CAG Audit Uncovers Major Financial Lapses in Khammam Irrigation Project
A recent Comptroller and Auditor General (CAG) report has exposed significant financial mismanagement in the Modikuntavagu irrigation project located in Khammam, Telangana. The audit reveals that the state irrigation department has failed to recover a substantial mobilisation advance of 5.95 crore rupees paid to contractor M/s Gammon India, after the firm did not complete the assigned work.
Contract Awarded Despite Incomplete Land Acquisition
The contract for this critical irrigation initiative was awarded on an engineering, procurement, and construction (EPC) turnkey basis, with an approved value of 124 crore rupees. However, the government proceeded with the award despite incomplete land acquisition processes. As of July 2005, clearance was still pending for 1,232 acres of forest land required for the project.
Audit findings indicate that while acquisition of patta land for the main canal had been completed in certain sections, enabling work to commence in those areas, the contractor failed to initiate any construction activities despite receiving multiple reminders and official notices from the department.
Department Misplaces Critical Bank Guarantees
Compounding the financial loss, the irrigation department reportedly misplaced the bank guarantees submitted by Gammon India. This administrative failure prevented the recovery of the mobilisation advance through standard encashment procedures. According to the CAG report, the department could not recover the advance from running bills because the contractor did not execute any work, and the bill values never reached the 10% threshold of the contract value required to initiate recovery.
"Despite non-commencement of work, no efforts were made by the department to close the contract and recover the advance, along with interest, by encashing the bank guarantees," the audit report stated. It was only in April 2019—more than 11 years after the stipulated completion date—that the State Level Standing Committee recommended foreclosure of the contract.
Partial Recovery and Unclaimed Interest
The irrigation department managed to recover 5 crore rupees of the mobilisation advance by encashing available bank guarantees. However, the remaining 95 lakh rupees could not be recovered due to the misplaced guarantees, and the concerned bank did not respond to encashment requests without the original documents.
Furthermore, the audit report highlighted that irrigation officials failed to recover interest amounting to 6.89 crore rupees accrued on the advance between March 2006 and March 2023. The CAG observed that this non-recovery of interest constituted undue financial favour to the contracting agency, raising serious questions about fiscal responsibility and oversight.
This case underscores systemic issues in project management and financial accountability within large-scale infrastructure developments, with potential implications for similar projects across the region.
