CAG flags planning errors, potential ₹2,600 crore undue benefit in Telangana's Kaleshwaram project

The report goes on to state that out of the total expenditure of ₹86,788.06 crore incurred on the project as of March 2022, 64.3%, i.e., ₹55,807.86 crore, was met from off-budget borrowings raised by the Kaleshwaram Irrigation Project Corporation Limited (KIPCL), a special purpose vehicle set up by the BRS government to handle finances related to the Kaleshwaram project.

The project cost was understated in the Detailed Project Report (DPR) due to estimates being prepared at old price levels and the non-inclusion of provisions for price escalation.

Coupled with subsequent changes made in the project works, this resulted in the cost of works increasing from ₹63,352 crore to ₹1.02 lakh crore. During re-engineering, the Kaleshwaram and Pranahitha Projects together were estimated to cost ₹85,651.81 crore, as against the project cost of ₹38,500 crore of the earlier PCSS Project.

While the combined project cost increased by 122%, the targeted CA increased by only 52.22%. Even after the initial re-engineering, further additions and changes were made in the scope of Kaleshwaram Project works, taking the present likely project cost to ₹1,47,427.41 crore (including interest during construction), while there is no further increase in the envisaged benefits.

Thus, the combined project cost of the two projects now stands at ₹1,51,168.21 crore. This may increase further as the DPR of the Pranahitha Project is not yet prepared (March 2022), and its cost is yet to be worked out, the report said.

The CAG report outlined that the possibility of undue benefit of at least ₹2,684.73 crore to the contractors of these works cannot be ruled out.

"The Department showed undue haste in the award of works. Seventeen works costing ₹25,049.99 crore were awarded even before the approval of the DPR. Out of the 56 project works, only 12 works were completed, 40 works were ongoing, while 4 works have not even commenced, as of March 2022. Lands required for the distributary network, etc., are yet to be fully identified. Further, the post-tender inclusion of the price adjustment clause resulted in an avoidable payment of ₹1,342.48 crore," the report reads.

The Department showed undue haste in the award of works for the Kaleshwaram Project. The Department awarded 17 works costing ₹25,049.99 crore relating to the project even before the approval of the DPR by CWC in June 2018.

The peak energy demand is more than the average daily energy availed the entire State in 2021-22. As the State is presently purchasing/importing nearly 60% of energy from external sources, providing power to various lift irrigation schemes, including the Kaleshwaram Project, will be a challenge to the State.

The absence of a comprehensive plan duly spelling out the sources of funds for a project of this scale, which will have a long-term impact on the finances of the State, is an indication of improper planning.

Out of the 56 project works, only 12 works were completed, 40 works were ongoing, while 4 works have not even commenced, as of March 2022.

In the DPR, water for the project was proposed to be lifted from River Godavari at the rate of 2 TMC per day. The pumping capacity was later increased to 3 TMC per day involving an additional cost of ₹28,151 crore. Due to re-engineering of the PCSS Project and changes made in the project works, certain portions of works already executed had become redundant, resulting in a loss of ₹767.78 crore.

Revenue from drinking water supply from the project would be less than that projected in the DPR, and when a subsidy is paid to compensate for this, there would be an additional cost to the public exchequer.

Every rupee spent on the project would yield only 52 paise. It clearly indicates that the project was, ab-initio, economically unviable.

The project requires a total of 14,344.39 million units (MU) of energy every year after completion. The peak energy demand, when all the pumps are likely to be operated simultaneously during the pumping season, works out to 203.02 MU per day. This is more than the average daily energy availed (196.06 MU per day) in the entire State in 2021-22.

The KIPCL did not have any sources of revenue, and the burden of repayment of the loan and interest was likely to fall on the State budget.

The Department provided a total amount of ₹17,653.71 crore towards the cost of pumps, motors, and auxiliary equipment in the estimates of these works, without assessing the market rates.

On June 21, 2019, the project was opened by Telangana Governor Narasimhan and then Chief Ministers K. Chandrashekar Rao of Telangana, Devendra Fadnavis of Maharashtra, and Y.S. Jaganmohan Reddy of Andhra Pradesh.

While BRS defended the project, the Opposition, including Congress and the BJP, accused the Rao government of shoddy management. The Telangana Congress in its election manifesto also promised a judicial inquiry into alleged irregularities and corruption surrounding the construction of the project and since coming to power has been heavily critical of it.