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As Protests Dog Mizoram’s Lotteries, State Suspends Draws By Four Private Distributors

Allegations of corruption have put the spotlight once again on revenue losses and four private distributors, one of which is associated with Subhash Chandra's Essel Group.

New Delhi: State-backed lotteries in Mizoram came to a grinding halt this week, with protests by opposition political parties forcing the Lal Thanhawla government to suspend the extended contracts of four private distributors, one of which is a company associated with Rajya Sabha MP Subhash Chandra’s Essel Group.

The decision to temporarily suspend all state lottery draws by the four distributors – as well as delay the process of floating a new tender – comes after a month of protests that have alleged crony capitalism and corruption in the state’s lottery industry.

In 2017, The Wire, drawing on a series of CAG reports and home ministry documents, reported how a flawed revenue-sharing model and flagrant violations of central lottery regulations resulted in substantial loss of revenue to the state government and large financial benefits to the four distributors.

The four current lottery distributors in Mizoram are Teesta Distributors (associated with lottery mafia don Santiago Martin), Summit Online Trade Solutions (associated with the wealthy Sugal and Damani Group), NV International and E-Cool Gaming Solutions (associated with the Essel Group).

“Under the present circumstances, where it is physically impossible to conduct lottery draws, the Governor of Mizoram is pleased to suspend all the Mizoram state lottery draws conducted by the following distributors/selling agents with effect from 9th July, 2017 and until further order,” a state government notice reads.

A copy of the government notice suspending the draws of four distributors. Credit: The Wire

A copy of the government notice suspending the draws of four distributors. Credit: The Wire

The opposition party’s protests – which have been carried out by the Mizo National Front (MNF), whose party workers have picketed the state government’s lottery offices in Aizawl – have made three main allegations.

One, that the state lottery’s “minimum guaranteed revenue (MGR) model” resulted in steady loss of revenue to the government over the last seven years.  Two, that the contracts of the state’s four distributors were allegedly extended several times by the state without floating new tenders.

And three, that the new lottery distributor tender floated by the government in May 2018 is allegedly tilted towards further cartelisation of the industry.

The state’s loss

“We have currently met with state government officials including the principal financial secretary to raise our concerns and will continue our protests until the issues are resolved. We believe that the extension of contracts to the distributors and the new tender floated do not solve the allegations raised by the CAG,” David R. Lalsawmtluanga, MNF’s vigilance and legal department-in-charge told The Wire.

In India, lotteries can only be organised by state governments, who in turn farm out the actual implementation of the gambling scheme to private distributors, marketing agents and selling agents.

In June 2017, The Wire reported how the flawed revenue sharing agreement between the Mizoram state government and the four distributors was essentially stacked in favour of the latter.

A Comptroller and Auditor General (CAG) probe noted that as per the the terms of the contract, “the distributors’ revenue was without bounds, while the Government’s revenue was capped by the MGR formula”.

“This had resulted in inequitable sharing of revenue between the distributors and the government which resulted in large revenue loss to the State exchequer,” the probe noted.

There were other flagrant violations of central lottery regulations. For instance, one of the distributors (NV International) did not actually have any infrastructure of its own to market online lotteries – but instead appointed a sub-agent which “further sub-let the draw rights to E-Cool and Summit Online”, which was a violation of their own agreement with the Mizoram state government.

On May 31, 2018, the Mizoram state government floated a new lottery tender that implicitly acknowledges that its earlier revenue-sharing contracts were inadequate.

The new contract nearly doubles the minimum guaranteed revenue per draw to Rs 20,000 and notes that all distributors will also have to cough up a “percentage of the gross value of the tickets sold per draw that it shall pay to the state government”.

The MNF, however, finds three concerning issues with the new tender and the extension of contracts.

Firstly, the party has taken objection to one of the qualifying pre-conditions: namely that potential bidders should have had worked with any Indian state government lottery for at least 12 of the past 36 months.

While lottery industry insiders The Wire spoke to indicated that such a condition was standard — and indeed is present in some form or other in other state government tenders — the MNF believes that this type of pre-condition will result in further cartelisation of the industry.

A handful of players, no more than four or five, dominate India’s lottery industry. In the past, as The Wire has reported, the home affairs ministry has expressed concern of four-to-five private companies have cornered India’s state lotteries.

A contract extension granted to E-Cool Gaming, a company associated with the Essel Group. Credit: The Wire

A contract extension granted to E-Cool Gaming, a company associated with the Essel Group, two days before it was set to expire. Credit: The Wire

The MNF’s suspicions are compounded by what it believes are two questionable decisions taken by the Mizoram state government.

Firstly, as the CAG has noted, the last lottery tender in Mizoram took place in 2012, with an agreement executed for two years. Since then, the state government has extended the agreement with the four private distributors twice (first for a period of one year and the second time for another three years).

This decision, the MNF alleges, was questionable considering the CAG’s negative observations of how the lottery was conducted and how much revenue the state government actually ended up collecting.

Secondly, even though the Thanhawla government knew that the contracts would expire by May 31, 2018, it decided not to float a tender beforehand so there could be a seamless transition between the old and new lottery distributors.

The state instead floated the new tender on May 31, 2018 and quietly extended the contracts of all four distributors for another three months, until August 31, 2018.

It is these extensions which have been temporarily suspended by the state government, in part due to the picketing and protesting by the MNF outside the Aizawl lottery offices.

The protests over the last month have also stalled the new tender. The pre-bid discussion for the lottery tender was supposed to have taken place on June 21, 2018 and was postponed until further notice.

Govt mounts defence

On Saturday, Mizoram chief minister Lal Thanhawla denied the allegations of his involvement in the lottery scam, and noted that neither he nor state finance minister Lalsawta had misappropriated “even a single paisa” from the state lottery turnovers.

According to local media reports, he also ruled out any “nexus with the distributors” to make illegal profit out of the lottery draws.

“MNF workers suspect that I behave like their leaders for which they have launched an agitation. But we never behave like them. Finance minister Lalsawta and I have not squandered even a single paisa from the state lottery,” he told reporters.

Note: In July 2017, E-Cool Gaming, a company associated with the Essel group, filed a criminal defamation case in Aizawl against the The Wire, its editors and the author of an earlier story which drew on the CAG report on the lottery business in Mizoram.

The Wire sought a quashing of the complaint on the ground that matters of record in the public domain carried in public interest cannot amount to defamation. The high court stayed the proceedings and E-Cool Ltd. decided to withdraw the case it had filed.