KOLKATA (miningweekly.com) – India’s national controller, Comptroller and Auditor General (CAG), has criticised State-run miner NMDC for setting production targets that do not correlate with market trends and for failing to do complete due diligence before taking up domestic and international projects.

In an audit report tabled in Parliament, the CAG observed that the miner set production targets without due cognisance of prevailing market conditions and, at times, with no correlation to declining domestic and international prices.

The auditors noted that NMDC, in its strategic management plan (SMP), ‘Vision 2025’, had fixed “over-ambitious targets” for iron-ore production of 75-million tons a year for 2018/19 and 100-million tons a year by 2021/22.

This plan was subsequently reduced to 50-million tons a year for 2018/19 and 67-million tons by 2021/22, the report said.

“However, despite the lower targets, enabling action of setting up various allied infrastructure facilities to achieve these targeted production capacities were not in sync with envisaged timelines,” the CAG report said.

The miner has also come under fire for failing to timeously complete projects, resulting in time and cost overruns. Citing cases, the auditors noted that the execution of engineering procurement and construction packages for development of iron-ore block Deposit-11B was delayed beyond the scheduled dates and, as a result, the project remained under implementation well past the completion date of June 2008.

Further, the execution of the Kumaraswamy iron-ore project in the southern Indian state of Karnataka is still under implementation although the completion date had been March 2012 and the possibility of achieving the SMP Vision 2025 production target of seven-million tons a year seemed “remote”, CAG said.

On governance issues, it noted that internal control mechanisms of the company were weak, as was evident from the fact that the subcommittee for reviewing ongoing projects did not fix any timelines with clear milestones to be achieved, which could be reviewed in its subsequent meetings. The decisions on major investments were made without conducting proper due diligence, while the periodic mid-term review of the implementation of the SMP Vision 2025, as prescribed by the board, was not done.

The sharpest critique of the miner was for its overseas ventures, several of which failed to make any headway, which the auditor attributed to “insufficient and inadequate due diligence”.

Seeking to acquire coking coal assets overseas, a special purpose vehicle – International Coal Ventures Limited (ICVL) – was floated, with the NMDC one of the equity stakeholders.

“In July 2014, ICVL decided to acquire the ownership portion of Rio Tinto in the coal mine asset in Mozambique. But it was observed that the investment made by NMDC Limited to the extent of $552-million (at current prices), was based on an incorrect or improper and unrealistic business plan of ICVL for the acquisition of the loss-making Mozambique mining asset, which was not prudent,” CAG noted in its report.