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CHAPTER 4
STORES AND ASSETS MANAGEMENT

4.1    Import

4.1.1    Railway Board and South Eastern Railway: Premature stabling of WAG-6 Locomotives

Failure of Railway Administration to ensure maintenance/ Periodical overhaul (POH) requirement of eighteen 6000 HP WAG-6 locomotives imported at a cost of Rs.200 crore resulted in their premature stabling.  Consequently, Railway Administration suffered a loss of Rs.18.43 crore on account of avoidable procurement of stores besides a loss of Rs.77.37 crore towards earning capacity of these locos

In 1988, with the financial assistance from the World Bank, Ministry of Railways procured, as a part of technology upgradation programme, eighteen 6000 HP electric locomotives with thyristor control of three different designs viz. 6 locos from M/s ASEA, Sweden classified as WAG-6 A, and 12 locomotives of M/s HITACHI from Sumitomo Corporation, Japan classified as WAG-6 B and WAG-6 C. Field trials of these locos were to be extensively conducted on main lines of Northern, Eastern, South Eastern Railways and on Waltair - Kirandul section (KK branchline) of South Eastern Railway.

These locomotives were received and commissioned in Electric Loco shed, Waltair between March 1988 and October 1988. The locos were found to have a tendency to interfere with signalling track circuit of main lines, as such were used only on branch line (KK line) of South Eastern Railway.

For Periodical Overhaul (POH) etc. of these locos, stores worth Rs.12.31 crore was imported between August 1995 and April 1997. In addition, some indigenous stores for this purpose were also being procured. The first POH of these locomotives fell due in the year 1997-98. The POH, however, could not be undertaken due to non-availability of technical know-how, manufacturing drawings, tools and tackles required for POH. In view of these difficulties, Railway Board sent a three member delegation headed by Chief Electrical Engineer, South Eastern Railway to Queensland Railway, Australia from 27 November 1998 to 3 December 1998 to study maintenance and operational problems of locos similar to WAG-6 which were in operation on Queensland Railway. The delegation, after their visit made, inter alia, the following recommendations:

  1. A visit by Railway officers from Electrical, Stores and Accounts Departments to United Kingdom, France, Germany and other European countries to identify sources for supply of spares for these locos.
  2. Entering into an agreement with Queensland Railway for transfer of know-how for maintenance of these locos.
  3. Outsourcing the maintenance of major equipment of these locos to Original Equipment Manufacturers (OEM) to eliminate the need for developing maintenance facilities in Railways.

Thereafter, the Railway Board set up a three member Appreciation Committee in April 1999 to go into various aspects of these locos and submit its report.

Based on the report submitted by the committee in May 1999, the Railway Board issued (November 1999) the following instructions to South Eastern Railway.

  1. POH of WAG 6 locos should be carried out at Waltair loco shed by 2002.
  2. To continue import of only some of the rubber components used in transmission, suspension and spares of slip side control.
  3. All other components could be developed indigenously.
  4. Knowledge to be obtained from M/s. ASEA and M/s. HITACHI in respect of trouble shooting of control electronics, repairs of PCBs and slip side control.

No plan for POH of these locos was, however, drawn up. These locos were declared as unsafe in September 2000 and withdrawn from traffic service by Chief Traffic Manager, South Eastern Railway.

Thereafter, six locos were periodically overhauled between March 2001 and March 2002. Of these, four failed during trial runs and the report on trials on the remaining two was awaited (August 2002).

In this connection, the following observations are made:

  1. Indigenous stores worth Rs.6.12 crore was procured till May 1999 in addition to an expenditure of Rs.12.31 crore on stores imported between August 1995 and April 1997 for POH etc. of these locos without any clear and definite idea about POH of these locos. The stores worth Rs.18.43 crore remained unutilised till March 2001 when POH of locos was taken up.
  2. Out of 6 locos overhauled till March 2002, 4 failed during trial runs. The trial results of the remaining two locos were awaited (August 2002). Railway Administration's failure to make the locomotives track worthy led to costly assets worth Rs.200 crore remaining idle since September 2000 having completed only 12 years of their codal life of 30 years.
  3. During 1998-99, these locos earned 9,19,675 kms. Based on this, the loss of 18,39,350 engine kilometres during October 2000 to September 2002 resulted in loss of Rs.77.37 crore in terms of earning capacity of these locos.

The matter was brought to the notice of Railway Administration and Railway Board in May 2002 and October 2002 respectively and their reply has not been received (December 2002).

4.1.2    Railway Board: Poor planning and indecisiveness resulted in unfruitful expenditure

Railways failed to induct the latest technology in rail fastening even after lapse of 26 years and incurred an expenditure of Rs.10.82 crore

The fastening system on Indian Railways mainly consists of Malleable Cast Iron (MCI) Inserts/ Spheriodal Graphite Cast Iron (SGCI) Inserts cast in the concrete sleepers with Elastic Rail Clips (ERC) inserted/ driven through the hole of Inserts.

The Pandrol type ERC fastening in use at present on Indian Railways incorporates the technology, which existed in early 1960.

Ministry of Railways (Railway Board) in December 1996 decided to import different types of established fastenings in the world and to conduct trials to choose the one best suited to Indian conditions.

Global tender in 2 packets for procurement of various types of modern fastenings was called for (May 1997) and opened in August 1997. 5 offers including one from an Indian firm were received. After expressing initial reservation, RDSO confirmed in November 1997 that fastenings from all firms met with the technical parameters.

The commercial bids were opened on 17 March 1998. The rates quoted varied from Rs.574 per sleeper set to Rs.1387 per sleeper set. The lowest rate of Rs.574 per sleeper set was recommended by Tender Committee for placement of orders of 33,500 fastenings. The competent authority (Minister of Railways) approved the proposal on 22 September 1998 and contracts for 33,500 fastenings were placed (25 February 1999) on each of the firms. The value of contracts for the imported fastenings was Rs.8 crore (approx.) excluding customs duty and counter-veiling duties on consignment.

In this connection, following points arise:

  1. As per contractual provisions, the fastenings ordered initially were to be evaluated for 3 months on a stretch of 2 kms. laid with 3,300 sleepers, after which the scope was to be expanded in the second stage to 20 kms. Supplies for the ordered quantity were to be taken in two stages i.e. initially for 2 kms. and, after satisfactory report of field trials of this quantity, balance quantity were to be taken and tried. However, the Railway Board in November 2000 issued orders to the firms to supply fastenings for the entire 20 kms. to 4 selected consignees. The entire ordered quantity was received and payments made therefor.
  2. Similarly, orders for 1,37,300 concrete sleepers required for the first and second stage were also issued to the sleeper manufacturers in July 1999. Out of this, M/s ISCO Track Sleepers Private Limited, Secunderabad supplied 33,500 sleepers (July 2002). This resulted in blocking up of funds to the extent of Rs.1.74 crore spent on manufacture of these sleepers.
  3. At the time of finalisation of tender (13 May 1998), the Railway Board had directed that the locations chosen for the four firms would be with identical working conditions preferably in high density and adverse climatic conditions. There was undue delay in deciding the consignee/ locations and communicating the same to the firms. The location and consignee particulars were communicated to the firms only in November 2000 though the orders were placed in February 1999 which was also after considerable delay of the approval by the competent authority (September 1998). Thereafter, fastenings were received by the consignees and sleeper production was started. However, the Railway Board in July 2002, directed that fastenings be laid in adjoining sections in one stretch and changed some of the locations initially chosen for trials on Northern, Central and South Eastern Railways.

Thus indecisiveness, lack of proper planning and incurring of expenditure in advance without waiting for the results of initial field trials led to unfruitful expenditure of Rs.9.74 crore.

Incidentally, it is mentioned that Indian Railways have started the process of inducting the improved technology of fastening system way back in 1976. Sleepers with imported HM fastenings from M.s. Vossloh, Germany were laid on few sections and field trials were conducted during 1983 and 1984. However, due to adverse field trial reports, further trials were discontinued. Poor planning of the procurement and production of fastenings/ sleepers for the field trials led to the fastenings worth Rs.1.08 crore lying unutilised in stock. Again in 1989, Railway Board decided to set up a joint venture firm in India with M/s. Vossloh, Germany for manufacture of HM fastening. However, the Board reconsidered this decision and decided instead to import different type of established fastenings in the world and to conduct trials to choose the one best suited to Indian condition for which the global tender discussed above was invited.

Thus despite attempts since 1976, Indian Railways are yet to induct the latest technology in rail fastening successfully.

The matter was brought to the notice of Railway Administration and Railway Board in May 1999 and October 2002 respectively and their reply has not been received (December 2002).

4.1.3    Chittaranjan Locomotive Works: Avoidable expenditure on import of Computer Numerical Controlled Laser Cutting Machine severely damaged in transit

Failure to take action to avail abatement of Customs Duty and clearance of the damaged consignment led to avoidable expenditure of Rs.1.03 crore

For creation of additional infrastructual facilities for manufacture of 3-phase Electric Locomotive at Chittaranjan Locomotive Works (CLW), M/s Europen Laser Applications System (ELAS), was awarded (December 1997) a contract for supply of a Computer Numerical Controlled (CNC) Laser Cutting Machine at a cost of Rs.1.82 crore by Central Organisation for Modernisation of Workshops (COFMOW). The machine was insured (April 1998) with Oriental Insurance Company Limited, New Delhi (OIC) for Rs.2.21 crore upto ultimate destination (CLW) under 'all risk open cover'.

The machine contained in six packages landed on 18 June 1998 with the Landing Remarks Certificate that one package was in damaged condition at the time of handing over to Mumbai Port Trust. The Port consignee viz. Controller of Stores, Central Railway (COS, CR) arranged for customs clearance of the damaged consignment on payment of Customs Duty amounting to Rs.1.44 crore without bringing the fact of damaged condition to the notice of Customs Authorities for availing of 'abatement of duty on damaged and deteriorated goods' in accordance with the provisions contained in Section 22 (1) read with Section 22 (2) of the Customs Act, 1962.

After customs clearance, Port Survey was arranged (July 1998) at the Dock by authorised surveyor (M/s. Sandeep Bharti and Associates). A formal claim was lodged with the insurance company and Shipping Corporation of India (SCI i.e. carrier of the consignment) by COS, CR and matter was intimated to CLW to lodge the monetary claim. Thereafter, the consignment was sent to CLW by road transport on payment of Rs.0.02 crore towards transportation charges. Joint inspection for assessment of the loss was carried out at CLW in September 1998 in the presence of the representatives of M/s. ELAS, M/s. OIC and CLW Administration. The basic machine was found to have been severely damaged. The firm's representative suggested for replacement of the basic machine with a new one as the repair would neither have been cost effective nor could the precision of the machine be ensured.

The insurance claim for Rs.2.21 crore was lodged by CLW Administration on OIC in July 1999 with copies to SCI i.e. after a lapse of 13 months from the date of arrival of the consignment. The claim was accepted finally for Rs.1.42 crore (March 2000) deducting Rs.0.17 crore towards loss of recovery rights from SCI due to belated submission of the claim.

COFMOW ordered (January 2002) for replacement of a new CNC machine at a total cost of Rs.2.44 crore, which consisted of Rs.1.52 crore for the basic machine, Rs.0.84 crore for customs duty and Rs.0.08 crore towards other charges.

In this connection, the following observations are made:

  1. Although, the landing remarks certificate stated that one package (containing the basic machine) was in damaged condition when it was handed over to the Mumbai Port Trust, the port consignee (COS, CR) failed to take necessary action to avail abatement of duty on the damaged consignment resulting in avoidable payment of approximately Rs.0.84 crore as customs duty.
  2. The insurance claim was lodged with the Insurance Company in July 1999 by CLW after a lapse of 13 months; as a result the insurance company disallowed the amount of Rs.0.17 crore as the loss of recovery right due to delayed action on the part of the Railway Administration to keep the claim alive.
  3. The Railway Administration incurred an avoidable expenditure of Rs.0.02 crore for road transportation charges due to unnecessary transportation of damaged consignment.
  4. Due to inept handling of the entire matter, Railway also suffered delay in commissioning of the machine for a period from June 1998 (the period of landing of the original machine) to January 2000 (offer for the new machine).

The matter was brought to the notice of Railway Administration and Railway Board in June 2002 and September 2002 respectively and their reply has not been received (December 2002).

4.2    Rolling Stock and Related Stores

4.2.1    Eastern Railway and Railway Board: Wasteful expenditure on  manufacture of BOXNHA wagons

Procurement of higher axle load wagons, without upgrading existing track structure/ infrastructure for hauling the BOXNHA wagons resulted in infructuous expenditure of Rs.32.66 crore

The BOXN wagon introduced in 1980 permitted to run at the axle load of 20.32 tonnes and at a speed of 75/ 80 kmph on loaded/ empty condition, is the bulk carrier of coal on Indian Railways.

In order to achieve higher speed potential of 100 kmph and higher axle load of 22.1 tonnes for coal loading and 23.5 tonnes for iron ore loading, Governing Council meeting held in Railway Board on 22 May 1998 decided to introduce BOXNHA wagon on Hospet - Chennai section on a trial basis. It was also decided that simultaneously the work of upgrading Hospet - Chennai section be taken and completed by the time these wagons are manufactured and made ready for use.

Accordingly, in July 1998, Railway Board placed an order for manufacture of 305 wagons on M/s Hindustan Development Corporation (HDC), Kolkata and 5 rakes (301 BOXNHA wagons) were procured (Rs.32.66 crore at the rate of Rs.10.85 lakh per wagon) between November 1999 and March 2000.

The upgraded infrastructure required in Hospet - Chennai section for the running of these wagons could not be provided till date (September 2002). As a result, it was not possible to utilise these rakes in this section. Till a decision regarding the route on which these wagons were to be deployed was taken, all the 5 rakes were deployed on South Eastern Railway and were used on a very small stretch between Vizag Port and Vizag Power House. Due to certain reservations expressed (November 2000) by Civil Engineering Directorate (Railway Board) in running these wagons on 52 kg, 72 UTS rails and on 90R rails even at reduced speed on the existing track structure available on the Indian Railways, these wagons could not be utilised to their full potential. During this period a detailed exercise on the rail stress calculations was carried out in Board in consultation with RDSO. After due deliberations, Board decided to permit BOXNHA wagons at a speed of 100 kmph by downgrading the axle load to that of the existing BOXN wagons (20.32 t) on routes having rail sections of 52 Kg., 90 UTS and above.

A Committee was set up in November 2000 by the Board to identify the routes for running of higher speed wagons. The committee was required to indicate the inputs and the time required for completing the work of upgrading the selected routes. In January 2001, the committee recommended the following:

  1. Six routes (Dhanbad - Ghaziabad, Korba - Nagpur, Katni - Kota, Talcher - Vijyawada, Hospet - Chennai Beach and Kiriburu - Hatia -. Bokaro) for running high speed wagons.
  2. For immediate running of BOXNHA wagons, Dhanbad - Ghaziabad and Korba - Nagpur routes were recommended with reduced axle load and speed restriction between 75 and 100 kmph.

The total requirement of funds for upgrading the track structure and Signalling systems on these six sections was assessed as Rs.924 crore. A conservative time frame of 5 years was assessed to upgrade these routes to run heavy axle load wagons. This was in addition to the regular track renewal programmes.

Consequent to the decision at (ii) above, all the 5 rakes were transferred to Mughalsarai (Eastern Railway) between May 2001 and July 2001. However owing to surplus traffic wagons on Eastern Railway, all these BOXNHA wagons are now (June 2002) stabled on Eastern Railway. Collieries are also not keen to load coal in BOXNHA wagons, since it attracts higher penalty towards overloading, as compared to BOXN wagons.

In view of the higher axle load limitations of the BOXNHA wagons linked to the existing track conditions, an alternate design of BOXNHS wagon was developed by RDSO. Decision was taken to stop further manufacture of BOXNHA wagons and adopt the BOXNHS wagons for all freight stock by Indian Railways in future.

Procurement of BOXNHA wagons, without assessing/ providing the infrastructure required for hauling these wagons such as upgrading the track structure and signalling systems had rendered an amount of Rs.32.66 crore spent on the procurement of these 301 BOXNHA wagons infructuous and the objective of introducing high speed wagons remaining unfulfilled. The financial wisdom of undertaking projects for upgrading rolling stock is also questionable as the Indian Railways is not in a position to upgrade the track conditions to match the upgraded rolling stock. An investment of Rs.924 crore on just 6 sections for trial testing and running these higher speed wagons is a pointer to the magnitude of funds required to introduce upgraded rolling stock on a larger scale.

When the matter was taken up (May 2002), the Railway Administration stated (October 2002) that the minimum track structure stipulated for operation of BOXNHA wagons at 100 kmph in loaded condition is 52 kg. 90 UTS and for empty operation is 52 kg. 72 UTS. However, for track structure inferior to the above specification standards, Railways are supposed to impose speed restrictions depending upon the condition of the track. In view of the above, Eastern Railway had imposed speed restrictions.

The Railway Administration has admitted that the existing track structure being inferior to the standard specified for BOXNHA wagons, these wagons could not be run at the stipulated speed. Thus procurement of BOXNHA wagons, without upgrading the condition of existing track structure and signalling system had resulted in stabling of wagons.

The matter was brought to the notice of Railway Board in October 2002 and their reply has not been received (December 2002).

4.2.2    Railway Board: Loss on sale of BFKI flat wagons to Container Corporation of India (CONCOR)

Non-application of codal provisions to work out the cost for transfer sale of 1357 BFKI flat wagons led to a loss of Rs.26.99 crore besides an annual recurring loss of Rs.2.11 crore and short levy of Rs.0.67 crore per annum on maintenance of these wagons

Container Corporation of India (CONCOR) was incorporated in March 1988 under Companies Act, 1956 as a Public Sector Enterprise under the Ministry of Railways and operations were commenced on 1 November 1989. CONCOR uses, inter alia, BFKI flat wagons for carrying containers.

In November 1997, Railway Board desired the transfer of entire fleet of about 1427 BFKI flat wagons to CONCOR. Accordingly, a proposal was sent (December 1997) to Railway Board by CONCOR for the purchase of these wagons at an average depreciated cost of Rs.5.48 lakh per wagon. The cost was assessed on the following basis:

  1. The wagons were bunched in three age groups of 10, 13 and 18 years;
  2. Straight line method of depreciation was applied to each of the 3 groups taking the present day cost of a BFKI flat wagon as Rs.8 lakh and codal life as 35 years.

The Finance Directorate of Railway Board had observed (December 1997) that:

  1. method of calculation applied by CONCOR was not in line with the provisions of para 777 of Indian Railway Financial Code (volume-I) applicable for sale/transfer of Rolling Stock. Any deviation from it might lead to similar demand from other parties; and
  2. actual transfer price of individual wagon being transferred should be worked out as per actual age profile of each of the BFKI flat wagons.

The Board decided (31 December 1997), that depreciated cost of each of 1427 BFKI flat wagons available for transfer should be worked out as per provisions of para 777 of Indian Railway Financial Code (Volume-I).

During the ensuing exercise on transfer of BFKI flat wagons, the Mechanical Directorate worked out the total population of BFKI flat wagons as 1357. The age profile of only 987 wagons was stated to be available. Accounts Directorate accordingly worked out cost of 987 wagons at Rs.76.83 crore (average rate of Rs.7.78 lakh per wagon) as per codal provision. Since the age profile of the remaining 370 wagons was not available, the Mechanical Directorate suggested (January 1999) working out the cost of these wagons on pro-rata basis. Accordingly, the CONCOR was intimated the cost (Rs.105.63 crore) of 1357 BFKI flat wagons. CONCOR intimated (8 January 1999) the Railway Board that transfer cost of BFKI flat wagons at the rate of Rs.7.78 lakh each was not acceptable to them and reiterated their original proposal. The Finance Directorate reviewed the case and considered the transfer cost of Rs.6.25 lakh per wagon as reasonable. The Chairman, Railway Board accepted (26 March 1999) the recommendations for transfer cost of Rs.6.25 lakh per wagon and the sale and transfer order was issued.

In this connection, the following audit observations arise:

  1. CONCOR had procured from trade new type bogie container flat wagons at the rate of Rs.9.97 lakh per wagon in 1996-97. The additional facilities provided in the new type container flat wagon was estimated by CONCOR at Rs.1.65 lakh. Thus after reducing the cost of additional facilities, which the BFKI flat wagons in question did not have, the estimated cost of a new flat wagon during 1996-97 works out to Rs.8.32 lakh (Rs.9.97 lakh - Rs.1.65 lakh). By providing 5 percent escalation as per Railway Board’s own decision for one year, the cost during 1997-98 works out to Rs.8.74 lakh per wagon (Rs.8.32 lakh + Rs.0.42 lakh). Thus taking into account the replacement cost of a BFKI flat wagon as Rs.8.74 lakh during 1997-98, the depreciated cost of 1357 BFKI wagons as per para 777 of Indian Railway Financial Code, Volume I works out to Rs.111.80 crore. Against this, Railway Board realised only Rs.84.81 crore (which was even less than the transfer cost of Rs.88.15 crore based on Straight Line Method of Depreciation applied by CONCOR) on sale of 1357 BFKI flat wagons. This resulted in loss of Rs.26.99 crore.
  2. The maintenance of these BFKI flat wagons was to be done by Railways at the rate of 5 per cent per annum of the capital cost of each of the wagons. 1098 wagons were modified in three Railway workshops at Jhansi, Kota and Ajmer and at one private sector firm M/s. TSL, Naini, Allahabad at a cost of Rs.13.38 crore. Audit noticed that CONCOR was depositing the maintenance charges at the rate of 5 per cent of transfer cost of Rs.90.75 crore (including 7 per cent Sale Tax) without adding the cost of modification (Rs.13.38 crore) to the transfer cost leading to recurring short levy of Rs.0.67 crore per annum of maintenance charges on cost of modification of Rs.13.38 crore.
    Further, the maintenance charges leviable per annum would have been Rs.6.65 crore based on the transfer cost of Rs.111.80 crore of 1357 BFKI flat wagons as per para 777 of Indian Railway Financial Code, Volume I against Rs.4.54 crore per annum being deposited based on the actual transfer cost of BFKI flat wagons of Rs.90.75 crore (including 7 per cent Sale Tax). Thus Railways are sustaining a recurring loss of Rs.2.11 crore per annum on account of maintenance of BFKI flat wagons.
  3. Population of BFKI flat wagons during May 1995 to November/ December 1997 was 1427. The Board in their meeting (December 1997) decided to transfer the entire fleet of 1427 BFKI flat wagons. Mechanical Directorate, however, indicated the position of BFKI flat wagons as 1357 only (eventually transferred). The whereabouts of 70 BFKI flat wagons (worth Rs.5.77 crore approx.) was not on record.

Thus non-application of codal provisions to work out the cost for transfer sale of 1357 BFKI flat wagons led to a loss of Rs.26.99 crore besides an annual recurring loss of Rs.2.11 crore and short levy of Rs.0.67 crore per annum on maintenance of these wagons.

The matter was brought to the notice of Railway Board in March 2002 and July 2002 and their reply has not been received (December 2002).

4.2.3    Southern Railway and Railway Board: Blocking up of capital due to injudicious award of contracts

Placement of contracts on firms with poor financial background resulted in blocking up of capital to the extent of Rs.13.72 crore

(I)    A development order for manufacture and supply of 60 BOXN wagons was placed (March 1998) on M/s Bharat Gold Mines Ltd. (BGML), a Government of India Undertaking. Later, the quantity was restricted to 42 BOXN wagons by exercising 30 per cent minus option clause in view of the reduced price received in the subsequent tender. The original date of delivery was 31 March 1999. On the request of the firm, the delivery period was extended from time to time and finally upto December 2000. During this period, only 13 wagons (including one prototype) were supplied by the firm.

In August 2001, the firm informed the Railway Board that they would not be in a position to make any more wagons and as such unused materials like steel, wheelsets, bearings, etc. (free supply items) would be dispatched to Golden Rock, Thiruchirapalli. However, free supply materials worth Rs.1.56 crore was not returned by the firm so far (August 2002).

The following points arise in this case:

  1. M/s BGML had been making losses since 1989 and was referred to Board of Industrial and Financial Reconstruction (BIFR) in 1992. The company neither had any past dealings with Railways nor any previous experience in manufacturing of wagons for Railways. The activities of company were restricted to mining and executing contracts related to mining equipment and machineries. Given this background, awarding of contract to this firm was not judicious.
  2. Though the firm had expressed their inability to continue the manufacturing of wagons as early as in August 2001, the Railway Board terminated the contract only in March 2002.
  3. The free supply materials worth Rs.1.56 crore was not returned by the firm (August 2002). The Railway Board failed to pursue the firm for return of materials lying with them. In addition, one prototype wagon worth Rs.0.10 crore was also not returned by the firm.

(II)    Railway Board had entered into a contract (March 2000) with M/s Southern Structurals Ltd., (a Government of Tamil Nadu Undertaking) for manufacture and supply of 157 BCNA wagons at the rate of Rs.4.84 lakh per wagon. The date of delivery was upto 31 March 2001. Out of the 157 wagons ordered, 80 were to be supplied by September 2000 and the remaining by 31 March 2001.

As per conditions of the contract, wheelsets, bearings and steel were to be provided as free supply items. In addition, advance payment of the cost of wagons targeted for production during the next 6 months was to be made. Consequently, an advance amounting to Rs.1.94 crore was paid to the firm in April 2000 and free supply items for manufacture of 65 wagons were made available to the firm by May 2001. However, the progress of manufacture and supply of wagons by the firm was very slow. Though three extensions for delivery period upto 30 June 2001, 30 September 2001 and 31 January 2002 were granted, the firm was able to supply only 11 wagons by the extended delivery date of January 2002.

Since the contract with the firm was not progressing well, the Railway Board asked (February 2002) the firm to transfer the free supply materials i.e. Steel, Wheelsets, and Bearings to other nominated wagon builders/ Railway Workshops. As no action was taken by the firm to return free supply materials, the Railway Board issued three notices to the firm in March 2002, April 2002 and on 25 July 2002 to deposit Rs.12.64 crore, being the cost of free supply materials not returned by the firm and amount of advance payment made. However, the firm failed to comply.

In this connection, following points arise:

  1. The firm had been making losses since 1992 and its net worth had been eroded. It was also under the purview of BIFR. The performance of the firm against the earlier orders was also poor. The order of December 1994 to manufacture 106 wagons with terminal date of delivery upto 31 August 1995 was completed by the firm only in July 2002 after several extensions. Given this background, awarding a contract to this firm was not judicious.
  2. Having decided to place the order, the Railway Board failed to closely monitor and watch the performance of the firm, resulting in free supply materials worth Rs.10.80 crore still lying with the firm and an advance payment of Rs.1.26 crore unrecovered.

Thus placement of contracts on both these firms with poor financial background, had resulted in blocking up of capital worth Rs.13.72 crore in the form of money and materials.

When the matter was taken up (May 2002), the Railway Administration stated (July 2002) that these contracts were finalised by the Railway Board and as far as the free supply of materials and their accountal are concerned, they are being maintained by the Chief Materials Manager (Block Indents), Eastern Railway, Kolkata.

The matter was brought to the notice of Railway Board in October 2002 and their reply has not been received (December 2002).

4.2.4    South Eastern, Central, Northern and South Central Railways: Modification/ premature condemnation of BRN wagons

Failure to conduct any test/ trial on the BRN wagons after a change in design from rivetted to welded underframe led to an infructuous expenditure of Rs.12 crore on subsequent modification works on 1708 wagons.  Apart from this, there was a loss of Rs.1.51 crore due to premature condemnation of 94 wagons

Raipur Workshop on South Eastern Railway undertakes the special repairs/ periodical overhaul of wagons. In the early nineties there were several instances of BRN wagons being received in the workshop for special repairs due to bent sole bars. About 150 wagons were tackled by the period ending September 1994 and some of the wagons were manufactured within the last one or two years only.

The Chief Workshop Manager, Raipur Workshop, after a detailed inspection of these wagons, informed (October and November 1994) Research Designs and Standards organisation (RDSO) that change over in the manufacturing of wagons, where rivetting was replaced by welding at many locations and gusset plates were not provided, could have contributed largely to the incidence of bending of sole bars. It was suggested to revert back to the rivetted structures, which were followed in BRN wagons manufactured in 1988.

The change in design from rivetted to welded underframe was approved by RDSO in April 1989, without conducting any test/ trial of the wagons manufactured after incorporating changed design.

In October 1994, RDSO informed Chief Workshop Engineer (CWE), South Eastern Railway that he had also observed the problem of premature sagging of underframe of newly built BRN wagons, particularly in those wagons built by M/s BWEL, along with several manufacturing defects and deviations in the wagon construction. It was further added that no major change in the key design drawing of BRN wagons, was made. However, on the request of wagon builder, welding was permitted at certain locations in place of rivetting and RDSO was already seized with this issue.

Subsequently, RDSO directed (December 1996) CWMs of Raipur, Jhansi, Jagadhri and Rayanapadu workshops to carry out modification works suggested for strengthening of underframe of 2379 BRN wagons built by M/s. BWEL during the period 1988-89 to 1994-95. A review of records of these workshops has revealed that 1708 BRN wagons had been modified as on May 2002. The workshop-wise details and amount incurred on modification are as under:

Sl
No.
Railway Workshop Number of wagons modified Amount incurred on modification
(Rs. in crore)
1. Central Jhansi 133 1.00
2. Northern Jagadhari 180 1.37
3. South Central Guntapalli 34 0.30
4. South Eastern Raipur 794 5.84
Kharagpur 567 3.49
TOTAL 1708 12.00

In this connection, the following audit observations arise:

No test/ trial of BRN wagons manufactured with welded underframe as per design approved in April 1989 was conducted, before going for bulk production of modified wagons. The newly modified wagons had started showing signs of distress and were sent for special repairs. Failure to conduct trials rendered subsequent modifications on these BRN wagons necessary to overcome the problems of premature bending, sagging of head stock and underframe.

Thus induction of change from rivetted to welded underframe without conducting any test/ trial resulted in infructuous expenditure of Rs.12 crore on subsequent modification works on 1708 wagons. The loss on account of modification works yet to be carried out on such wagons would be extra. Besides, Railway also suffered a loss of Rs.1.51 crore due to premature condemnation of 94 underaged BRN wagons on South Eastern Railway.

When the matter was taken up (February 2002), South Eastern Railway contended (April 2002) that modification in any new design after service trial was also an essential step in validation of design and improving the reliability. This constituted an ongoing process of research and design wherein some experiments are imperative to translate the ideas into practice. Any loss assumed or real on this account could not be called ‘loss’ in real terms.

The above argument is not tenable because no service test/ trial was conducted on some prototypes of such modified wagons. Had test/ trial of the wagons been conducted prior to placement of orders for bulk production, the subsequent modification works could have been avoided.

The matter was brought to the notice of Railway Administration and Railway Board in April 2002 and November 2002 respectively and their reply has not been received.

4.2.5    Eastern Railway: Loss of valuable asset

Failure on the part of Electric Loco Shed, Gomoh to use the Gas Chromatograph as well as inadequate provision of fire fighting arrangement in loco led to severe damages to electric loco No.27223 leading to its premature condemnation, which resulted in loss of an asset worth Rs.3.69 crore

Fire in Electric Locomotive is an extremely serious and undesired feature. Often major fire in the Electric Locomotives has resulted in virtually writing off of complete locomotive. Therefore, all out efforts are necessary at all levels to eliminate even the smallest chance of fire accident by following proper maintenance practices/ modifications/ special maintenance instructions. Research Design and Standards Organisation (RDSO) had issued guidelines for prevention of fire on Electric Locomotives in 1993. One of the guidelines was for condition monitoring of transformers by Dissolved Gas Analysis (DGA) for which detailed instructions were issued as per special maintenance instruction No.138.

Thereafter some more areas were identified as a potential cause of fire. As a result, RDSO reviewed its earlier instructions of 1993 and issued revised guidelines in 1998. The fire fighting arrangements had now included provision of two, 22.5 Kg CO2 cylinder along with associated pipe line.

Electric Locomotive Shed, Gomoh received (24 September 1993) “Micro Processor Controlled Gas Chromatograph” to monitor the condition of Power Transformers. DGA of Loco transformers for all locos of Eastern Railway was to be carried out centrally at Gomoh with this equipment. However, this equipment was not commissioned and no such tests were being carried out.

On 1 July 1999, one Electric Loco No.27223 of Electric Loco Shed, Gomoh caught fire which could not be controlled even with the use of all the 4 DCP type fire extinguishers available in the loco. The loco was extensively damaged before the fire could be controlled by the Fire Brigade demanded for the purpose. The prime responsibility for the fire was the failure of its transformer.

Chief Electrical Loco Engineer in August 2000 informed the Senior Divisional Electrical Engineers/ TRS of Asansol, Gomoh and Mughalsarai that DGA test equipment was very essential equipment for knowing health of the transformer as well as to avoid fire in electric loco. They were also advised to go for Annual Maintenance contract of this equipment in order to avoid any chances of breakdown of this very essential equipment. Thereafter, efforts to commission the equipment received in 1993 were made by the Electric Loco Shed, Gomoh. The equipment had been working satisfactorily since January 2001 and regular testing of transformers was being done.

It was further noticed that fire fighting equipments as per RDSO’s guidelines were installed (June 2002) only in 29 locomotives out of overall holding of 407 Electric Locomotives in the year 2001. Modification was in progress in other locomotives.

In this connection, following observations are made:

  1. In the present case (Loco No.27223), no DGA was carried out on the transformer which made the loco vulnerable to the possibility of catching fire. Fire fighting equipment as per RDSO’s guidelines was also not provided in the loco. These failures led to extensive damage to the locomotive and its premature condemnation.
  2. RDSO’s instructions to carry out the DGA test were not observed by the Gomoh Shed despite the equipment being available since 1993. No efforts to commission the equipment were made till the incident of a major fire in Loco No.27223 took place.
  3. The fire fighting arrangements of two, 22.5 Kg CO2 cylinder alongwith associated pipe line as per RDSO’s guidelines were provided only in 29 locos (June 2002) out of overall holding of 407 Electric Locomotives in the year 2001 on Eastern Railway. The progress of installation of fire extinguishers is slow and these are yet to be installed in 378 locos.

Thus failure on the part of Electric Loco Shed, Gomoh to use the Gas Chromatograph as well as inadequate provision of fire fighting arrangement in loco led to severe damages to electric loco No.27223 leading to its premature condemnation, which resulted in loss of an asset worth Rs.3.69 crore.

The matter was brought to the notice of Railway Administration and Railway Board in May 2002 and August 2002 and their reply has not been received (December 2002).

4.2.6    Railway Board: Extra expenditure on procurement of Cartridge Taper Roller Bearings

Railway Board’s failure to analyse the rate quoted for complete Cartridge Taper Roller Bearings and individual accessories required therefor resulted in placement of contract on rates higher than the rates quoted by the firms leading to extra expenditure of Rs.4.54 crore on their procurement. Besides this, less interest of Rs.0.44 crore per annum was charged on advances granted to the firms

Cartridge Taper Roller Bearings (CTRBs) are required in wagon production as well as for maintenance requirements of Zonal Railways. CTRBs are provided as a free supply item to wagon manufacturers. In order to meet the requirement for the year 1996-97, a limited tender for procurement of 1,13,000 CTRBs was floated on 8 November 1995. Tender notices were sent to 6 firms and they were requested to quote rates separately for CTRB (complete) and individual accessories namely Side frame, Backing ring and Narrow jaw adapter. The firms were required to supply accessories also at the option of the Railways. In response, two firms i.e. M/s National Engineering Industries Limited (NEI) and M/s Tata Timken Limited (TTL) submitted their offers. The rates offered by these firms were as under:

(Amount in Rupees)
Sl. No. Description of component/ accessories Rates offered by M/s NEI excluding taxes etc. Rates offered by M/s TTL excluding taxes etc.
(i) Association of American Railroads (AAR) approved CTRB complete 6x11 consisting of Cup, Cones, Rollers, Retainers, Spacer, Seal Wear Rings, Grease Seals, Grease 8,500 9,140
(ii) Side Frame Key Bolt, Washer & Nut with Split Pin , Axle End Cap, 430 460
(combined for ii & iii)
(iii) Axle End Cap Screws and Locking Plate Backing Ring 270
(iv) Narrow Jaw Adapter 890 840
(v) Labour charges for mounting 60 60
Total 10150 10500

The quantity was revised to 1,27,465 after opening of the tender. The Last Purchase Rate (Rs.9750) of a CTRB alongwith accessories was updated to Rs.10,353. The Tender Committee, therefore, considered M/s NEI’s quoted rate of Rs.10,150 as reasonable. However, it did not analyse the difference in the rates of accessories offered by the two firms. An order for 88,000 CTRBs (alongwith accessories) was recommended on M/s NEI at their quoted rate of Rs.10,150 and the rate was also recommended for counter offering to M/s TTL for the balance quantity i.e. 39,465 CTRBs. The Competent Authority- Minister of State (Railways) accepted the recommendations. Advance acceptance letters for supply of CTRBs at Rs.10,150 each including average foreign exchange content of US $ 38 per CTRB, were sent to both the firms on 27 February 1996. The firms conveyed their acceptance with the request to grant advances for financing import of inputs, raw material etc. The Tender Committee agreed for grant of advance of Rs.10 crore to M/s NEI and Rs.4.50 crore to M/s TTL with interest at the rate of 20 per cent per annum on reducing balances to be recovered/ adjusted at the rate of Rs.1,136 per bearing from the firms’ bill. Interest was to be recovered every quarter from the payments due. The Board, however, accepted the Tender Committee’s recommendation for the advance with interest at a reduced rate of 17 per cent against the 20 per cent recommended. The contracts were placed on the firms M/s TTL and M/s NEI on 8 and 29 March 1996 respectively.

In this connection, the following observations are made:

  1. As per tender notice, the firms were required to quote rates separately for CTRB (complete) and individual accessories namely Side Frame, Backing Ring and Narrow Jaw Adapter. The rates offered by M/s TTL for accessories viz Side frames and Backing ring was Rs.460 against the rate of Rs.700 (Rs.430 plus Rs.270) quoted by M/s NEI. Similarly, M/s TTL’s rate for Narrow jaw adopter was Rs.840 against the rate of Rs.890 quoted by M/s NEI. Thus the rates quoted by M/s TTL for three accessories (Side frames, Backing ring and Narrow jaw adapter) were lower by Rs.290 than the NEI’s rate. Railway Board placed order on M/s TTL for three accessories at higher rates than the rates quoted by them. The lower rates (accessory wise) available in the tender, however, was Rs.9,860. Therefore, the rate of Rs.9,860 per CTRB (complete with accessories) should have been counter offered to both the firms as was done by Railway Board in subsequent year (i.e.1997-98) in the tender for CTRB. Railway Board’s failure to analyse the rate difference in accessories resulted in extra expenditure of Rs.4.54 crore on procurement of CTRBs.
  2. Tenders for supply of stores are normally governed by Indian Railway Standard (IRS) conditions of contract which do not have any provision for grant of any advance to contractors. Tender notice, issued to the tenderers, also had no mention for grant of any advances to the suppliers. Though M/s NEI had requested for grant of advance in their original offer, Tender Committee, did not agree to such a condition. While conveying their acceptances, the firms requested for grant of advance for financing import, raw material, payment of duties etc. The Tender Committee recommended for grant of advance at 20 per cent interest per annum. In an earlier case in 1992-93, an advance had been granted at the rate of 20 per cent per annum. The Board, without obtaining approval of the Competent Authority i.e. Minister of State (Railways), agreed (May 1996) for grant of an advance of Rs.10 crore to M/s NEI and Rs.4.50 crore to M/s TTL at an interest rate of 17 per cent per annum against the Tender Committee’s recommended rate of 20 per cent per annum. Railways are facing resource crunch and arranging finance from Indian Railway Finance Corporation (IRFC), through market borrowings etc at a higher rate of interest. Grant of advance of Rs.14.50 crore at a lower rate of interest was, therefore, not justified. Thus grant of advances of Rs.14.50 crore at an interest rate of 17 per cent against the interest rate of 20 per cent per annum recommended by the Tender Committee and also the rate charged in an earlier case resulted in less charging of interest of Rs.0.44 crore per annum (approx.). In a subsequent tender finalised for 1997-98, interest was, however, charged at a rate of 2 percent over and above the Prime Lending Rate of State Bank of India prevailing on the date of payment of installment of advance. Based on this principle, amount of interest less charged worked out to Rs.0.22 crore (approx.).

Thus placement of contract on rates higher than the rates quoted and failure to counter offer the lower rates available resulted in extra expenditure of Rs.4.54 crore on procurement of 127465 CTRBs besides less charging of interest of Rs.0.44 crore per annum on advances granted to firms.

When the matter was taken up (June 2002), the Railway Board stated in November 2002 that:

  1. The rates quoted by two firms namely i.e. M/s NEI and M/s TTL in this tender, were not on identical basis. While M/s NEI had quoted the price of Backing Ring separately, M/s TTL had included it in price of CTRB. In view of this, the Tender Committee had no other option but to go by the lower composite offer of M/s NEI.
  2. The Tender Committee had initially not agreed to the request of the parties for grant of advances probably as a general policy of discouraging advances. Considering firm’s renewed requests, the Tender Committee and Finance agreed to grant advances at the rate of 17 per cent keeping in view the prevalent Prime Lending Rate of 16.5 per cent.

The contentions of Railway Board are not tenable because:

  1. It had been clearly specified in the Tender Notice for the tenderers to indicate the prices for each of items/ accessories separately. It was for the Tender Committee to ensure that the prices quoted by firm M/s TTL were clearly shown separately against each of items for the purpose of comparison and recommendation of cheaper of two rates. Moreover, the price of Backing Ring was included by M/s TTL by clubbing it with that of Side Frame vide Sl. No.(B) and (C) of the firms’ offer. In this situation, the clubbed cost of these two items by the two firms could have been compared as has been done by Audit.
  2. Since the general policy is to discourage granting of advances, the rate should have been either 20 per cent as charged in an earlier occasion or 2 per cent above the Prime Lending Rate as was followed subsequently and that too after Minister of State (Railways) approval.

4.2.7    Eastern Railway: Rejection of wheel sets at wagon builders' premises

Accumulation of 684 numbers of rejected indigenous wheel sets in the premises of 10 wagon builders with no prospective use rendered an expenditure of Rs.3.53 crore as useless

Wheel sets are supplied by Wheel and Axle Plant (WAP) Bangalore as free supply item for manufacture of wagons against Railway Board’s contracts. Chief Material Manager, Block Indents (CMM, BI), Eastern Railway coordinates and allocates wheel sets to various wagon builders and maintains the accounts for the wheel sets made available to wagon builders.

Wagon builders are entirely responsible for safe custody and protection of the wheel sets and are liable for any loss, damage or deterioration of the stores and articles while in their possession and custody. Wheel sets coming from WAP for production of wagons against Railway Board’s orders should be examined for any obvious indication of damages on receipt of consignments and later at the time of removing of protective covering and mounting. RDSO should be associated for inspection/ certifying damages and for fixing agency responsibility for the damages. No wheel set was to be returned to WAP for rectification until certified by RDSO. Sending of damaged wheel sets to WAP for rectification was discontinued from April 1996 for want of surplus capacity.

In April 2000 the Railway Board decided to entrust the work of rectification of rejected wheel sets to the nominated Railway workshops. Accordingly, CMM (BI), Eastern Railway requested (May 2000) RDSO to furnish their remarks/ certificates on the rejected wheel sets lying with wagons builders to facilitate their disposal as well as recovery of the cost of rectification.

Test check of records of 10 wagons builders revealed that 684 indigenous wheel sets (22.9 tonnes) worth Rs.3.53 crore were rejected due to damages between 1991 and 2000. The reasons for rejection were mainly heavy dent, pitting, rusting on journals due to improper storage, mishandling and defects in manufacturing like journals oversize, collar oversize etc. CMM (BI) as monitoring agency failed to take prompt action in arranging for inspection by RDSO and initiating action for rectification because of which 684 rejected wheel sets worth Rs.3.53 crore have been lying with wagon builders since their arrival and could not be put to use.

On the matter having been taken up (June 2001) the Railway Administration contended (January 2002) that damage normally occurs at the journals portion of the axle during transit, transhipments, loading and unloading and/ or in storage. The wheel centres are not susceptible to damage and could be utilised. Therefore the entire amount assessed by audit cannot be termed as loss. They also contended that actual pinpointing of responsibility is practically difficult.

Their arguments are not tenable as the wheel sets have been lying in the premises of the wagon builders for several years without any action having been taken for rectification of the wheel sets or reusing the wheel centres. The wheel sets lying in the open for several years would have deteriorated so much that the utilisation of the same appears a remote possibility. Situation of pinpointing responsibility has arisen only on account of delay in arranging inspection.

The matter was brought to the notice of Railway Board in August 2002 and their reply has not been received (December 2002).

4.3    Plant and Machinery

4.3.1    Western Railway: Idling of Rail Re-profiling Plant

Failure of Railway Administration to assess the workload properly before making heavy capital investment of Rs.5.83 crore and to explore the possibility of utilising the plant elsewhere has, besides rendering the investment as infructuous, also resulted in avoidable payment of Rs.4.62 crore on account of dividend to general revenues

A comment regarding unfruitful investment of Rs.5.83 crore for setting up a Rail Re-profiling plant at Sabarmati Depot over Western Railway was made vide paragraph 4.2 of the Report of Comptroller & Auditor General of India - Union Government (Railways) for the year 1991-92 as regular production in the plant had not started till March 1992. This plant was set up to re-profile released 52kg and 90lb and 75lb & 60lb rails from Broad Gauge (BG) and Metre Gauge (MG) sections and use them on BG branch lines and MG trunk routes and branch lines. The plant was justified to be financially viable by assuming the production of 12000MT rails per annum. Railway Board in October 1992 fixed some criteria for selection of rails and also decided that 52kg and 90R rails after re-profiling may also be used in gauge conversion projects and secondary renewals on BG sections.

Audit scrutiny of records of Sabarmati Rail Reclamation Depot in August 1996 had revealed that 400Nos 52kg rails weighing 252MT were received for re-profiling during 1993. Out of this 349Nos (220MT) were re-profiled up to 1994 and 38Nos(24MT) from the balance were scrapped being unsuitable. Thereafter the plant was not utilised at all. This showed that there was no workload and assessment in this regard was not made before deciding to set up the plant. On matter being taken up by Audit, Railway Administration stated in July 1997 that in view of gauge conversion on Western Railway and Board’s decision not to undertake primary renewal of MG track, effective utilisation of this plant on their zonal Railway was not possible and that Railway Board was being approached to relocate the plant on some other Railway. The reply of Railway Administration was, however, not tenable as released 52kg and 90R rails could have been re-profiled for use in Gauge conversion work which was in full swing on Western Railway. Non-utilisation of plant after 1994 is, therefore, indicative of the fact that there was no workload even to re-profile 52kg or 90R rails. It was also observed that after 1994 no serious efforts were made to relocate the plant elsewhere.

Thus initial failure of Railway Administration to assess the workload of re-profiling rails for use in MG trunk routes or BG branch lines compounded with subsequent failure to make efforts to re-profile 52kg or 90R rails for use in Gauge conversion projects led to rendering huge capital investment of Rs.5.83 crore as infructuous. As Railway has to pay dividend to general revenues at specified rates on entire capital investment, they have also incurred avoidable liability of Rs.4.62 crore since commissioning of the plant in 1990 till March 2002. The liability at the rate of Rs.0.41 crore per annum on this account will continue till the plant is finally disposed of.

The matter was again brought to the notice of Railway Administration in May 2002. Railway Administration in their reply (August 2002) reiterated that due to gauge conversion work on Western Railway and other Railways the plant could neither be used nor decision to relocate the same could be taken. They further stated that 90R rails existing in the track were retained on condition basis and as re-profiling the same could have rendered them unserviceable, the difficult task of selecting such rails for re-profiling was not considered logical being time consuming and costly affair. The reply is not acceptable because all such factors, which led to non-utilisation of plant, could have been considered before taking a decision for making such huge investment.

The matter was brought to the notice of Railway Board in September 2002 and their reply has not been received (December 2002).

4.3.2    Diesel Locomotive Works: Infructuous expenditure on procurement of machines for augmentation of production capacity

Improper assessment of production capacity resulted in infructuous expenditure on procurement of two machines valuing Rs.3.70 crore

In order to meet the shortfall in manufacturing capacity of locomotives during VIIIth Plan, Diesel Locomotive Works (DLW) proposed (August 1988) to the Railway Board for augmentation of production capacity from a level of 140 locos and 150 engines (based on outturn of 1989-90) to 150 locos and 170 engines. It was further enhanced to 155 locos (including 105 WDM-2 locos) and 170 engines instead of 150 locos and 170 engines and a detailed estimate was sanctioned (October 1991) amounting to Rs.15.21 crore. The project was determined for completion by 31 October 1993. This was later revised to 31 March 1994 during Works Programme meeting (October 1992).

In November 1993 during the Works Programme meeting for 1994-95, the Railway Board directed to review the scope and cost of the work in view of reduced requirement of Diesel locos as per production plans. In the interim period, there was a change in the requirement profile of Diesel locos, due to factors like ‘unigauge’ policy, thus necessitating a corresponding change in the product mix of locos. As desired, a complete review of the on-going project was undertaken (April 1994) by DLW. The highlights of the review report were as under:

  1. The project was re-named as “Rationalisation of Product Mix at DLW”.
  2. The projected target production of 145 locos (125 WDM-2 and 20 WDS-6) after unigauge policy was considered imperative in the foreseeable future.
  3. Out of the planned investment on Machinery and Plant, procurement of three machines (Truck Frame Milling machine, Planner and CNC Turning Centre) for the project was yet to be implemented and it was considered to be essential/ inescapable.
  4. The cost of the project was reduced to Rs.14.16 crore.

Subsequently, after an Adviser’s meeting held on 16 September 1994 on the works programme for 1995-96, the Board directed DLW to review the work to see whether further reduction in scope could be made and project completed earlier.

On a further review of the project as per direction, DLW decided (November 1994) to drop the procurement of Truck Frame Milling Machine. However, it went ahead with its procurement plan of other two machines. The purchase orders for CNC Turning Centre and Planner were finalised in November 1994 and January 1995 with anticipated delivery dates in August 1995 and March 1996 respectively. The target date for the completion of the project was also extended upto March 1996. These two machines were commissioned in August 1997 and February 1999 respectively.

Audit scrutiny has revealed that DLW had already acquired production capacity to produce 150 locomotives by the year 1994-95 when a review was directed to be conducted by Railway Board to reduce the scope and complete the project early. However, DLW decided to go ahead with the procurement of the remaining two machines. The production performance of locomotives in terms of Cylinder Units from 1994-95 onwards is as under:

Year Locomotive manufactured with Production in
 terms of
cylinder units
16 Cylinder 12 Cylinder 6 Cylinder Total
1994-95 115 - 35 150 2050
1995-96 99 17 22 138 1920
1996-97 131 14 12 157 2336
1997-98 143 19 2 164 2528
1998-99 139 19 3 161 2470
1999-2000 128+7* - 2 130+7* 2060
2000-2001 103 - - 103 1648
2001-2002 96+3(WDG4)** 3 - 99+3** 1572

*    Partially Knocked Down WDG4 locomotives received from General Motors, USA.
**   3 Power packs (Engine) received from General Motors, USA.

It would be evident from the above that DLW was already equipped with the production capacity to produce the targeted number of locos in terms of Cylinder Units. As against the 2280 Cylinder Units that were expected for requirement in foreseeable future they were able to produce 2336 by 1996-97 even prior to commissioning of two machines. Further, actual production of locomotives as also outturn in terms of Cylinder Units has steeply come down from 1999-2000 after the commissioning of these two machines.

Thus improper assessment of production capacity and tapering down of actual production resulted in infructuous expenditure on these two machines valuing Rs.3.70 crore.

The matter was brought to the notice of Railway Administration and Railway Board in May 2002 and November 2002 respectively and their reply has not been received.

4.3.3    Chittaranjan Locomotive Works: Loss due to non-utilisation of assets

Procurement of machines in piece-meal fashion over 3 years and non-working of Pep set machine resulted in non-commissioning of mechanised system of core making process and idling of machines worth Rs.2.23 crore

A mention was made in Chapter II-Reviews [para 14.5.1(ii)] of the Report of the Comptroller and Auditor General of India for the year ended 31 March 1990, No.10 of 1991, Union Government (Railways) about ‘Unsuccessful transfer of technology’ in connection with the import of 150 Three Axle Coco cast steel bogies frames and bolsters by Chittranjan Locomotive Works (CLW) to overcome the technical inadequacy in the process of manufacture of cast steel bogies in the steel foundry.

In reply to Public Accounts Committee (PAC)’s questionnaire on this, the Railway Board had stated (December 1992) that all basic inputs and infrastructural facilities were available with CLW. The series production of bogies with new Rockwell technology had already been established. It was, however, claimed that quality would further improve if mechanisation of the core making process was undertaken. Therefore, a decision was taken to mechanise the core shop and the equipments required were under procurement. Sanction for procurement of equipments for mechanisation of the system was accorded by Railway Board in August 1992.

For manufacturing different components of Locomotives, casting is required. Mould and Core making are basic process for casting. Mechanised system of core making process involves conveying dry sand through a Pneumatic Dry Sand Conveyor Pipe Line (Core Conveyor Line) to the Continuous Sand Mixer (Pep Set) for mixing dry sand with Pepset resin to prepare ‘Pepset Sand’. Thereafter, ‘Pepset Sand’ compacted in the core boxes is transferred mechanically through Roller Conveyor System to the Roll Over Machine for rolling/ turning over the core boxes so as to manufacture quality core.

A review of the purchase and installation of the system by CLW for mechanisation revealed the following:

  1. The Core Conveyor line for movement of core boxes, sand core, moulding boxes etc. was ordered in September 1993 at a cost of Rs.0.07 crore. The machine received in January 1995 was commissioned in October 1996. The machine was lying idle since commissioning as it could be used only when the other machines were in place.
  2. Two ‘Roll Over machines’, necessary for rolling the core boxes and emptying the core, ordered in July 1994 at a cost of Rs.1.65 crore were received in March 1995 and commissioned in February 1996. The Proven Test Certificate (PTC) was issued in May 1996. The machines started giving trouble and could not function properly since their commissioning (February 1996). As the firm was delaying the repairing of the defects, Railway Administration encashed (December 1996) the bank guarantee of Rs.0.18 crore but released it after the machines were finally repaired (August 1997) by the firm. Since re-commissioning (August 1997) after repair the machines could not be put to use so far (May 2002), as the mechanised system as a whole was yet to be completed and made operational.
  3. Two ‘Continuous (Pep set) Sand Mixer’ required for mixing the dry sand with Pepset resins to prepare pepset sand were ordered (March 1995) at a cost of Rs.0.34 crore and inaugurated by Member Mechanical, Railway Board on 5 October 1996. The recording meter set in the machine indicated (3 September 1997) that the machine had run only for 2 hours upto 1 September 1997. The machine has been stated (May 2002) to be not in working condition since 5 October 1996.
  4. One ‘Pneumatic Dry Sand Conveyor’ required for conveying dry sand to the continuous (Pep set) sand mixer and ordered in September 1997 at a cost of Rs.0.17 crore was received in January 1998. It was also not functioning since its receipt.

In this connection, the following Audit observations are made:

  1. In the mechanised system, all the machines described above had to work in tandem. The procurement of the machines should have been undertaken simultaneously so that they could have been received and installed together and the entire system tested/ commissioned as a single unit. However, Railway Administration spread out their procurement process over 3 years. The first machine was received in January 1995 and the last one in January 1998. As a result, the system as a whole could not be tested till all the above machines were received.
  2. Even after all machines were received, the system could not be made operational as the main process of mixing dry sand with Pepset resins to prepare pepset sand has not been possible due to non-functioning of ‘Continuous (Pep set) Sand Mixer’ procured for the purpose. The process of core making is still being done manually by mixing resins to prepare ‘no bake sand’ and, thus the full benefit of Rockwell technology is yet to be accrued to CLW.

Thus procurement of machines in piece-meal fashion over 3 years and non-working of Pep set machine resulted in non-commissioning of mechanised system of core making process and idling of machines worth Rs.2.23 crore.

The matter was brought to the notice of Railway Administration and Railway Board in May 2002 and October 2002 respectively and their reply has not been received (December 2002).

4.3.4    South Eastern Railway: Procurement of Axle Journal Turning and Burnishing (AJTB) Lathe machine of erroneous specification

Procurement of an AJTB Lathe machine of erroneous specification led to unfruitful expenditure of Rs.0.97 crore

Railway Board sanctioned (December 1997) an AJTB Lathe for Mancheshwar Workshop (MCSW) to be provided to the wheel shop so as to improve the performance of coaches. The justification made as a special requirement on emergency basis had indicated that in the absence of such a machine it was not possible to machine the journal of the axle in an assembled state. The financial justification had also envisaged a saving of Rs.3.36 crore per annum.

A demand for an AJTB lathe was sent to Central Organisation for Moderanisation of Workshop (COFMOW) mentioning the specification number of a lathe which was already under procurement for Kharagpur workshop with the request to club the demand of MCSW with the tender in process for the procurement of lathe for Kharagpur workshop. COFMOW placed an order (October 1998) for supply of two AJTB lathes, one each for Kharagpur workshop and MCSW.

During the visit to MCSW, the Executive Director Mechanical Engineering (EDME), pointed out (September 1999) that AJTB lathe being procured for MCSW should be transferred to other unit/ Railway. In October 1999, Chief Workshop Manager (CWM), Mancheswar intimated Chief Mechanical Engineer (CME), Planning, South Eastern Railway that AJTB lathe would be least useful at MCSW.

CME, during his visit to MCSW ordered (18 November 1999) that AJTB lathe may be commissioned at Raipur Workshop to deal with the electric loco wheels instead of MCSW. Later on he informed (13 December 1999) CWM/ MCSW of his revised decision to retain and commission the AJTB lathe at MCSW.

The AJTB lathe costing Rs.0.97 crore installed on 31 March 2001 at MCSW could neither be commissioned nor put to use as yet (July 2002) since the same was capable of turning and burnishing wheel sets of Locos and Electric Multiple Unit only.

Thus South Eastern Railway failed in scrutinising the technical suitability of the lathe before sending the demand to COFMOW. The erroneous specification mentioned by the South Eastern Railway on the demand was for the lathe capable of turning and burnishing wheel sets of Locos and Electric Multiple Units and not that of coaches. This resulted in an unfruitful expenditure of Rs.0.97 crore. The Railway Administration could also not achieve anticipated saving of Rs.3.36 crore per annum.

The matter was brought to the notice of Railway Administration and Railway Board in April 2002 and September 2002 respectively and their reply has not been received (December 2002).

4.4    Permanent Way Stores and Others

4.4.1    Western, Central, Eastern, Northern and South Eastern Railways: Idling of costly equipment due to improper planning and lack of coordination in inducting a new technology

Improper planning and lack of coordination in inducting a new technology resulted in avoidable idling of costly equipment worth Rs.22.60 crore from one year to seven years.  Thick Web Switches worth Rs.16.67 crore were yet to be installed as on 31 March 2002

Based on the report of Planning Group on Technology for Railway (PGTR) of 1986, the Railway Board had imported 396 sets of Thick Web Switches (TWS) for use with 1 in 12 - 52 kg and 60kg turnouts. These TWS were installed on selected stretches of trunk routes and trials were conducted by using local as well as Siemen's make point machines. Though the trials conducted with local point machines were not of desired level, the results of trials with Siemen's make point machines were successful. The results showed that by using of TWS, the renewal of tongue rails was not required even after four years whereas on stretches where tongue rails were laid without TWS, the renewal was necessary once in every six months. Thus keeping in view the increased life and reduction in maintenance cost, Railway Board had decided to extend the use of TWS and made provision in the Works Programmes of Railways for laying 1538 TWS during the years 1989-90 and 1990-91. However, due to non-availability of TWS these works were not executed.

The indigenous development of TWS was started in 1995 when some Indian firms approached Railway Board and developmental orders for manufacture of TWS were placed on them. The firms started supply of TWS from June 1995. In February 1997 RDSO had informed Railway Board that M/s Siemens (India) Ltd. has offered imported point machine which was capable of operating TWS and accordingly in March 1997 instruction were issued by Railway Board to five zonal Railways, viz. Central, Eastern, Northern, South Eastern and Western Railways, to initiate urgent action to procure Siemen's make point machines and lay the TWS in the track. As the Siemen's point machines were to be imported from Germany and its cost was high, Zonal Railways could not procure these machines. This situation led to RDSO taking up a project for indigenous development and placement of a developmental order for 20 machines on M/s Crompton Greaves Ltd (CGL). In February 2000, RDSO apprised Railway Board that they had type tested the newly developed point machine and 20 of such machines received were being despatched to four Zonal Railways for installation and trial. The CGL make point machines were finally cleared by RDSO in March 2000.

A review of records of all the five Zonal Railways revealed that 450 TWS costing Rs.22.60 crore were received by them between June 1995 and August 2001. The actual installation was, however, delayed from one year to seven years as suitable point machines required to operate these TWS were not available. The position of TWS laid on various Zonal Railways till March 2002 (given below) indicates that TWS ranging from 24 per cent to 96 per cent were yet to be laid:

Name of
Zonal
Railway
Period during which
TWS were received
Quantity
Received
Quantity laid Up
to 31.3.2002
(Percentage of
quantity received)
Total cost
(In Rupees)
Cost of TWS to
 be laid as on
31 March 2002
(In Rupees)
Western December 1998 to May 1999 100 25 (25) 4,05,70,450 3,04,27,837
Northern December 1996 to April 1997 50 8 (16) 2,57,91,538 2,16,64,891
South Eastern June 1995 to August 1996 100 4 (4) 5,43,38,935 5,21,65,377
Central January 1999 to
June 2000 and
August 2001
98}
} 100
2}
76 (76) 5,21,30,106 1,25,11,225
Eastern 1997 100 6 (6) 5,31,59,483. 4,99,69,914
Total   450   22,59,90,812 16,67,39,244

Thus improper planning by Railway Board to place development orders for procurement of TWS without ensuring the availability of suitable point machines required to operate them or to take simultaneous action for indigenous development of Point Machines resulted in idling of TWS worth Rs.22.60 crore. TWS worth Rs.16.67 crore were yet to be installed (March 2002).

The matter regarding non-installation of TWS on Western Railway was brought to the notice of Railway Administration in April 2002. In their reply (August 2002) they stated that TWS being a new technology required extensive testing by Railway and RDSO. It was also contended that procurement of TWS and ancillary items was undertaken on experimental basis. Being a costly proposition, Railway had to process the procurement cautiously because of which the time lag was inevitable. The reply is not tenable because Railway Administration went ahead procuring TWS at a huge investment of Rs.22.60 crore without initiating simultaneous action to develop/procure suitable point machines leading to idling of TWS.

The matter was brought to the notice of Railway Board in November 2002 and their reply has not been received.

4.4.2    Railway Board: Extra expenditure on procurement of Spheriodal Graphite Cast Iron (SGCI) Inserts

Inclusion of Price Variation Clause in contract having delivery period of 12 months and incorrect placement of developmental/ educational orders resulted in extra expenditure of Rs.24.31 crore

Spheriodal Graphite Cast Iron (SGCI) Inserts are categorised as safety items. These are used in the manufacturing of Pre-Stressed Concrete (PSC) sleepers for fixing track fittings.

(a)    Open tender No. CS-.129/98 for manufacture and supply of 2.75 crore of SGCI Inserts covering the requirement of 1999-2000 was invited on 6 May 1998 with firm rates. The date of opening of the tender was 12 June 1998. The delivery period being 12 months, no Price Variation Clause (PVC) was included in the tender. The opening of the tender was, however, postponed thrice in view of representations received from the All India Railway Track Items Manufacturer Association (AIRTIMA) on various issues. Of these issues, one for inclusion of PVC was agreed to by the Railway Board (31 August 1998). A corrigendum was issued on 1 September 1998 in this regard.

The tender was opened on 8 October 1998. The Tender Committee (TC) recommended the lowest rate of Rs.31.95 per Insert quoted by an approved firm to be counter offered to other approved firms for a quantity of 2.75 crore SGCI Inserts. In addition to above, a quantity of 5 lakh Inserts was also given to five firms as educational orders. This quantity was outside the tendered quantity. The competent authority approved (February 1999) the recommendations.

(b)    Tender (CS-139/1999) covering the requirement of 2000-2001 was invited on 21 October 1999 and opened on 21 January 2000. The TC while considering the rates stated that there was a downward trend in the rates of Inserts and the financial saving on this account would be to the extent of Rs.12.75 crore when compared with the last updated purchase rates. The rate of Rs.29.40 each, the lowest quoted by an approved firm was counter-offered to other firms and the tender was finalised for a quantity of 2.75 crore of Inserts at the rate of Rs.29.40 per Insert with PVC. The Competent Authority accepted the recommendations of the TC in May 2000.

In this connection, following points arise:

(i)    Tender (CS-129/1998) was invited with firm rates and PVC was incorporated through a corrigendum afterwards in view of the representation of AIRTIMA. As a general rule, PVC is not provided in contracts having delivery period of 12 months. In the instant case as per established practice, tenders were invited with ‘firm rates'. As such the firms while quoting fixed rates, were fully aware of the events to come and would have taken into account all risk factors and quoted a rate providing for all eventualities. Therefore, inclusion of PVC especially after inviting the tender with firm rates at the request of the AIRTIMA was not justified.

While vetting the subsequent tender (CS-139/1999), Finance agreed to the incorporation of the PVC as was done in the previous occasion. The rates of Inserts in 1995 tender (invited to meet 3 years requirement) were finalised at Rs.32.03 each and after updating with PVC formula, the rate worked out to Rs.36.33 each at the time of finalisation of subsequent tender. However, the rate received and accepted in the subsequent tender (CS-129/1998) was Rs.31.95 each. This indicated that there was downward trend in the price of Inserts and therefore, inclusion of PVC was against the interest of the Railways. Also there was no justification for inclusion of PVC.

A review of contracts relating to these tenders revealed that incorporation of the PVC caused huge financial burden of Rs.21.84 crore (approx.) to the Railways by way of escalation which was avoidable.

(ii)    The rate of Rs.29.40 per Insert obtained in 1999 tender was lower than the updated rate of Rs.34.55 and even from the initial rate of Rs.31.95 quoted and accepted in the previous tender. Apart from the indication that inclusion of PVC clause was not justified, it also indicated that PVC formula adopted was faulty.

(iii)    There was undue delay in finalisation/ issuance of tenders/contracts. Tender No. CS-129/1998 covering the requirement of 1999-2000 invited on 6 May 1998 was finalised and orders were placed only in August 1999. Similarly, tender No. CS-139/1999 invited in October 1999 covering the requirement of 2000-2001 was finalised and orders were placed only in October 2000, almost after six months of the commencement of requirement period.

(iv)    Over and above the tendered quantity of 2.75 crore, orders for 5 lakh SGCI Inserts were also placed on five new firms as educational order valuing Rs.1.57 crore. Similarly, 3 lakh SGCI inserts were placed as developmental order in the case of second tender over and above the tendered quantity of 2.75 crore valuing Rs.0.90 crore. In accordance with the Railway Board orders, placement of development order should be considered only where the approved sources are not adequate and it is desirable to develop more sources to bring in competition or improvement in quality. But, here adequate production capacity was already available (1836 lakh and 1559 lakh in the respective tenders as against the annual requirement of 275 lakh). Thus placement of further developmental/ educational order was not justified and resulted in excess/ advance procurement and blocking of capital to the extent of Rs.2.47 crore.

When the matter was taken up (September 2002), the Railway Board stated (December 2002) that the PVC was included in view of the past experience and request by AIRTIMA and that the formula was not faulty. They further stated that the falling trend in rates quoted in subsequent tenders was due to unhealthy competition among the participating firms.

These arguments of Railway Board are not acceptable because, as a general rule, PVC is not provided in contracts having delivery period of 12 months. Moreover, the falling trend in rates was due to falling prices of steel as a result of overall recession in the steel industry, a fact which was known to the Railway Board.

4.4.3    Railway Board: Extra expenditure due to exercise of option clause in advance in the procurement of Cast Manganese Steel (CMS) Crossings

Incorrect decision to exercise 30 per cent option clause in advance coupled with subsequent fall in prices resulted in excess procurement leading to blocking up of funds to the tune of Rs.8.03 crore besides a loss of Rs.1.40 crore

To afford better resistance to wear, reduce the cost of maintenance and frequent renewals, Cast Manganese Steel (CMS), crossings have been developed. CMS crossings are particularly useful in continuous welding of rails.

(a)    Railway Board had invited (19 August 1999) open tender No.Track-2 of 1999 for procurement of 3200 CMS crossings covering the requirement for 1999-2000. At the time of finalisation of tender (November 1999), 30 per cent option clause was exercised in advance and an additional quantity (960) was added to the originally tendered quantity (3200) on the plea that the rates received were lower than the previous tender and to accommodate some more indents received subsequent to calling of tender. The quantity was further increased by 150 CMS crossings by the supplementary Tender Committee to accommodate a specific representation from a Kolkata based firm. The Committee also recommended for placement of developmental order for 50 CMS crossings on one new firm. Thus the quantity finally approved (February 2000) by the Competent Authority [Minister of Railways (MR)] was 4310 from regular suppliers and 50 from a new firm.

(b)    In July 2000, the Railway Board invited another tender No. Track-2 of 2000 for procurement of 6200 CMS crossings for the year 2000-2001. The tender was opened on 31 August 2000. In all 10 offers were received, 7 from approved firms, 1 from a firm who was given a developmental order in the previous tender and 2 from new firms. To accommodate the urgent demand of 537 CMS crossings, option clause was exercised on an existing contract of 1998-1999 and the tendered quantity was reduced to 6,137. The orders were placed on five firms.

The rates received for different types of CMS crossings against tender No.Track 2 of 1999 ranged between Rs.77,900 and Rs.60,500 and for tender No.Track 2 of 2000 ranged between Rs.67,800 and Rs.46,300.

In this connection, following observations are made:

1.    As per instructions issued (January 1999) by the then MR, 30 per cent option clause was to be exercised after ensuring that:
  1. the exercise of option clause was in the interest of Administration;
  2. the prices in the fresh tender would be higher for which the market has been tested; and
  3. sizeable percentage (say 75 to 80 per cent) of the supply of existing contracts had been completed satisfactorily.

The assessment of requirement was highly exaggerated and sufficient balance of CMS crossings was available had been pointed out in Paragraph 4.3.4 of Report No.9 of 2002 of the Comptroller and Auditor General of India. As such, exercising of option clause in advance was not warranted. Further at the time of finalisation of tender, the Railway Board was aware of the falling trend in prices of steel due to overall recession in the steel industry. The falling prices were borne out by the rates received in the tender No.Track 2 of 2000. Since option clause was exercised in advance and quantity included in the initial order itself, the condition of sizeable percentage of the supply of existing contracts having been completed before option was exercised, was also violated.

Thus none of the three conditions was satisfied in the instant case. Exercising of the 30 per cent option clause in advance, therefore, proved imprudent which led to excess procurement and blocking up of funds to the tune of Rs.6.95 crore.

For the same reasons, increasing the quantity by 150 to accommodate the representation of a firm was also not in order leading to blocking up of funds by further amount of Rs.1.08 crore.

Since the option clause was executed in advance and ordered quantity was increased further by 150, the Railways could not avail of the benefit in procuring these at the lower rate obtained in the subsequent tender. There was thus a clear loss of Rs.1.40 crore.

When the matter was taken up (August 2002), the Railway Board stated (October 2002) that the standard tender conditions permit exercise of 30 per cent option which was done in this case. It was further mentioned that out of the tendered quantity of 4310 Nos. (1999-2000), 2057 Nos. CMS crossings were balance quantity as on 31 August 2000 and the lower rates received in the subsequent tender were applied for that quantity.

The reply was not tenable in audit due to the fact that there was sufficient balance of CMS crossings available to meet the indents received subsequent to calling of this tender for 1999 as already pointed out in paragraph No. 4.3.4 of Report No.9 of 2002 of the Railway Audit Report. Thus exercising option clause in advance in contravention of the instructions of the Competent authority in this regard was not warranted and led to blocking of funds as indicated above.

4.4.4    Southern Railway: Extra expenditure due to failure to act as per directions of Railway Board

Non-implementation of the orders of the Railway Board resulted in purchasing sleepers at an extra expenditure of Rs.4.19 crore, besides, unnecessary litigation

M/s Kottukulam Engineers Private Ltd. and M/s Maruthi Builders were two of the six firms supplying Pre-Stressed Concrete (PSC) sleepers required by Southern Railway. Since the currency of the agreements with these two firms was expiring, the Railway Administration approached Railway Board (August 1995 and January 1996) for approval to place repeat orders.

While conveying approval (May 1996), the Railway Board directed certain terms and conditions to be included in the contracts. One of the conditions was that 'in case any open tender for manufacture and supply of PSC sleepers on Southern Railway, during the currency of this Repeat Order, was floated and low rates were accepted, the lower rates would also be applicable in this repeat order from the date of acceptance of such rate'. The Railway Administration made counter offers to the two firms including this condition. The firms, however, refused to accept the condition. The Board was apprised (September 1996) of this who directed (October 1996) that failing acceptance of this condition, the Railway might have to consider the option of closing the contract. However, in spite of these specific and unambiguous directions, the Railway Administration failed to take action either to get the condition accepted or to close the contracts. Instead, they continued to accept the supply from these two firms at the original rates.

Subsequently, Railway Board finalised (8 November 1997), an open tender at the rate of Rs.570 per sleeper. The Zonal Railways were directed to ensure (December 1997) that the firms could continue their supplies provided they agreed that the supply thus made would be as per Rates, Terms and conditions of the Counter Offer issued to them vide Railway Board's letter of November 1997.

The two firms were intimated only in April 1999 (after a delay of more than one year) that in view of the tender finalised by the Board at the rate of Rs.570, the recoverable amount would be deducted from their running bills.

These firms, however, resorted to petitioning before the Courts of law, who disposed of with a direction to the parties to refer the dispute (subject matter of the proceedings) to the arbitration by sole Arbitrator to be appointed by the Railway Board.

In this case, the following points arise:

  1. Railway Administration continued to accept supplies from the two firms, without resorting to get the condition (as specifically directed by the Railway Board) included in the contract. It also failed to take recourse to the option of closing the contracts with these two firms.
  2. M/s Maruthi Builders was the firm that offered the lowest rate of Rs.570 per sleeper, which was accepted by Railway Board on 8 November 1997. Still, the Railway Administration failed to cancel their counter offer and activate the new offer finalised by the Board. In fact, even after 8 November 1997, M/s Maruthi Builders was allowed to supply 1,67,447 sleepers (till April 1999) against the counter offer of 1996.

Failure to take timely action in pursuance of directives of the Railway Board, thus, resulted in extra expenditure of Rs.4.19 crore in the two cases.

When the matter was taken up (April 2002), the Railway Administration stated (July 2002) that the imposition of the fall clause was subject to acceptance by the firm and legally it was not possible for the Railways to force the firm to accept the fall clause. According to Administration, the only option available for the Railways was to withdraw the counter offer, which would have resulted in non-availability of PSC sleepers affecting the gauge conversion works.

These arguments are not tenable. While this may be true of an existing running contract, in respect of repeat order, the decision to introduce fall clause was taken by the Railway Board with the conscious idea of safeguarding the Railway's interests. However, the Railway Administration failed to implement the Board's directives.

The matter was brought to the notice of Railway Board in October 2002 and their reply has not been received (December 2002).

4.4.5    Railway Board and Northern Railway: Delay in finalisation of tender

Delay in finalisation of tender for procurement of optical fibre cable resulted in avoidable extra expenditure of Rs.5.05 crore

Delay by Railway Board in finalising a centralised tender for procurement of optical fibre cable resulted in extra expenditure as brought out below:

A global tender for procurement of 1898 kms of optical fibre cable was opened on 1 December 1999. The status of the 8 firms along with Ex-factory price per km quoted by them was as follows:

Table-I

Sl.
No.
Name of the firms (M/s) Ex-factory price
(Rs.per Km)
Status
(1) Aksh India Ltd., New Delhi 64,971 Part II
(2) ARM Ltd., New Delhi 73,698 -do-
(3) Sudarshan Telecom, New Delhi 76,000 -do-
(4) Sterlite Industries, New Delhi 81,990 Part I
(5) Birla Ericsson Ltd., Rewa 82,070 -do-
(6) RPG cables Ltd., New Delhi 82,125 Part I Approval expired in September 1999
(7) Pirelli Cables, Italy 73,328 (FOB) Un-approved
(8) Zhong Xing Telecom Ltd., China 95,790 (FOB) -do-

The offers of the firms were valid up to 28 April 2000. Railway Board did not consider offers of the unapproved firms being higher than those of the approved firms.

M/s Aksh India Limited, a Part-II firm had quoted the lowest rate of Rs.64,971 i.e. the same rate at which it had secured a preceding order (May 1999). Taking this in view, the Tender Committee (TC) considered them to be competitive and reasonable. Amongst the Part-I firms, M/s Sterlite Industries quoted a basic rate of Rs.81,990 per km. (19.29 per cent) higher than their last accepted rate of Rs.68,728 per km against May 1999 order). Since M/s Aksh India Limited had quoted the lowest rate of Rs.64,971 (the rate on which a preceding order was awarded to them in May 1999), the TC recommended (May 2000) to counter offer the rate of Rs.64,971 to part II firms. Similarly, the last accepted rate of Rs.68,728 per km. by M/s Sterlite Industries (Part I firm) against May 1999 order, was recommended for counter offering to part I firms. It also recommended for seeking extension of validity period of offers from the firms which had expired on 28 April 2000. The TC recommended (June 2000) for discharging the tender and floating a fresh one since all the firms refused to extend the validity period beyond 28 April 2000.

A fresh tender was floated in August 2000. It was opened on 12 September 2000 and the rates received were as follows:

Table-II

Sl.
No.
Name of the firms
 (M/s)
Status of the firm Ex-factory price
(Rs.per km)
Rates quoted in
discharged tender
(Rs.per km)
Rates recommended
by T.C in discharged
tender (Rs.per. Km)
(1) Aksh optifibre Limited Pt.I 91,081 64,971 64,971
(2) Sterlite Industries Pt.I 95,836 81,990 68,728
(3) Birla Ericssons Pt.I 98,750 82,070 68,728
(4) RPG Cables Pt.I 1,41,000 82,125 68,728
(5) Sudarshan Telecom Pt.II 91,000 76,000 64,971
(6) ARM Ltd. Pt.II 95,863 73,698 64,971
(7) Vindhya Tele Links Pt.II 1,06,935 - -

The TC recommended following rates and quantities:

Table-III

Sl.
No
Name of the firms (M/s) Status of the firm Quantity (km.) Rate(Rs.per km)
(1) Aksh optifibre Limited Pt. I 1608 91,081
(2) Sudarshan Telecom Pt. II 241 91,000
(3) ARM, New Delhi Pt. II 101 91,000
(4) Vindhya Tele Links Pt. II 60 91,000

In view of high quotations from M/s Sterlite Industries, Birla Ericssons and RPG cables, the TC did not recommend any order on them. The Competent Authority (MOSR), accepted the Tender Committee’s recommendations on 23 January 2001.

Advance acceptance/counter offers were issued to the four firms mentioned in Table III. Only one firm viz. M/s Aksh Optifibre Ltd. accepted the offer and an order was placed in April 2001 for 1608 kms of cable. The quantity was subsequently reduced to 1126 Kms (by decreasing 482 kms under 30 per cent option clause) because of lower rate (Rs.66,395 per km.) obtained against a tender issued (October 2001) by Central Organisation for Railway Electrification (CORE), Allahabad.

In this connection, the following comments arise:

  1. Ministry of Railways’ Office Order No.40 of 1988 stipulates a period of 61 days from the date of opening of tender for finalising it. The subject tender opened on 1 December 1999, was finally discharged on 6 June 2000. Railway Board in this case failed to finalise the tender even after a period of 189 days of its opening and 39 days after the expiry of validity period. Re-tendering was done due to refusal by the firms to extend the validity period. Consequently, procurement of 1,126 kms. optical fibre cable was made (April 2001) at higher rates entailing an extra expenditure of Rs.3.49 crore.
  2. While the rate of Rs.91,000 per km. offered by M/s Sudarshan Telecom was counter-offered to other Part II firms, no such counter-offer of rate of Rs.91,081 per km. offered by M/s Aksh Optifibre Limited was made to other three Part I firms. 80 per cent of the quantity to be procured was ordered on M/s Aksh Optifibre Ltd. (April 2001) which is suggestive of undue favour shown to the firm
  3. Two sets of rates viz. Rs.68,728 per Km. for Part I firms and Rs.64,971 per Km. for Part II firms were recommended in the tender discharged in June 2000. The lowest rate of Rs.91,081 per Km. offered by M/s Aksh Optifibre, a Part I firm and rate of Rs.91,000 per Km. offered by M/s Sudarshan Telecom, a Part II firm was recommended for other Part II firms in the next tender finalised in January 2001. There was no basis for recommending higher rates for Part I firms. On the contrary, Part I firm should be in a better position to effect greater economies in bulk production and, therefore, be able to supply at lower rate. Moreover, such recommendations could lead to formation of cartel, separately by Part I and Part II firms. By offering higher rate to Part I firms, Railway Board was incurring avoidable extra expenditure.
  4. Following discharge of the tender in June 2000, Northeast Frontier Railway placed an order in September 2000 on M/s Aksh Optifibre Ltd. for 106 kms of optical fibre cable (against one time dispensation given to meet their urgent requirement) at a rate of Rs.89,588 per km., which was higher by Rs.24,617 per km. than the rate of Rs.64,971 per km. finalised in the tender discharged in June 2000. This resulted in avoidable extra expenditure of Rs.0.26 crore.
  5. Following discharge of the tender in June 2000, Railway Board advised Central Organisation for Railway Electrification (CORE) whose requirement was also included in the discharged tender to procure optical fibre cable at their own level to meet their urgent requirement. Accordingly, CORE initiated procedure to procure optical fibre cable through local tendering . Their final action culminated in procuring 336.17 kms. of cable in July 2001 at an exorbitant rate of Rs. 1,23,707 per km. which was higher than the rate of Rs. 91,081 per km. finalised by Railway Board in January 2001 in the tender. The extra expenditure resulting from this procurement by CORE at higher rate amounted to Rs. 1.30 crore.

Thus the delay by Railway Board in finalising the tender and procurement by CORE at exorbitant rate instead of approaching the Railway Board for supplies from their supply order led to a loss of Rs.5.05 crore

Further audit scrutiny of procurement action of CORE revealed that:

CORE invited and opened the tender on 8 August 2000 for procurement of optical fibre cable. The rates obtained (Rs. 90,128 and 87,069 per km.) were very much higher than the last purchase price (Rs. 68,728 per kms.) and hence the Tender Committee recommended negotiations, which eventually failed. The rate of Rs. 87,069 per km. was, therefore, offered/ counter-offered to the tenderers. None of them accepted the offers. By that time, Railway Board’s tender had also been finalised in January 2001. In February 2001, the TC (CORE) while recommending discharge of the tender due to refusal by firms to supply at the offered /counter offered rates, indicated that the Railway Board had already finalised its tender and that there was no need for making emergent purchase locally. However, the General Manager, CORE, observed (March 2001) that Railway Board's bulk supply order would not meet the CORE's requirement and ordered issuance of fresh emergent tender.

Accordingly, in June 2001, CORE approached Railway Board for permission to make a direct purchase of cable on the plea that supplies against Railway Board’s tender expected to start in April 2001 were not forthcoming. Railway Board approved the proposal. CORE invited and opened the tender (2 July 2001). The TC, while considering the tender, noticed (12 July 2001) from a newspaper clipping of Economic Times of 10 July 2001 that the prices of optical fibre had fallen drastically and that Bharat Sanchar Nigam Limited (BSNL) was considering cancellation of orders worth Rs.700 crore. In view of this, T.C recommended negotiations with the tenderers. Unable to obtain reduction in prices despite negotiations with the tenderers, TC recommended much higher rate (Rs.1,23,707 per km.) for procurement of 333 kms of cable. Subsequently, when procurement of optical fibre cable was decentralised, CORE itself awarded two more contracts to M/s ARM Ltd. & M/s Sterlite Optical Technologies Limited at a much lower rate of Rs.66,396 per km. and Rs.57,236 per km. respectively.

As the tender for meeting the requirement of field units for OFC had already been finalised by Railway Board in January 2001 at Rs.91,081 per km. and supply order including 418 Kms. for CORE placed in April 2001, the CORE, instead of inviting fresh tender and finalising it in July 2001 at an exorbitant rate of Rs.1,23,707 per km. (higher by Rs.32,626 per km.), could have approached Railway Board and the supplier for expediting the supplies from the centralised supply order of April 2001 especially when the TC also had recommended not to invite fresh tender.

The matter was brought to the notice of Northern Railway Administration in May 2002 and Railway Board in August/October 2002; their replies have not been received (December 2002).

4.4.6    Eastern Railway: Procurement of unsuitable Hydraulic Clamp Lock Point machines

Failure to evaluate the suitability of the Hydraulic Clamp Lock Point machines before their procurement/ installation resulted in premature dismantlement of 80 machines installed and unfruitful expenditure of Rs.1.13 crore on the balance 93 machines lying in store for more than 14 years

The work of replacement of existing Electric Point machines in Route Relay Interlocking (RRI), Howrah on age -cum-condition basis was included in the final works programme of 1989-90. Since water logging during rainy season causing failure of point machines was a chronic problem in Howrah yard, Hydraulic Clamp Lock Point machines having their oil tank fitted at a higher level were proposed to be used for replacement. These were not likely to be damaged unlike other point machines in case of water logging in the point zone area.

The sanctioned estimate (September 1989), included replacement of existing point machines by 148 Hydraulic Clamp Lock Point machines and 21 Electric Point machines (Siemen type) in double slip points where it was difficult to equip Hydraulic Clamp Lock Point machines. The work was completed on 31 January 1995.

Audit scrutiny of the above work revealed the following:

  1. Replacement work was carried out by Hydraulic Clamp Lock Point machines which were procured by Railway Board against the earlier indents (1985) of Eastern Railway (100 machines) and Central Railway (100 machines). The 100 machines intended for Central Railway were diverted to Eastern Railway as per their request (1987). The replacement was, however, completed with 80 Hydraulic Clamp Lock Point machines (79 from September 1989 to August 1991 and 1 on 20 March 1994) and 88 Electric Point machines (Siemen type) against the planned replacement of existing point machines by 148 Hydraulic Clamp Lock Point machines and 21 Electric Point machines (Siemen type).
  2. The Hydraulic Clamp Lock Point machines started (July 1990) failing soon after their installation due to leakage of operating oil and in just 9 months (July 1990 to March 1991) nine such incidents were noticed.
  3. Only 80 of the 200 Hydraulic Clamp Lock Point machines were used for replacement. 27 were issued to maintenance depots, training centres and other Railways and balance 93 are lying in stores since their receipt in 1987.

In December 2000, Railway Administration decided to replace entire 80 Hydraulic Clamp Lock Point machines by Electric Point machines (Siemen type) even before completion of half of their scheduled life time. The work was in progress and 47 machines had since been replaced as of 9 January 2002.

Thus failure to evaluate the suitability of the Hydraulic Clamp Lock Point machines before their procurement/ installation resulted in premature dismantlement of 80 machines installed in RRI, Howrah and extra expenditure on account of this. Further, the expenditure of Rs.1.13 crore on the balance 93 machines lying in stores for more than 14 years was also rendered unfruitful.

The matter was brought to the notice of Railway Administration and Railway Board in April 2002 and September 2002 respectively and their reply has not been received (December 2002).

4.4.7    Southern Railway: Improper maintenance of material at site accounts/ poor inventory management

Railway Administration's failure in maintaining the accounts properly in respect of seven projects resulted in non-accountal of materials worth Rs.24.70 crore even after 3 to 9 years of commissioning of the projects

All materials specifically obtained for a particular work should, so long as they are not consumed on the work, be borne under a suspense head Material-At-Site (MAS) opened under the head to which the cost of that work as a whole is allocated. All materials released from a work should also be borne under the same suspense head. The adjustment from the MAS suspense to the relevant final detailed heads should be carried out as soon as the materials are drawn and shown in the monthly return as having been issued to the work. The responsibility for ensuring that the monthly report is prepared devolves on authority in executive charge of the works. The Accounts Officer who maintains the Works Register is responsible for the final adjustment of all MAS transactions. The authority in executive charge of works for which MAS accounts are maintained should arrange for a periodical verification of the materials. At the end of every financial year the Accounts Officer should prepare a schedule of MAS balances on the various works and should review it in consultation with the Executive. If the 'excess materials' cannot be utilised on some other works, they should either be returned to Stores Depot or taken to Engineering Stores Surplus.

The Construction Organisation of Southern Railway at Bangalore executed seven gauge conversion/ new line projects between 1992 and 1998. On completion of these projects, as at the end of October 1998, there was a balance of Rs.73.71 crore under the MAS account. When this was pointed out (December 1998), the Administration attributed (October 2000) the heavy outstanding to the delayed acceptance of debit, transfer of field staff (after completion of the project), custodians having materials of different projects under their custody etc.

After carrying out a number of adjustments, an amount of Rs.41.66 crore was cleared and the balance was brought down to Rs.32.05 crore [Rs.73.71 crore (-) Rs.41.66 crore] as of July 2000. However, there were no proper records in support of the amount cleared (Rs.41.66 crore).

Due to the failure of the Railway Administration to adhere to the codal provisions in conducting periodical verification of the materials and returning the 'excess materials' immediately after completion of the projects, materials worth Rs.7.35 crore only could be accounted for as follows:

Sl.
No.
Particulars Value (Rs. in crore)
1. Materials lying with custodians 4.50
2. Shortages detected with custodians 2.29
3. Materials issued to contractors but not returned 0.38
4. Materials lost due to theft 0.18
TOTAL 7.35

Out of the materials with the custodians (Rs.4.50 crore), Class I materials valued at Rs.0.53 crore and Class II materials valued at Rs.1.76 crore (total Rs.2.29 crore) had to be reclassified as Class III as they had become obsolete or unusable.

Thus major balance of Rs.24.70 crore [Rs.32.05 crore (-) Rs.7.35 crore] still (July 2002) remains unaccounted for.

When the matter was brought to the notice of Railway Administration (May 2002) and Railway Board (October 2002), Railways stated (December 2002) that the MAS Book Balance as of now (November 2002) stood at Rs.6.69 crore.

However, the claim of the Administration about the reduction in the MAS account balance could not be substantiated, as records for all the projects were not made available for Audit scrutiny.

4.4.8    South Eastern Railway: Loss due to unauthorised local purchase

Failure to conduct prescribed checks led to loss of Rs.0.23 crore in respect of 71 Purchase Orders test checked

The powers delegated to the Executive Officer under Chief Administrative Officer, Construction (Const.), Garden Reach (GRC) in respect of local purchases for stores items other than Rate Contract/ Running Contract items is as under:

Sl.
No.
Delegated power Limit per item Purchase Particulars
1. Chief Engineer (CE), (Const.), GRC Rs.10000 Stock and Non-stock item
2. Deputy Chief Engineer (Dy. CE), GRC Rs.5000 Stock and Non-stock item

The procedure as under is to be followed in local purchase of stores in the Office of CE (Const.), GRC:

  1. Prior administrative approval of respective competent authority needs to be obtained for procurement of stock item of any value and for non-stock item valuing more than Rs.5,000 before approaching associated finance for concurrence.
  2. The Dy. CE (Const.) GRC issues Purchase orders (POs) upto Rs.5,000.
  3. After obtaining administrative approval from the competent authority, the finance concurrence is required before the case is forwarded to Dy. Controller of Stores (Dy. COS) GRC to initiate action for procuring items of stores.

The financial scrutiny of the proposals for expenditure and sanctions therefor accorded by any authority is a part of functions of Accounts office viz. Finance Branch. All POs valuing more than Rs.10,000 each are vetted by the Finance branch vide Para 1515 of Indian Railway code for the Accounts Department Vol.I. The scrutiny is to be exercised in all respects particularly in respect of quantities, rates etc. After vetting, Accounts copy of the POs duly signed by the Finance Officer is to be supplied to the Accounts Officer entrusted with the duties of check and payment of the bills for the stores supplied. The internal check of sanctions by Accounts to the proposals already examined in the Finance Branch is to be confined to the verification of concurrence thereto by the Finance.

During inspection of office of the CE (Const.) GRC, the records viz. case files, PO Registers, Daily Material Transaction Register (DMTR) were not made available for audit scrutiny. As such a test check was exercised (January and February 2002) after obtaining collateral records viz. copy of purchase orders and paid vouchers from the Office of the Financial Adviser and Chief Accounts Officer (Const.), GRC. The following irregularities were noticed:

  1. In most of the cases the value per item exceeded the ceiling limits and thus were not covered under powers of local purchase.
  2. The POs valuing more than Rs.10,000 and upto Rs.40,000 were required to be issued by Dy. COS (Const.) GRC. The Accounts, however, failed to notice that all the 71 POs (issued between March 1999 and August 2001) valuing more than Rs.10,000 were issued by the office of CE (Const.)/GRC.
  3. The payment was made on the bills without any verification of finance concurrence. The Accounts also failed to take up the matter with the Finance Branch/ office of CE (Const.) GRC before making any payment.

Further enquiry made in this regard revealed that the materials worth Rs.0.23 crore procured against 71 POs were also not received.

On the matter taken up through special letter by Audit (April 2002), the FA&CAO (Const.), GRC admitted (May 2002) the serious irregularities committed in the procurement of stores through POs of value less than Rs.40,000. He further stated that the matter had been taken up by the Vigilance Department for thorough investigation. During discussion on the draft paragraph (5 September 2002), FA&CAO (Const.), GRC disclosed that the fraud had been committed by an employee who has been placed under suspension.

Thus failure to conduct prescribed checks led to loss of Rs.0.23 crore in respect of 71 POs test checked.

The matter was brought to the notice of Railway Administration and Railway Board in May 2002 and November 2002 respectively and their reply has not been received.