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Audit finds irregularities in MCL purchases

Staff Reporter

‘Purchases made against interests of the company'

PALAKKAD: The audit of accounts of Malabar Cements Limited (MCL), a public sector company at Walayar, for 2004-05 and 2005-06 has found huge losses due to various irregularities and unwanted purchases of machinery and materials against the interest of the company.

One instance is that the company had decided to buy cement-grade limestone to preserve its limestone mine, but it bought sweetner-grade limestone in huge quantity which was not required. This was done after investing Rs.90 crore for heavy inventory build up of sweetner-grade limestone for meeting the production requirement of 19 years.

The company required about 90 per cent cement-grade limestone and only 10 per cent sweetner-grade limestone for production.

The inspection report of Principal Accounts General (Audit), Kerala, of 2005 and 2006 said: ‘‘It was, therefore, quite clear that from the point of preservation of captive mines, what was needed was to have a tie-up with outside agencies for uninterrupted supply of cement-grade limestone, which constituted almost 90 per cent of the requirement, and without which the steady supply of sweetner-grade limestone alone was of no use. Yet, the company specifically tendered for requirement of sweetner-grade limestone alone and finalised the lease agreement for extraction of 13.75 lakh metric tonne of sweetner-grade limestone over a period of 10 years, justifying the decision quoting a suggestion of Public Undertaking Committee (PUC) of the Assembly.”

“Further no documents were available with the company to show that the PUC had suggested going for lease arrangement for supply of sweetner-grade limestone.”

The report further said that maximum annual consumption of “sweetner-grade limestone was 74,814 MT (during 2005-06) at which rate monthly requirement of material was only about 6,250 MT.

Therefore, the contention of the company that heavy inventory build up of sweetner-grade limestone investing a minimum of around Rs.90 crore over a period of 10 years for meeting the production requirements of 19 years was financially advantageous was not understandable.”

In the transport of sweetner-limestone also there were irregularities. Seven parties had registered and pre-qualification tender documents were issued to all. However, only two parties had responded to pre-qualification notice.

“Both the tenders belonged to the same group and their terms of offer were identical. Both tenders had given same contact phone number and offers were almost similarly worded. Hence, lease agreement could be deemed to have been made by single tender basis and therefore, rates adopted could not be treated as adequately competitive.”

The report said: “Execution of a long-term contract agreement involving financial commitment of a minimum of Rs.16.80 crore on the basis of offer from a single party for supply of materials for which many alternative sources were also available was not in the interest of the company's finance.”

Besides the audit report also found relaxation of terms and conditions of pre-qualification tender as “highly irregular, especially in the case of high-value long-term contract.”

It found that MCL had entered into contract with private parties for supply of cement-grade limestone and sweetner-grade limestone by discontinuing its contract with public sector Tamil Nadu Minerals Ltd. (TAMIN) which had operated two mines at Periyangalur and Karur exclusively for MCL earlier.

The sudden suspension of off-take from these mines by MCL resulted in huge back stock and led to suspension of mining operations at Periyangalur.

“No further efforts were made by MCL to pursue the contract and offer of TAMIN, a reliable source of supply of both sweetner-grade and cement-grade limestones,” the report said.

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