A few days after media reports had claimed the Comptroller and Auditor General of India (CAG) had accused the Union government of failing to optimally utilize storage capacity at Adani Silos at Kaithal resulting in massive losses to the public exchequer, the Ministry of Consumer Affairs, Food and Public Distribution has given a detailed clarification refuting the allegations of causing losses to Food Corporation of India.
On Wednesday, the far-left news outlet ‘The Wire’ had published a report claiming that the CAG had reprimanded the Food Corporation of India (FCI) in April 2018 for allegedly causing a loss of Rs 6.49 crore to the taxpayers due to the failure to utilise available storage capacity at Adani Silos located in Kaithal, Haryana.
The report had also claimed that the Narendra Modi government has been asking the CAG to drop these paragraphs from the CAG’s audit report. As per the Wire, the Ministry of Consumer Affairs, Food and Public Distribution, under which FCI operates, has written a letter to the CAG demanding the paragraph be stricken off the report. The Wire report tried to insinuate that the ministry wants CAG to drop the para because it is related to Adani Silos.
However, the Ministry contends that the additional expenditure has not been assessed correctly by the CAG.
CAG says FCI under-utilised Silos, causing Rs 6.49 crore loss
According to The Wire, which quotes a CAG report, between 2013-14 and 2015-16, Rs 24.28 crore was paid to Adani Agri Logistics Ltd (AALL) for storage capacity, which the FCI never utilised. During this period, storage space with a total capacity of 5.18 lakh metric tonnes (LMTs) remained unoccupied in the Adani silos for 11 months. The FCI did not use it to store wheat but kept paying the rent, the report claimed.
Reportedly, the FCI had entered into a contract with AALL in 2007 for setting up silos at Kaithal in Haryana to store two LMTs of wheat.
In February 2013, FCI signed another agreement agreeing to pay the company rent amounting to Rs 1,842 per tonne every year for wheat storage. In September 2014, it was hiked to Rs 2,033.40 per tonne per year.
The report claims that the agreement was reached based on ‘guaranteed tonnage’, which means that the FCI has to pay the rent for the entire two LMTs of wheat, irrespective of the actual amount of wheat stored.
Further, the CAG report, according to the report, pointed out that the FCI failed to transfer wheat from state-run silos to Adani silos, as a result of which not only did it have to pay the rental for vacant storage space at the latter but also had to pay carryover charges (CoCs) for storing wheat in the state godowns, incurring an additional cost of Rs 6.49 crore of the taxpayers’ money. The CAG suggested that the loss could have been avoided.
Presuming the losses, the CAG report stated that the Kaithal silo remained vacant on many occasions between 2013-14 and 2015-16. The storage capacity of 1.33 lakh tonnes, 67% of the hired storage capacity, was not used in April 2014, even though the stock was lying with state-run agencies at Pehowa, Pundri and Pai, during the same period.
According to the CAG, quoted by the Wire, it was supposedly cheaper to store wheat in silos than in state-run godowns. Hence, FCI should have transported the wheat to the silos to avoid wastage of taxpayers’ money.
However, the Ministry had soon responded to the CAG’s claim, saying it was a wrong assessment and asked them to withdraw the report.
Ministry clarifies, says CAG’s assessment is wrong
The Ministry of Consumer Affairs, Food and Public Distribution responded to the assessment stating that the CAG’s audit has based its calculation on storage charges on full payment of the guaranteed capacity of 2 LMT of the Kaithal Silo.
“However, the FCI had reduced the annual guaranteed tonnage for Kaithal silo to 1.90 LMT in 2013-14, 1.41 LMTs in 2014-15, and 1.33 LMTs in 2015-16. Thus, effectively extra payment for vacant space has been avoided,” the ministry had clarified. The ministry has said that contrary to the claim made in the CAG report, rent for the entire 2 LMT space in the silos was not paid, as the guaranteed tonnage was reduced.
Further, “Optimal utilisation of storage space does not mean whole capacity will remain utilised all the time. Some capacity will fall vacant as and when stocks are moved out. Since wheat procurement lasts for only 2 months and dispatch takes place every month, capacity utilisation will keep on decreasing till next procurement season,” the ministry said.
The ministry also apprised the CAG that their audit has not taken into account the 0.25% storage loss admissible in silos during the process of handling and storage. Hence, storing wheat in state agency go-downs indirectly leads to a saving of 0.25%, the ministry said in its first letter on October 28, 2018.
Explaining the rationale behind keeping the stock in the SGA godowns, the ministry had said, “In case of takeover of stocks from SGA before 1st July, FCI will not be entitled to 1.00% gain on the stocks taken over. Thus, there is a further 1.25% loss in a silo. Moreover, FCI would also have incurred cost on transportation and handling for shifting stock to the silo.”
CAG refutes Ministry’s clarifications, presumes losses due to storage in state-owned godowns
However, the CAG disagreed with the explanation provided by the Ministry of Consumer Affairs. It further contended that the audit had calculated the avoidable expenditure based on the actual capacity utilised at Silo, which was 2 LMT. The CAG said that the FCI’s claim that rent was paid on reduced guaranteed tonnage is not relevant as the capacity available at the silo was two LMTs of wheat, which could have been stored there.
As per CAG, the cost incurred for transporting food grains from the state godowns is Rs 11.04 to Rs 16.54 per quintal. Besides, the FCI has to pay Rs 2.11 to Rs 2.85 per quintal as debagging charges, pushing the total of Rs 13.15 to Rs 19.39 per quintal to transfer stock from godowns to silos, the CAG noted.
Since it costs Rs 20.91 to Rs 23.29 per quintal to keep the stock in the state-run godowns, storing the grain in the Adani silo at Kaithal could have saved Rs 2.7 to Rs 9.0 per quintal, the CAG presumed in its report.
Ministry responds to CAG again, says filling Silos would hinder procurement
The ministry issued another letter on February 18, 2019, reiterating its rationale behind the storing of wheat in SGAs for a short amount of time, saying it was a ‘special case’ in which storing wheat in SGA godowns instead of silos was more beneficial.
In its response to the Union government, the CAG yet again said that even though the guaranteed tonnage has been reduced, the storage capacity of the silo was two lakh tonnes. Hence, the ministry’s argument is not relevant, and the paragraph will stand.
On April 21, 2020, the ministry wrote another letter, saying if the CAG report is to be followed, that would mean that the Adani silo should remain full every month. If the FCI uses the entire space in the silos, then in the next procurement season, Adani silos cannot procure directly from the farmers because there will be no vacant storage space, the ministry said.
“By procuring huge quantities from the farmers at the silos, the expenses incurred in the mandi on marking the bags, filling bags with grains, weighing them, sealing them, debagging, and transportation can be saved,” the letter said.
In its letter, the FCI contended that the CAG has calculated the loss based on the capacity of two LMTs in the Adani silo, while the payment was not made for this amount. The amount of guaranteed tonnage was reduced each year, the ministry reiterated.
However, the CAG responded again, saying that instead of stocking grains as per the capacity of the Adani silo, FCI stored it in the SGA godowns, thus causing additional expenditure on storing. “Therefore, the loss assessed by the CAG is based on the payment made to the SGA godowns and not the rental of the vacant storage space in the Adani silo,” the report said.
In its assessment, the CAG had stated that due to the non-transfer of stock in the Adani silo, additional expenditure of Rs 2.7 to Rs 9.0 per quintal had been incurred. The payment to SGAs to store wheat was made at the rate of Rs 20.91 to Rs 23.29 per quintal in these godowns. As per CAG, the FCI failed to act in this direction, due to which the SGA godowns had to be paid an additional amount of Rs 6.49 crore between April 2013 and October 2016, which according to them, was avoidable.
Contrary to the CAG’s assessment, the FCI, in a letter dated August 14, 2018, has said that they have earned a profit of Rs 1.59 crore in 2013-14 and Rs 42.23 lakh in 2014-15 by storing wheat in the SGA godowns.
However, the CAG has rejected the estimate provided by the FCI. In return, the CAG enquired that if storing grains in silos brings about losses, why is the government of India, allowing the construction of silos.
FCI saved Rs 20 crores by optimally using storage facilities, contends the Ministry of Consumer Affairs
Speaking to OpIndia, sources at the Ministry of Consumer Affairs, Food and Public Distribution have once again reiterated that the question of presumptive losses, as claimed by the Wire citing the CAG report, does not arise as both the storage facilities, i.e., the state-owned godowns and Adani Silos have been optimally used and stressed that no losses have been incurred as suggested by the CAG.
In a detailed response to OpIndia, the ministry officials said that the FCI had agreed to acquire an additional storage capacity of two lakh metric tonnes (MT) at Kaithal from a private company on a Built, Own and Operate (BOO) basis in 2005.
The senior officials reiterated that the optimal utilization of storage space does not mean the whole capacity will remain 100% utilized all the time. They said that CAG admitted that the Silos was 100% utilized during the period April-June, i.e. wheat procurement period. Since wheat procurement lasts for only two months and dispatch takes place every month, capacity utilization will keep on decreasing till the next procurement season as some capacity will fall vacant as and when stocks are moved out, the officer clarified over the allegations of decreasing storage in Adani Silos.
Responding to the question of Adani Silos being unutilised and vacant, sources inside the ministry said that out of the total periods of 43 months considered by CAG, the stock was less than the guaranteed capacity in only 8 months in 2013-14 and 3 months in 2014-15. Barring this period, there was optimal utilisation of storage space in the Kaithal silo for most of the period from April 2013 to October 2016.
In fact, the Ministry of Consumer Affairs said that the total four wheat procurement season is covered in the period under review. The stock position has surpassed 2 LMT every time and has even gone up to 2.15 LMT in April 2016, said the ministry.
On the question of presumed losses as suggested by the CAG, the Ministry responded by saying that the contention of financial loss based on available capacity is not tenable as the payments had to be made at reduced AGT (Annual Guarantee Tonnage). However, the CAG has made the calculation based on capacity available, but in fact, the payment of 2 LMT was never due in the first place itself, added sources in the ministry.
According to the ministry, the CAG, while making the calculations, has considered payment made to SGAs towards CoC vis-a-vis the likely cost of shifting stocks to SILO. The difference between the two has been assumed to be an avoidable loss.
However, the CoC comprises of two components, i.e. Interest and Storage charges. FCI releases the payment to SGAs at the time of taking over the stock, and it also pays interest to SGAs that is 1% higher in CoC than the rate at which funds are available to FCI, however, it offsets the major component of CoC.
The ministry sources explained, “For example, for the year 2016-17, Out of total CoC of Rs.231/MT, the amount against interest is Rs. 163.73/MT and RS.67.60/MT towards storage charges. The cost of shifting food grains from SGA godowns to Silo has been taken as Rs.163/MT for 2016-17 by the CAG”.
Considering the above, the cost of shifting the food grains to Silo is RS.163/MT should have been compared with the storage charge of Rs.67.60/MT payable to SGAs, the ministry sources pointed out.
The ministry said that the entire capacity at the Silos could not be filled as it would hinder the process of procurement during the season as the silos would have already been 100% utilized. This would lead to non-acceptance of the bulk wheat brought by farmers directly to Kaithal silo and, consequently, forgo the potential gain during procurement, the ministry said.
As per the ministry, the CAG has also not factored in the purchase of wheat in bulk from the farmers at Silos that saves Mandi Operations’ cost. As per a study conducted by RITES, there is a saving of Rs. 945/MT if wheat is purchased in bulk at Silo as compared to purchase in Mandi. This itself amounted to a saving of Rs 20 crore in the last eight years.
“Had FCI acted as per course suggested by CAG then not only the savings of approx. Rs 20 Crore would not have been there, but also the idea of encouraging farmer to bypass the normal route of procurement involving multiple handling/players and offer their stocks for direct procurement at SILO would not have picked due to capacity constraint at the SILO,” said the Ministry of Consumer Affairs, Food and Public Distribution.