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China's second-largest dam project is back in the spotlight after a report published by the National Audit Office criticized the dam's developer for lack of oversight, overspending and poor allocation of funds, according to a China Daily report.

This is not the first time the Xiluodu Hydropower Station (溪洛渡电站), developed by the China Three Gorges Project Development Corporation, has come under government scrutiny. Xiluodu is located on the upper reaches of the Yangtze River between Yunnan and Sichuan provinces, where the waters are known as the Jinsha River.

In 2005, China's State Environmental Protection Agency halted work on the Xiluodu project until the company – which had previously built the world's largest dam downstream at the Three Gorges – completed and submitted an environmental impact assessment.

On Monday, the National Audit Office's report accused the hydropower company of adding nearly US$250 million to the project's total cost by altering the dam's original design and finish work ahead of schedule. Company management has also been accused by auditors in Beijing of collecting 10 million yuan in illegal gains via a lack of control of the project's budget and bidding process.

"They have exaggerated the problems a little. We have explained to the auditors before that we have run the project according to a long-term plan," Hong Wenhao, construction director of the Xiluodu dam project, told China Daily.

Dam projects in southwest China such as Xiluodu have come under increasing criticism in recent years for reasons including environmental impact, displacement of local villagers and the potential link to increased seismic activity in the region.

The Xiluodu project, which began construction in November of 2007, is expected to begin accumulating water in 2013.