CC SEEKS SIT PROBE ON OVER-INVOICING BY PRIVATE FIRMS
Common Cause has filed a petition in the Delhi High Court seeking a thorough investigation by an SIT into the over-invoicing carried out by various private power generating companies as reported by Directorate of Revenue Intelligence (DRI) in its various investigation reports. The said scam unearthed by DRI discloses that several private companies have siphoned away several thousand crores of rupees abroad.
The petition says that most of these over-invoicing instances have been reported from the power sector, the impact of which is felt by the millions of electricity consumes in the form of higher tariff. The petition further mentions that ever since the government has opened up the power sector to the private companies, many private companies had started setting up power plants from the year 2006 / 2007 onwards.
Barring nuclear power plants, the private companies are allowed to set up thermal power plants based on any fuel (coal, gas, lignite, etc) or power plants based on renewable energy (solar, wind, hydro, bio-gas, etc). The transmission of power through transmission lines was also simultaneously opened for the private sector. To encourage participation of private companies in the power sector, the government had given multiple options to all the companies to recover their costs and make profits based on their business models.
Also, in the case of thermal power projects, about 20 per cent equity is brought in by the promoters of the project and the balance is funded through loans. The government had also put in place Electricity Regulators in every state and also at the Central level (Central Electricity Regulatory Commission or CERC). As per the government’s policy guidelines, CERC issues escalation / de-escalation index twice in a year for different parameters such as foreign exchange fluctuation, change in fuel price, change in labour cost, which become the basis for increase / decrease in tariff of the companies if they have quoted flexible tariff during the bidding stage when the distribution companies in the state invite bids to meet the power requirement of their respective states. In case the bidder has quoted Capacity Charges as flexible in its bid, it can get the advantage of foreign exchange fluctuation. In such a situation, the exchange rate at the time of bid-closing or any milestone stated in the tender becomes the reference rate. Since the rollout of the project takes about 3 to 4 years, and by that time if the currency escalates (which generally is the past trend), the bidders get the advantage by CERC indexing.
In other words, charging for the correct price of the equipment is the key for determining tariff. The same is the case for fuel. If it is imported, and the bidder has quoted a flexible tariff, the coal import price becomes pass-through for determination of tariff to the end-consumers. Even in the case of domestic coal, this is the practice. Therefore, any inflated invoice for import has direct impact on the consumers of electricity. Similarly, the cost of laying transmission lines for transmission of power is also important for correct determination of tariff as the same is a pass-through charge and recovered from the consumers. If there is any over-invoicing, it has direct impact on tariff. Besides this, the siphoning of money amounts to cheating the shareholders and the tax authorities, in addition to cheating the consumers. The same may also be in violation of various laws like Customs Act, Foreign Exchange Management Act, Prevention of Money Laundering Act, etc.
Common Cause is concerned about this increasing trend of overinvoicing by the private companies in the power sector with huge public interest ramifications. The petition requests the Court to direct a thorough SIT investigation into the over-invoicing committed by companies/entities engaged in power sector in order to cheat the consumers, the share-holders, the tax authorities and also committed in violation of various laws.
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