Friday 10 September, 2010

Railways gift Rs 50,000 cr to cartels


KOLKATA : Railway supplier cartels have fleeced the public exchequer by about Rs. 50,000 crore in the past decade. Indian Railways have been happy to play accomplice ~ currently the Railways spends about Rs. 16,400 crore annually via uncompetitive bidding. A document written by a Senior Material Manager, with over 25 years experience in Railway procurement, alleging massive procurement irregularities is circulating in the Railway Ministry. It details how 'the lifeline to the nation' is a wish-fulfilling cash cow for the few that benefit from its procurement system.

Internally, the railway minister Miss Mamata Banerjee has been talking of attempts to clean up the 'approved supplier' rot in Indian Railways ~ questioning the transparency of the Research Design and Standards Organisation’s (RDSO) vendor approval system and instituting a committee to review RDSO's functioning. However, the problem is entrenched in that it begins with the Railway Board itself, which has supported a framework where both cartels and corrupt bureaucrats flourish. That several retired Board Members and General Managers work for the biggest suppliers, makes breaking cronyism even harder.

The document circulated by the senior manager alleges that out of Rs 20,500 crore of annual procurement, 80% is completed in restricted competition. This virtual license-raj of approving suppliers favours select firms over others, resulting in the creation of cartels that quote prices unrelated to market conditions and jack up prices of goods by a minimum of 30 per cent or Rs. 4,920 crore annually. Add to this the trend of shifting contracts from supply to material intensive works contracts, having another layer of over-pricing and corruption, and even Rs 5,000 crore lost annually becomes an underestimation.

Miss Banerjee has announced that Railways lost Rs. 500 crore due to Naxalism and disruptions in 2009. It appears the Railways gifted at least ten times this amount to chosen suppliers during this period, due to a procurement process that combines the worst of both open and closed market systems. On one hand there is restricted competition, on the other no effective control on cartel behaviour or prices.

A decade of 30 per cent overpricing in non-competitive procurement with interest foregone raises a figure of around Rs 50,000 crore, which puts the revenue squandered

In IPL subsidies to shade and can only be compared to the colossal NDA and UPA 'first come first served' spectrum scams. While Telecom seems to manage with one big scam per coalition per decade, Railways chugs along like a tortoise to the hare, doling out comparable revenue.

In 2001, Railways decentralised purchase of 45 stores items to zonal Railways, with approved suppliers decided centrally by RDSO and Production Units. While the Railways repeatedly failed to benefit from lower prices in bulk centralised purchases in the 90's, a 2006 CAG report shows that post-decentralisation an uncontrolled cartel feast of over-pricing ensued. Under the indulgent eye of the Board, its weak orders, and excuses of expediency, suppliers have benefited from the feature of the last purchase rate for an item in any of the 16 zones being automatically treated as the next minimum tender bid rate. Any increase in rates for an item in any zone, has made all subsequent purchases more expensive.

Approved suppliers have continually fixed prices and kept them piggy-backing upwards across zones. Apart from thousands of crores lost due to incorrect contract and asset management, CAG reports have found scores of instances of price inflation in purchases of items. Especially egregious purchases include: sleepers bought at prices four times higher, ballasts bought and tracks lifted at prices two times higher, signal and telecom cable works contracts granted in the same zone in the same year rising between 10 and 150 per cent, grease seals with 80 per cent profit margins, and undue benefits to contractors like paying crores in unwarranted sales tax.

Cartels flourish due to corruption amongst senior officers. In 2005, Zonal Railways faced brake block prices quoted by Kolkata-based firms Pioneer Friction Ltd. and Hindustan Composite Ltd. that had without justification inflated by 38 per cent in one year. Ignoring the tender committee, senior Railway management deemed the price reasonable and ordered immediate purchase of 24,000 units from Pioneer Friction at its padded price. News broke in 2008 that the company had been bribing Railway Board officials, RDSO officials, Zonal Railways officials, and RITES inspectors at least Rs. 75 lakh between 2001 and 2005.

Duly impressed, the Board and RDSO had approved Pioneer Friction as a dependable brake block supplier; gifting it Rs 1.16 crore as profits in 2005 itself. The Assistant Inspecting Engineers, directly involved in inspecting and approving Pioneer Friction, work directly under the Member (Mechanical) Railway Board and the Executive Director Quality Assurance (Mechanical) RDSO. The company has been banned, a vigilance enquiry has dragged on for two years, and even the Prime Minister's office and CBI have become involved, but the Board has not been questioned and no official has been held accountable.

Railway procurement is set to triple in a little over a decade; corrupt bureaucrats and cartels are rubbing their hands in glee. According to Vision 2020, the Railways plans to lay 25,000 km of track, procure 2.8 lakh wagons, 50,880 coaches, and about 10,000 locomotives, amongst other expansions. Unless a procurement system that promotes competition and independently analyses costs before purchase materialises, annual loss of Rs. 5,000 crore will appear scant, and by 2020 the nation might have to confront Railway revenue losses to the tune of Rs. 1,00,000 crore.
Source The Statesman, Kolkata

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