 .00 .00 500.77
             
10.0 Margin Money for Working 300.00 .00 300.00 300.00 .00
Capital
             
  Total (B) 21,442.12 23,096.28 1,131.44 24,227.72 -2,785.61
             
  Grand Total (A+B) 1,01,882.74 97,705.01 5,540.63 1,03,245.64 -1,362.90
             
Note In the revised project cost of Integrated Unit (IU), SIL has not considered packing plant.
: However, LIE is of the views that additional packing and dispatch facilities are required. In
this connection, please see para ( 7) of the Interim Review Report of LIE circulated on
13.12.2019 .

#The original project cost of Integrated Unit (IU) and CPP-II projects approved by the
Lenders in June, 2018 was Rs. 103994.96 lac. After deducting the cost of 2 rotary
packers amounting to Rs. 1480.42 lac and one surface miner amounting to Rs. 631.80
lac which was not considered by SIL in the revised project cost as on 30.06.2020, the

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 REVIEW OF FINANCIAL PROGRESS OF PROJECTS

net adjusted project cost approved by the Lenders in June, 2018 has been arrived to
Rs. 101882.74 lac.

7.4 REQUIREMENT OF FUNDS AS ON 30.06.2020 TO COMPLETE THE

ONGOING INTEGRATED UNIT (IU) AND CPP-II PROJECTS

On the basis of revised project cost of Rs. 1032.46 crore (without GST) of IU
and CPP-II projects as on 30.06.2020 as given above and actual expenses of
Rs. 842.26 crore paid upto 30.06.2020, the balance funds required to complete
the expansion projects is worked out to about Rs. 190.20 crore (without GST)
as follows:

  FUNDS REQUIRED (WITHOUT GST) TO COMPLETE THE ONGOING EXPANSION

PROJECT of IU & CPP-II AS ON 30.06.2020
  (Rs. in lac)
Sl. Particulars @Project Revised Exps. Paid Balance
No. Cost Project upto funds
approved Cost as on 30.06.2020 required to
by Lenders 30.06.2020 as per CA complete
in June as given by Certificate the Project
2018 SIL

1 Hard Cost of Project (Civil, plant 90051 94435 79489 14946

& Machinery, MFA etc.)
2 Soft Cost        
i Pre-operative expenses 1844 1875 1630 245
ii Interest during Constn. period 5018 5018 3107 1911
iii Contigencies 3052 0 0 0
iv Margin money for W. capital 1918 1918 0 1918
  Sub Total (2) 11832 8811 4737 4074
  Total 101883 103246 84226 19020
           
  @ The cost of 2 rotary packers amounting to Rs. 1480 lac and one surface miner
amounting to Rs.632 lac has been deducted in the project cost approved by the Lenders
  in June, 2018 because SIL has not considered these 2 items in the revised project cost
  as on 30.06.2020.

7.5 IMPORTANT OBSERVATIONS

1) The financial progresses of IU and CPP-II projects was good upto quarter-4
(April to June 2019) and thereafter it was slowed down which is evident
from the fact that the financial budget given by SIL for quarter-5 (July to
September 2019) has not been fully utilised till the end of quarter-8 i.e.
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 REVIEW OF FINANCIAL PROGRESS OF PROJECTS

30.06.2020. Even SIL has not requested for any fresh budget for quarter-9
(July to September 2020) and informed that the unutilised budget of
quarter-5 is sufficient to take care of funds requirement. Though the
physical progress of the projects upto 30.06.2020 as informed by SIL is
about 98% but the financial progress is only 82%.

2) In the revised project cost as on 30.06.2020, SIL has deducted a sum of

Rs.1858.38 lac (as on 31.03.2020 Rs. 606.74 lac) from various PO/WO
under the head ‘Repeated order to be deducted’. In fact, there is no
repeated order rather an aggregate sum of Rs. 1858.38 lac (Rs. 1561.78
lac in Integrated Unit and Rs. 296.60 lac in CPP-II) has been deducted
from various running/operative purchase orders/works orders without any
basis and supporting documents as follows:
(Rs. in lac)
Sl. Particulars As on As on Increase (+)/
No. 31.03.2020 30.06.2020 Decrease(-)
(1) (2) (3) (4) (5=4-3)
(A) Integrated Unit      
01 Civil Labour Contractors 152.28 289.24 136.96
02 Mechanical Fabrication 142.22 248.92 106.70
03 Erection & Commissioning 0.00 782.19 782.19
04 Refractory & Castables 103.27 103.27 0.00
05 Engineering & know how 0.00 13.77 13.77
06 Cables 47.82 47.82 0.00
07 Electrical Installations 0.00 76.18 76.18
08 Misc. Items 0.00 0.39 0.39
  Total (A) 445.59 1561.78 1116.19
         
(B) Captive Power Plant    
(CPP-II)  
01 Civil Labour Contractors 83.57 113.47 29.90
02 BTG Installation 0.00 179.06 179.06
03 Electrical & Instrumentation 75.27 1.76 -73.51
04 Misc. Items 2.31 2.31 0.00
  Total (B) 161.15 296.60 135.45
  Grand Total (A+B) 606.74 1858.38 1251.64

In LIE’s views, the above mentioned amount of Rs. 1858.38 lac to be

considered as contingent liability which may incur or may not incur. SIL has
to provide necessary amendment letters duly signed by the supplier for
amendment in each purchase orders/work orders in which deductions in

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 REVIEW OF FINANCIAL PROGRESS OF PROJECTS

amount on account of repeated orders is considered by SIL in the revised

project cost as on 30.06.2020.

3) At the time of review of revised project cost of IU & CPP-II as on

31.03.2020, SIL insisted that no pre-operative expenses to be considered
after 31.03.2020 (except start up expenses) which is travelling,
establishment, financial expenses, insurance during construction period,
salary of project personnel, miscellaneous expenses etc. SIL had assured
that in case any amount relating to pre-operative expenses required to be
paid after 31.03.2020, SIL will pay it out of their running business. LIE was
of the views that removal of pre-operative expenses after 31.03.2020 is not
correct as the completion of project will take atleast further 2-3 quarters.
However, after discussion, the Lenders have agreed to not consider any
pre-operative expenses after 31.03.2020 in the revised project cost and
accordingly revised project cost as on 31.03.2020 was finalised.

Now, it is observed from the CA Certificate dated 21.08.2020 as provided

by SIL for utilization of funds during quarter-8 (April to June, 2020) that an
amount of Rs. 89.62 lac has been paid through HDFC Project Escrow
Account during quarter-8 i.e. after 31.03.2020 against pre-operative
expenses for IU and CPP-II projects.

4) The entire contingency provisions of Rs. 30.52 crore as initially provided in

the approved project cost for IU & CPP-II projects has been fully utilised
and no contingency provision is now available. Therefore, in view of point
No. 02 & 03 above, it is suggested that in the revised project cost of Rs.
1032.46 crore as on 30.06.2020, appropriate contingency provision to be
added.

5) Due to Covid-19 pandemic and as per the guidelines of RBI, the Lenders in
the last consortium meeting held on 19.08.2020 have decided to convert
the interest payable on term loans from 01.03.2020 to 31.08.2020 into
Funded Interest Term Loan (FITL). Therefore, the interest payable from
01.03.2020 to 30.06.2020 has been accrued but not paid to the Lenders
during quarter-8 (April to June, 2020). The crystallised amount of interest
payable on term loans from 01.03.2020 to 31.08.2020 which is converted
into Funded Interest Term Loan (FITL) will be informed in the next report
i.e. report for quarter-9 (July to September, 2020).

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6) Though in totality some unutilised approved quarterly budgets are available

but it is observed that the payments were released to many parties without
any approved quarterly budgets against payments made to them.

7) During quarter-8 (April to June, 2020), no GST reimbursement was

received from SIL in Project Escrow Account.

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