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. ii. iii. Sh V K Singh, Accounts Officer Sh Mahesh Kumar, Accounts Officer One member from NEC or DoNER (to be nominated by NEC/DoNER)

Scope of Audit: i) ii) The audit to cover the locations in Mizoram, Arunachal Pradesh and Kolkatta in addition to Shillong. 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 audit party and ultimately no one from NEC/DoNER joined this audit. 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.

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3. It was assured that the requisite records will now be obtained and produced to audit but the same was not provided.cum PAO/DoNER/IAW/2010-11/104-112 dated : 08.03. 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) . MHA visited the Headquarter of Alliance Air situated in Delhi for further scrutiny of record and information available there. Hence. In response to requisition of several items of record relating to tendering for the work Strengthening of Lengpui Airport runway pavement. the work has not been completed and full/final payment has not been made/settled. 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. Public Works Division III (Project) at Aizwal.. the Audit Party had no option except to conclude the audit without scrutiny of the said items of record. thus.C. lapses. Captain Sanjay Gupta. The audit party. the Audit Party visited their Operational office at Kolkatta. who informed that they have no role in execution of the said work and the same was got executed through the Executive Engineer. with the permission of Supervisor of the Audit Party Dy.iii) iv) v) vi) To review the scheme for improvement of Air Connectivity in the NER with reference to release made to Alliance Air. AASL/CAL/11 dated 15. scrutiny of record revealed some irregularities. AUDIT OBSERVATIONS During the course of special audit. AASL (Ops) E/R vide his letter No.2011 issued by Sr. 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.2011 informed that all documents and items are available at their Headquarter.NE. Accounts Officer (IAW) this party visited the Aizwal and approached the Civil Aviation Department.A. 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. In compliance of the Letter No. This party then approached the said Division and conducted the audit. Delhi. Mizoram informed that the tender was not called by this Division as such material required is not available in the Division. Government of Mizoram. Public Works Division III (Project) at Aizwal. In Charge. However. the exact and final financial implications cannot be worked out at this stage. Mizoram. Pr.

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.2003. 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.8.88% and proportionate amount of recovery for the period from 2002-03 to 2007-08 worked out to .4. cannot be calculated.01.e. However.2009. the year 2002-03. 3.2003 and 08. 2004.1.8. Ministry of Development of North Eastern Region.29. provided by the Airlines is available on record in NEC.03.03. Loss to NEC due to non-recovery for deficiency in performance . unwarranted and the same could have been avoided by NEC. 7.2002. for which the Second party will give compensation of . 29. 2. . No reasons are available on record for incorporating the period from 1.e.2010 the average deficiency in service comes to 16.35 crores per annum).f.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. Under the conditions of MOU the first party was agreed to provide 4 ATR-42-320 Aircrafts for air connectivity in North Eastern Region for a period of five years effective w. In absence of the performance report the quantum of deficiency cannot ensured and the loss thus. 16.03. quarterly physical and financial report should be submitted by the Airline Allied Services Ltd regularly to the Advisor (T&C).e. Shillong.2002 to 4. Government of India (known as NEC) party of the Second Part was made and signed on the 4th day of August.175 crores (i. However.4.2002 to 4. This clearly shows that flights operated by Alliance Air in the NE Region during period from 1. no such bar chart. NEC Secretariat. Loss due to increasing financial support to Alliance Air from back date . As per the information provided by the Airlines vide their letter dated 24. 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.54 crores. 2008.12.8.2004 which had already been lapsed at the time of MOU.2003 respectively which are much later than the effective date of the MOU.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. 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.2011 Date of first flight of the requisite four ATRs is 25. Even no record of flights made by the Airlines in NE Region or performance reports if any. Further.57 crores: Under the terms of MOU amended for the year 2009 financial support to Alliance Air was approved for . if the deficiencies are taken on average for the period for which the reports were submitted i.

on 25.07 crore w. shortage of ATR etc.38. fire.f.03. Alliance Air provided the air connectivity to NE Region on the said financial support during the entire Calendar year. floods.5 crores vide Administrative Approval dated 05.1. The first party i.57 crore to NEC. 4.12.22..47. the subsidy payable shall be deducted at pro-rata basis in terms of the capacity provisioning agreed. However. energy. labour or materials.31 Lacs for the said period of three years. 1. 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. riot. war. In case service or any part thereof are not provided for the reasons within the control of the Airline. fuel.2009. Loss due to short recovery for deficiency in performance as per MOU .03. embargo.2010.0769 Crores have been proposed and recovered on account of deficiencies in performace which has resulted into short recovery of . act of civil or military authority. NEC has deducted an amount of . 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. As per the record provided to this Audit Party.2010 when the entire Calendar Year was about to close.09 to 31.73 crores but as per the record provided by NEC only . Further.03.2007 for the year 2008. However.38.e. accidents.1565.03.0769 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. terrorist activities. 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.5 crore to .11. The total amount of recovery on account of deficiencies within the control of Airlines for the years 2008. 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.12. strikes. further extended for the year 2010 vide MOU dated 10. 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. . including but not limited to act of God.8. This has resulted into loss of .2009. 5 Crores for the year 2008 and . 2009 and 2010 worked out to . without receiving any protest/demand NEC issued another Administrative Approval revising the said financial support from . Non availability of Crew.15.2. extended for the year 2009 vide Administrative Approval dated 05.e. 7.65 Crores: Under the Clause 10 of the terms and conditions of MOU dated 20.2009 and also dated 25.2010 Performance by the party of the second part (read as Alliance Air) is the essence of the MOU.

This has defeated the purpose of providing ATR frequency in the North East as Annexure to the MOU.2. after incorporation of penalty clause in the MOU dated 20. hangers.g.5. Further. Undue benefit to Airlines due to non. A quarterly report about placement of aircraft at Guwahati would be submitted by Alliance Air to NEC. A margin of 20% to cover contingencies including weather/ operational and technical reasons would be kept while recovering the compensation from Alliance Air.11.08. 2008 Kolkata/Shillong/Tezpur/Kokata.implementation of terms and conditions of MOU: Under the Clause A (b) of the terms and conditions of MOU dated 04.2004 Guwahati airport shall be made primary operational base for improving air connectivity to airports in NE Region by Alliance Air. January and April.Kolkata/ Shillong/Tezpur/Kokata. These reports have been accepted by the NEC as valid for proof. The air connectivity remained suspended on some routes every month throughout the period covered by this audit.2 of terms and conditions of MOU dated 20. base staff etc. Kolkata/shillong/Jorhat/Kolkata.2007 onwards. Kolkata/Aizwal/Kolkata. 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.2007 and the MOU dated 10. It also shows . 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 is available at Guwahati to take on the spot decision on the basis of the facts and circumstances. This has resulted into considerable financial saving to Alliance Air on making infrastructure i. 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. it has been gathered from the record that the Guwahati has not been operational base for air connectivity in NE Region till date. 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. As such the purpose of obtaining Quarterly report is also defeated. offices. In case of failure of Alliance Air to place aircraft at Guwahati compensation .15. Kolkata/Aizwal/Kolkata. under clause 3. February and March 2008 .2010 At least one aircraft would be based at Guwahati Airport for early morning departure in order to facilitate the passenger movement to /from/ within the Region. and Kolkata has been retained as primary operational base. However.12.12.e.000/per night would be recoverable by NEC. 6.

.46 Crores within 5 years after the completion of work.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. Mizoram. However. as mentioned in the Executive Engineer s Completion Report. on or before 25. When the scheme was to be reviewed in 2005-06. no performance report has been furnished by the Airlines it was not possible to review the scheme.e.2008. 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. This clearly shows that had the work been completed as per the scheduled time frame. it could have been completed 17 months earlier. 1. a. Releases for construction/improvement of Airport to State Governments under the Scheme for Strengthening of and improvement of Airport in North Eastern Region. 6/EE/PD-III/2008-09 on 30.09.36 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. Since. b. Avoidable Loss of . 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. Lengpui Airport Aizwal. Thus. Para No. by delaying the completion of work by 17 months the State Government suffered a loss of .2008 and the work was actually completed on 25.2008.22. 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 . i) Sectors/air routes have not been agreed with frequency for the desired air connectivity in NE Region. why the MOU was signed for five years upto 2007. Time & Date of Bid Opening was 1300 Hours on 25.2008.366 Lakhs (worked out on proportionate basis).e. Passighat and Tezu in Arunachal Pradesh. ii) Penalty clause not incorporated for non-compliance of any terms or condition of MOU or for deficiency in services. 636. 3/EE/PD-III/2007-2008 dated 07.05.1 under column 6 for the said bid further provide that the Period of completion of the work is 4(four) months i.02. 25.2.09. Para No.02.6. as per the record made available to audit the work was awarded vide Agreement No. 7. 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.2008.2010.

31 .56.02. But the said amount of .53.92 Crores for Strengthening of Lengpui Airport runway pavement in Mizoram as Grant debitable to the Major Head 3601. 05. 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 . Hence. Irregular payment of Equipment Advance to Contractor . PWD. Project Circle and amount of . to Mizoram Government for execution of the work through their state PWD.02.Grants in Aid.09 Lakhs for bringing HMP Drum Mix Model capacity 45-60 TMP and Hydraulic Sensor Paver.2010 of EE.11 Lakhs have already been claimed and utilized by the State PWD on this account. 4. Till the date of Audit an amount of .E. Project Division-III addressed to the SE. 02. To be continued . However.101.36. PWD vide his letter dated 24.09 Lakhs: Under Para 2(b) of IFB No.45 Lakhs: As per Para 3 of the Letter dated 22. (Monitoring) on behalf of Eng in Chief. 3/EE/PD-III/2007-2008 dated 07.45 lakhs have not been replenished till the date of Audit.Grants for special plan/schemes. Ii Electronic sensor Paver having minimum width 7.2008 the bidder should possess the following Plants and machinery: i. 43.43. 02 .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). Deviation of funds provided by NEC . However. 3. the S.23 lakhs (@ 6. Irregular payment for Agency Charges amounting to .2.23 Lakhs: NEC has accorded Administrative Approval of .Special Development Projects.Schemes of North Eastern Council. Computerized Hot Mix Plant (minimum 80-100 TPH capacity).2010 allowed the deviation of funds for installation of ILS to tune of .75.00. PWD.71.Grant-in-Aid to State Government. The amount of Grant included an amount of . 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.53.45 Lakhs on the condition that the said amount shall be replenished when the fund/sanction for installation of ILS at Lengpui Airport is received.938 will be utilized for installation of ILS (Instrumental Landing System) at Lengpui Airport. 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.75.14.53.2.5 mtr. 05.

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