Dual Pricing Policy: CAG exposes Irregularities amounting to ₹2486.68 Cr Loss to Rlys

CAGNew Delhi:  Railways suffered revenue loss of about ₹2486.68 crore due to irregular grant of concessional tariff rate for booking of iron ore traffic during 2008-12, the Comptroller and Audit General has claimed, pointing to “misuse” of dual pricing.

In a report tabled in Parliament on Tuesday, CAG said the railways lost revenue of ₹2,487 crore on this account, according to an audit conducted between May 2008 and March 2012. This had also led to additional losses of ₹1,796 crore in revenue during 2011-12, as reported by CAG in an previous report, thus totalling the overall revenue loss of around ₹4,300 Crore between 2008-2012 because of its failure to ensure proper documentation under the dual pricing system for transportation of of iron ore.

The federal auditor reported revenue loss of ₹2,487 crore in its 25th report (2013) while it had reported a revenue loss of ₹1,796 crore for railways in its 2011-12 report. The auditor, which hinted at misuse of dual pricing system, contended that about ₹15,540 crore was to be recovered as penalty and recovery from several iron export companies.

Under the dual pricing introduced from May 2008, the cost of transportation of iron ore for export was on an average more than three times the cost of the transportation for domestic use.

“The internal control system of the railways failed, as it had allowed the parties concerned to avail of the domestic rate (of transporting iron ore) without providing some essential and prescribed documents,” the report said.

Under the dual pricing system introduced in May-July 2008, the freight rate for transporting iron ore for non-domestic consumption was more than three times the fixed rate to transport coal for domestic consumption.

The report added South Eastern Railways had acknowledged freight evasion of ₹1,876 crore. It said lapses had occurred at all levels, including by the booking staff at loading-unloading points and commercial and account officers at the divisional and zonal levels. The “Railway Board failed to stipulate specific checks and balances for implementing their orders”, the report said.

According to CAG report, Railways allowed 358 parties to avail domestic rate for transportation of iron ore despite non-submission/partial submission of the prescribed documents which resulted in revenue loss to the cash-strapped national transporter.

Due to the dual pricing introduced from May 2008, the cost of transportation of iron ore for export was on an average more than three times the cost of the transportation for domestic use.

However, CAG observed a number of deficiencies like booking of iron ore at domestic rate without obtaining any of the prescribed documents.

While 153 parties did not submit any prescribed documents to avail domestic rate for carrying iron ore, 205 parties submitted some of the documents required for the concessional rate.

Railways allowed 153 parties to avail the domestic rate without submitting any of the prescribed documents before booking and delivery of 699 rakes carrying iron ore during May 22, 2008 to March 31, 2012.

This resulted in revenue loss Rs 258.38 cr during the last four years between 2008 and 2012, CAG report submitted today in parliament said.

This indicates a weak internal control system, the report stated.

The CAG has found that 205 parties availed the domestic rate without submitting some of the essential documents like the monthly excise returns, industrial entrepreneur certificate, affidavit, indemnity bonds.

According to the report, 205 parties availed booking and delivery of 6306 rakes carrying iron ore during May 2008 to March 2012. Railways permitted these parties to avail of the domestic rate despite non-submission of some of the essential prescribed documents resulting revenue loss of ₹2228.30 Crore.

CAG observed that the quantity of iron ore transported by rail for export declined by 44 per cent during the period 2008-09 to 2011-12. In fact by 2011, iron ore and earned 55 per cent of the freight earnings from iron ore.

Thus, prudency demanded that adequate safeguards in the form of procedures and checks be put in place against misuse of the dual pricing in iron ore traffic, it said.

In January 2007, East Central Railways had purchased 219 acres of land for about ₹140 crore, without “any clear cut decision on utilisation”, the report said. Of this, ₹112 crore was raised through a loan that resulted in interest liability of ₹8.8 crore, CAG said.

The report said 65 per cent of overhauled locomotives reported failure within three months of periodic overhauls. Detention of locomotives during unscheduled repairs, excess detention and other operational inefficiencies had led to a loss of ₹733 crore, in terms of earning capacity wastage.