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The Rice Diaries

The Rice Diaries

Author: Saikat Datta
Publication: Outlook
Date: August 17, 2009
URL: http://www.outlookindia.com/article.aspx?261232

PSUs are being made the scapegoats, but the rice scam went beyond their ambit

* The Government Position
* The exports were all planned commercial transactions
* The African countries had not requested India for rice as aid or grant
* PSUs have infringed upon certain conditions in the directorate-general of foreign trade notifications
Inquiries will be held

The Reality

* Export exemption only for food aid programmes. If a commercial transaction, why no tenders?
* Letters from Comoros, Sierra Leone, Djibouti state rice is needed for impending food crisis
* PSUs helpless because of letters naming private companies and addressed to cabinet ministers; EGoM cleared exports
* Government rejected the Opposition demand for a joint parliamentary probe

"It has been noticed that in some cases PSUs have infringed (upon) certain conditions contained in the DGFT (directorate-general of foreign trade) notifications for the export of non-basmati rice. This matter is being looked into. Inquiries will be held; responsibility will be fixed and remedial action shall be taken."

-Union minister for commerce Anand Sharma in his statement on the rice scam in the Lok Sabha on July 30, 2009

Ever since Outlook exposed the scandalous export of non-basmati rice to 22 "needy" African nations between January 2008 and May 2009, the rot seems to be only getting deeper. For one, not only did this trade take place at a time when there was a ban on export of the grain but, in what was supposed to be a government-to-government aid programme, three private players were hand-picked, contravening all norms. The commerce ministry too played its part by getting the export of 10 lakh metric tonnes (MT) cleared in double quick time. The Outlook investigation had shown how the entire exercise was intended just to help a private cartel profit from the then high international price of rice. Why else would state-owned trading companies like the STC and MMTC be forced to subcontract exports to chosen private players? Now further proof of this nexus has emerged.

Then Union commerce minister Kamal Nath was in the know: In his Lok Sabha statement on the rice scam, Union commerce minister Anand Sharma hinted at state trading companies like STC and MMTC having infringed upon "certain DGFT guidelines". But were the PSUs alone responsible or did the then commerce minister Kamal Nath know about what was happening under his nose?

Documents accessed by Outlook show that Kamal Nath knew about all the five deals that were eventually signed and delivered in the 16-month period. In fact, he should have known since he was a key member of the three-man Empowered Group of Ministers (EGoM) set up by the government to look into the export of non-basmati rice. And it was then and current DGFT, R.S. Gujral, who functions under the commerce ministry, who notified each decision of the EGoM specifying how much rice could be exported by a PSU to a specific African country.

In fact, a letter from the West African nation of Sierra Leone (dated March 31, 2009) was addressed directly to Kamal Nath seeking 30,000 MT non-basmati rice (valued at Rs 110 crore) due to a food crisis in that country. The letter clearly recommends the Delhi-based Amira Foods as the company which should be exempted from the then existing ban on exports for this purpose. To quote: "We (Sierra Leone) further request that the concession to export/ship be given to M/s Amira Foods (I) Ltd whom we have nominated as the shippers of the rice concession to be granted to." (Kamal Nath didn't respond to a detailed questionnaire faxed to his office and residence seeking his comments.)

This order became one in a series of concessions that Amira Foods bagged in exporting the banned non-basmati rice, including a consignment to the East African nation of Comoros in mid-2008. Here too the country was allotted 25,000 MT of rice to be exported under the food aid programme through MMTC. But as the deal unfolded, it revealed a manipulation that went far beyond MMTC. The fact is that while the PSU tried its best to resist the manipulations in the export deal from the top, it was pushed into a corner and forced to accommodate private players.

The Comoros Deal-The Twists and Turns: In January 2008, the EGoM agreed to exempt a consignment of 25,000 MT of non-basmati rice to the Union of Comoros, a small African nation comprising of four principal islands just off the eastern coast of Africa. The DGFT issued a notice on January 24, 2008 (Notification no. 73 [RE-2007]/2004-2009), clearing the export along with that of 9,000 MT to Mauritius through MMTC. In February 2008, the PSU floated a limited tender for exporting rice to Mauritius and Comoros. While the export to Mauritius went through smoothly, the Comoros deal began to spin out of control.

Interestingly, MMTC raked in profits in the Mauritius deal, buying the rice from the market for $368 per MT and selling it to Mauritius for $455 per MT. The profit margin: $87 per MT. "This was probably the highest profit that MMTC has ever made in a rice export deal in its entire history," a senior commerce ministry official told Outlook.

Meanwhile, in the Comoros deal, MMTC floated a similar limited tender. It got bids ranging between $468 and $475 per MT and in turn offered to sell to Comoros at $495 per MT. This offer was valid till March 10, 2008. In an April 15, 2008, fax, sent by the ministry of external affairs and cooperation, government of Comoros, to the Indian embassy in the Madagascar capital Antananarivo, the Comoros government pointed out that the price of $495 was too high. It also stated that it could not meet the deadline of March 10, 2008, because of paucity of funds and would highly appreciate "if the Indian government could positively consider lowering the proposed price (of $495)".

A Unilateral Agreement: But a month later, MMTC received an already signed agreement inked without its knowledge where Comoros had agreed to buy the 25,000 MT of rice (worth Rs 28 crore) through three private Indian companies at $640 per MT! The agreement, dated May 22, 2008 (MMTC/RICE/EXP/02/ 2008-09), appointed MMTC as the seller; Amira Foods Ltd, with its office in Sultanpur Estates, Shivnath Rai Harnarain Ltd and Emsons Ltd as the "shippers" and the Comorian trading agency ONICOR as the "buyer". Strangely enough, the agreement had already been worked out and signed by the "shippers" and the "buyers", minus the MMTC. This deal raises essentially two questions:
How could the price be decided and an agreement signed between private Indian companies and the Comoros government without the participation of MMTC, the PSU mandated by the EGoM and a DGFT notification to export?
Why did Comoros seek a reduction in the price of $495 per MT offered by MMTC and agreed to buy it at $640 per MT from private companies?

PSUs' Profit Margin Fixed Unilaterally by Private Player: Mysteriously, the Comoros agreement also stated unilaterally that MMTC's profit margin would be only $10 per MT. Which meant that while the rice would be sold at a rate much higher than what MMTC had sold to Mauritius, its margin per MT would fall from a high of $87 per MT to $10. Strangely enough, MMTC's profit margin was written into the typed document by hand and signed by a 'P. Guha'. The 'P. Guha' turns out to be Protik Guha, vice president, Amira Foods! (Outlook contacted Guha on phone but he said he was in a meeting and would get back, but didn't).

Pushed into a corner, MMTC shot off several letters to the MEA in June 2008 pointing out how Comoros had turned down the much lower price it had quoted and opted instead for a much higher rate, and how its profit margin too had been pre-decided at $10 per MT. In response, two letters arrived simultaneously at the MMTC headquarters. The first was a two-page letter dated June 10, 2008 (113/CG/ND/08), from the consul-general of Comoros in India, K.L. Ganju, asking the PSU to process the agreement. "On inquiry from the supplier (read Amira Foods etc), it has been informed that the contract papers are pending with MMTC." Ganju wanted them processed immediately. (Despite repeated efforts, Ganju remained unavailable for comment). A similar letter to MMTC came from Narinder Chauhan, joint secretary (East and South Africa division), on the same day. The note (No. 1689/JS [E&SA]/08) pointed out that this export deal had been struck "with the direct intervention of the President of Comoros and the Prime Minister of India" and so it had to be processed immediately.

When MMTC wrote back to the MEA (Letter No. MMTC/AGRO/RICE/EXP/ COMOROS/08/02), pointing out details of its original offer and the entry of private players, it received a reply from K.N. Ramachandran, an under-secretary in the MEA. In this letter dated June 16, 2008 (No. IV/I0L/4/2008), it was pointed out that since the contract had already been signed between the government of Comoros and the private Indian companies to supply rice at $640 per MT, "MEA had no further comments to offer." Instead it requested that "MMTC may please facilitate export of the consignment of rice to Comoros". With no choice in the matter, the PSU complied.

The Need for a Joint Parliamentary Probe Anand Sharma promised Parliament that there would be an internal inquiry. But Opposition parties as well as the MPs who had filed a calling attention motion on the rice scam are not satisfied. When Outlook spoke to BJP leader Gopinath Munde, CPI(M) MP Basudeb Acharia, BJD MP Bhartruhari Mahtab and Samajwadi Party MP Shailendra Kumar, they all said that a scam of this nature which impinged on the nation's food security called for a joint parliamentary probe which they had demanded.

But the government rejected this outright, leading to the Opposition staging a walkout. Such a probe could well release a can of worms; an internal inquiry, on the other hand, would be more convenient. It can be easily manipulated and the blame put on PSUs. The big sharks, meanwhile, can continue to roam the ocean of corruption.

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