Centre Wants CAG To Delete Paras Regarding Losses Due To Improper Utilisation of Adani Silo

In 2018, the CAG reported that between 2013-14 and 2015-16, the Food Corporation of India did not store enough wheat in the Adani Group's silo in Kaithal, Haryana but kept paying rent.

New Delhi: The Comptroller and Auditor General (CAG) of India in April 2018 reprimanded the Food Corporation of India (FCI) for 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 Narendra Modi government, however, is leaving no stone unturned to ensure that these paragraphs are dropped from the CAG’s audit report, documents accessed by The Wire under the Right to Information (RTI) Act show.

The FCI falls under the Ministry of Consumer Affairs, Food and Public Distribution. The ministry has written a letter to the CAG demanding the paragraph be stricken off the report.

The ministry has claimed that the additional expenditure has not been assessed correctly. However, the CAG has rejected the demand and has refused to delete the paragraph.

The files obtained by The Wire include the CAG’s draft report, which also reveals that 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 vacant in the Adani silos for 11 months. The FCI did not use it to store wheat but kept paying the rent.

The issue of the Adani silos

The FCI undertakes procurement of wheat every year through its agencies as well as those run by the state governments (SGAs). The SGAs handover the entire stock of foodgrains to the FCI once the procurement season is over.

If the FCI does not have enough storage facilities for the food grains, the SGAs store wheat in their silos or godowns. In exchange, the FCI pays the SGAs an amount fixed by the Centre.

In 2007, the FCI entered into a contract with AALL for setting up silos at Kaithal in Haryana to store two LMTs of wheat.

In February 2013, an agreement was signed in which it was decided that the FCI would 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.

Significantly, the agreement was reached based on guaranteed tonnage, which means that if the contract is laid for two LMTs of wheat, the rent will be paid for this much wheat every year, irrespective of the actual amount of wheat stored.

In this regard, the CAG had said in Report No. 4 of 2018 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, which could have been avoided.

The CAG report stated that the Kaithal silo remained vacant on many occasions between 2013-14 and 2015-16. On April 14, 2014, the storage capacity of 1.33 lakh tonnes (67% of the hired storage capacity) remained unutilised, though during the same period stock was lying with state-run agencies at Pehowa, Pundri and Pai, which are all close to the Adani’s silo in Kaithal.

The wheat stock was less than the capacity in silos for eight months in 2013-14 and three months in 2014-15.

According to the CAG report, it is cheaper to store wheat in silos than in state-run godowns. Therefore, it was necessary to transport the wheat to the silos to avoid wastage of taxpayers’ money.

However, the Modi government believes that the CAG’s assessment is incorrect and should be withdrawn.

The logo of the Indian Audit and Accounts Department.

The CAG report

On October 28, 2018, the Ministry of Consumer Affairs, Food and Public Distribution sent a reply stating that the CAG’s audit has based its calculation on storage charges on full payment of 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.”

“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.

Also, the ministry said that the 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%, it claimed.

The ministry further added, “In case of takeover of stocks from SGA prior to 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.”

Adani Silos CAG Report by The Wire

Rejecting the argument put forth by the government, the CAG furnished a reply on December 14, 2018, stating 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.

“Audit had calculated the avoidable expenditure based on the actual capacity utilised at Silo which was 2 LMT. The contention of the management that rent was paid on 1.90 LMT for 2013-14, 1.41 LMT in 2014-15 and 1.33 LMT in 2015-16 is not relevant as the capacity available at Silo was 2 LMT,” the CAG stated in its reply.

If we look at the quantity of wheat stored in the Adani Silo based on guaranteed tonnage rather than the total capacity, then according to the documents, vacant storage space in 2013-14 was 10,693 tonnes in April, 9,733 tonnes in September, 27,812 tonnes in October, 45,771 tonnes in November, 67,001 tonnes in December, 90,887 tonnes in January, 99,807 tonnes in February and 1,17,951 tonnes in March.

Similarly, in 2014-15, vacant storage space was 2,083 tonnes in January, 17,355 tonnes in February, and 29,573 tonnes in March for which the Centre paid rent of Rs 15.35 per quintal per month to AALL. It added:

“The transportation and handling cost had already been considered by audit while calculating loss. Further, the Government of India approved construction of 21 LMT steel silos in Punjab (as mentioned in one of the previous replies). Had it been the case of 1.25% storage loss in silo, GOI could have saved this loss on the basis of its reply.”

The CAG said that transportation charges of foodgrains from the state godowns are Rs 11.04 to Rs 16.54 per quintal while debagging charges are Rs 2.11 to Rs 2.85 per quintal. As such, it would cost a total of Rs 13.15 to Rs 19.39 per quintal to transfer stock from godowns to silos.

The CAG said that 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.

Therefore, these paragraphs cannot be dropped and their assessment is correct, the CAG added.

Documents obtained by The Wire reveal that the FCI wrote a letter to its regional office in Haryana, stating that silos are a modernised system of storing food grains that reduces losses and maintains the quality of food grains.

In the letter dated March 27, 2019, addressed to the general manager (region), the assistant general manager, Mandeep Guray, wrote:

“The Ministry has sought information that Kaithal silo remained vacant for 8 months in 2013-14 and 3 months in 2014-15. During the same time, substantial quantity of wheat stock was stored in the godowns of the SGAs. As Silos are modernized way of storage space which ensures better preservation of foodgrains, reduces storage losses and enhances its shelf life. Hence, silos should be preferred for storage over CAP storage/conventional godowns.”

However, the ministry issued another letter on February 18, 2019, in which it reiterated its argument and demanded that the paras be dropped from the CAG report.

Interestingly, the ministry did not repeat the ‘1.25% loss’ claim this time and instead referred to it as a ‘special case’ in which storing wheat in SGA godowns instead of silos was more beneficial.

The CAG censured the Centre for keeping the Adani silo vacant while at the same time, substantial quantity of wheat stock was stored in the godowns of the SGAs. Photo: PTI

While, the ministry has rejected the assessment of the CAG regarding additional expenditure, in its letter, on the other hand, it claimed that the FCI has been instructed to keep the Kaithal silo adequately filled in the future.

“GOI intends to modernise the storage system to prevent theft, losses, etc. which happen in conventional godowns,” said the ministry. “Moreover, FCI has been instructed to take all measures to adequately fill Kaithal silos in future.”

Here, one question arises. If the ministry is certain that storing foodgrains in state godowns has benefitted them, as was claimed in the letter to CAG, then why did they ask for the Kaithal silo to be adequately filled?

After being censured by the CAG, the ministry’s undersecretary, Madan Mohan Maurya, wrote a letter to the chairman and general manager of the FCI on February 18, 2019 asking to take all measures to fill the Adani silo at Kaithal as it is a modernised way of storage and reduces losses.

In its response dated February 26, 2019, the CAG reiterated yet again that even though the guaranteed tonnage has been reduced, the storage capacity of the silo was two lakh tonnes. Therefore, the ministry’s argument is not relevant and the paragraph will stand.

Following this, the correspondence between the ministry and the FCI continued regarding whether the assessment of the CAG is correct or not. On April 21, 2020, the ministry wrote another letter, to which the FCI replied repeating the contents of its previous letter dated December 6, 2019.

The corporation said that if the CAG report is to be followed, it would mean that the Adani silo should remain full every month. If the FCI does so, then in the next procurement season, Adani silos will not be able to procure directly from the farmers because there will be no vacant storage space.

“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.

The FCI says 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.

However, the CAG report states that instead of stocking grains as per the capacity of the Adani silo, FCI stored it in the SGA godowns, due to which an additional expenditure was incurred.

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.

FCI’s regional office made same recommendation

Documents obtained by The Wire reveal that not only the CAG but the FCI’s regional office in Haryana had also recommended to the FCI headquarters, after an assessment by its district office in January 2014, that the stocks kept in the SGA godowns should be shifted to the Kaithal silo to avoid losses.

The CAG, on the other hand, had stated in its assessment that due to the non-transfer of stock in the Adani silo, additional expenditure of Rs 2.7 to Rs 9.0 per quintal has been incurred.

However, according to the 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 was avoidable.

According to the documents, payment was made for a total of 43.84 LMTs stored over 43 months in Pehowa, Pundri, and Pai godowns of the SGAs. The payment was made at the rate of Rs 20.91 to Rs 23.29 per quintal in these godowns.

In a letter dated August 14, 2018, to the general manager (S&C) of its headquarters in New Delhi, the regional office of the FCI in Panchkula, Haryana, claimed that contrary to the CAG’s assessment, the corporation 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.

Adani Silos CAG report by The Wire

The department had estimated it based on the potential profit formula of 1.25%, which was rejected by the CAG. The CAG had asked that if storing grains in silos brings about losses, why is the government of India allowing the construction of silos.

The CAG has insisted that it will not remove the paragraph from the report despite the ministry’s repeated demands.

The media advisor of the CAG, B.S. Chauhan, told The Wire, “Once we submit our report to the President, there is no amendment in it. A paragraph can neither be deleted nor edited. Our report is final, even if the Ministry keeps demanding its removal.”

The changing stances of the FCI

According to the documents, the draft report of CAG had estimated the avoidable expenditure due to non-optimal utilisation of vacant capacity at Kaithal silo at Rs 5.46 crore. However, this figure in the final report was Rs 6.49 crore.

When the CAG sought a reply on it the first time, the FCI claimed that they were not allowed to transfer wheat from the state godowns to the Adani silos citing the decisions of a 2014 meeting.

In its reply sent on August 1, 2017, the regional office of the FCI, Haryana, said:

“Kindly take cognizance of the meeting held on 07.03.2014 which states that delivering foodgrains directly to the FCI refers to wheat procured by the respective SGA mandis, and not the stocked foodgrain in SGA godowns. Therefore, according to this letter of the Government of India, transporting wheat from the state government godowns to Adani silos was prohibited.”

The regional office claimed that on this ground the question of estimating additional expenditure does not arise.

However, the CAG rejected this argument outright, claiming that it made no sense as the CAG’s assessment is based on why the stock was removed from the Adani silo after the procurement season was over, while the FCI kept paying for the vacant space.

Adani Silos CAG report by The Wire

“The guidelines mentioned by the FCI are related to the transfer of foodgrains only to FCI directly from the state government godowns during the procurement season,” remarked the auditor. “Since the FCI is paying a hefty amount for the Kaithal silo, it should have taken appropriate steps to utilize the space.”

The FCI countered it with different arguments. Initially, it argued that a 1.25% profit has been earned by storing wheat in the SGA godowns. In response, when the CAG asked why then the GoI is constructing silos, the FCI changed its stance and claimed that it was only referring to a ‘special case’.

Meanwhile, the ministry as well as the FCI wrote a letter advocating the silo storage system and claimed that the losses incurred in storing food grains are less in silos than in conventional godowns.

The Wire has sent a list of questions to the Ministry of Consumer Affairs, Food and Public Distribution and the FCI regarding the matter, but no response has been received so far. The story will be updated as and when a response is received.

Translated from the Hindi original by Naushin Rehman.