For a third world country perforated with corruption, India is doing relatively well. But it’s hard to imagine our country without a few scams here and there, big and small. With almost a decade old Coalgate and Sand Mafia issues still unresolved the Government of India has caught yet another sucker punch, in the form of a scam involving the Indian Railways, the steel giant ESSAR and other iron ore related companies. Still baffled with the issue of the free falling rupee and possible amendments to rectify the situation, the Government is now ogling at a possible embezzlement of revenue worth Rs 17, 000 crore with the direct involvement of the Indian Railways. On May 22nd, 2008 the Indian Railways introduced a dichotomous arrangement for the freightage of iron ore. The companies utilizing the services of the Indian Railways for moving iron ore essentially meant for domiciliary utilization will be levied at a considerable lower rate while the companies moving iron ore for eventual transshipment (export) will be charged a much higher rate. The higher charge will be almost three times than that for domestic consumption. Exploiting this particular mandate of the Indian Railways, certain companies had been engaged in defrauding the Railways and the Government.

Revelations of the CAG test audit and the iron scam:
The test audit was conducted by Comptroller and Auditor General of India (CAG) in three Railway sectors namely South Eastern, South Western and East Coast, the zones which execute the maximum containerizing of iron ore, for the freightage conducted between the periods of May 2008 to March 31st, 2012. The partial test audit conducted by CAG seems to have opened a can of worms which has triggered a probe into the matter by multiple investigatory bodies, headed by the CBI. The preliminary draft portion of the audit submitted to the Railway Ministry, conducted by CAG, irrevocably points out that the Government is entitled to exact the revenue worth a whopping Rs17,000 crore from the Railway Ministry. It is to be mentioned here that the CAG audit was carried out at only 26 out of the 75 loading hubs and 10 out of the 41 unloading hubs. The CAG audit results and the ongoing investigation seems to point out now that the exactable exchequer by the Government may well be a staggering Rs 50,000 crore which is conducive to the reports framed by the Times of India based on the various available sources.

The exact procedure of the fraud and the involvement of the exporters:
CAG has identified the exporters involved in the freightage of the iron ore to be the main perpetrators of this deceit. It was mandatory for the companies to furnish necessary paperwork like legal declarations, restitution bonds etc. to avail the domiciliary rate of transportation of the Railway Services for iron ores. However, a thorough check conducted by the CAG audit unraveled that 126 companies never furnished the necessary documentation to book 386 rakes for freightage of iron ore between the periods of May 2008 to 31st March, 2012. The evident cartelization between the said parties and the railway officials has been pointedly mentioned in the audit report of CAG, “The railway administration permitted these parties to avail of the domestic rate despite non submission of any of the prescribed documents”. The CAG audit report further added, “This indicates collusion between the railway administration staff and the parties”. While the above mentioned cartelization inflicted the loss of Rs 258.38 crore in the form of potential revenue on the Indian Railways, CAG audit report identified another 290 parties took advantage of the domestic rates using insufficient documentation. This fraud inflicted a revenue loss of Rs2090.15 crore on the Indian Railways. As underlined by the CAG audit report, “The railway administrations permitted these parties to avail the domestic rate despite non-submission of some of the essential prescribed documents resulting in revenue loss of Rs 2090.15 crore”. The CAG audit report finally concluded, “The total revenue loss of 2343.53 crore due to non-submission / partial submission of documents.”

While the dichotomous policy for freightage of iron ore was formulated by the Railway Ministry, accommodations were also made in the policy for the imposition of necessary penalty on the parties trying to avail the concessional rates of the Railway Services for transportation purposes without proper documentation. The CAG audit report had identified 153 parties that never furnished any documentation and 290 parties that availed the Railway Services concessions with insufficient documentation as revealed by the test audit conducted by CAG between the period of October 2012 and March 2013. The report has identified these activities as premeditated fraudulent actions to circumnavigate Railway mandates and accordingly mentioned in the audit report, “The total penalty against 443 parties is estimated at Rs17588.16 crore”.

ESSAR ready to pay the imposed penalties:
While half a dozen companies have thrown a challenge to the Railway Ministry for the allegations brought against them and the imposition of the penalties and had filed court cases accordingly, ESSAR turned out to be an exception. ESSAR had also resorted to the deceit of freightage of iron ore/pellets exclusively meant for transshipment purposes by availing the domestic concessions rate of the Railway Services. The penalty imposed on ESSAR is one of Rs 117.61 crore by the South Eastern Railways. In a letter dated September 6th, 2013, addressed to Member, Traffic, Railway Board, D P Pande, Dilip Oommen, CEO and Managing Director of ESSAR Steel wrote, “We agree in principle to pay the penalty (reconciled figure) imposed by the railways on us”. Oommen expanded further on the ‘reconciled figure’ concept. According to Oommen the figure 117.61 crore is erroneous and the actual figure should be 88.70 crore. In his letter to D P Pande, Oommen explained the lesser figure, “There is a difference between the calculation of railways and our calculation with respect to the penalty. The variation is mainly due to the quantity of iron ore movement for exports considered by the railways and the actual quantity consumed by us for the said exports as per our record. Moreover the quantity of iron ore moved by road has not been considered by the railways”.

ESSAR is now attempting to strike a deal with the Railway Board to pay the penalty money in 18 equal monthly installments with Oommen’s personal commitment of clearing the due by the 7th of every month. While Oommen refused to talk to the media, rumors are, the deal has gone through and ESSAR has already submitted the first installment. The contrasting behavior of ESSAR naturally raises the question: why is ESSAR so eager to pay the penalty money? To clear its name or is it just a part of a bigger cover up?
No scam in India happens without political backing. The political hands behind the iron ore scam are still invisible. Perhaps the CBI probes will unravel this mystery. Besides, the ‘goody two shoes’ attitude of ESSAR also casts a shadow of doubt. They say you cannot change people, places and circumstances. I would like to add another word to it. System. In our country dishonesty is the middle name of our system and we are learning to live with it.

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