Iron Ore Scam: Iron ore exporters cheat Railways of 50,000 crore

The Railways may have been defrauded of as much as Rs 50,000 crore by iron ore exporters claiming domestic tariff on consignments meant for export.

New Delhi: Total recoveries for the railways from the organized fraud perpetuated by numerous iron ore exporters by showing exports as domestic consumption could be as high as Rs 50,000 crore, according to documents, sources and an ongoing multi-agency investigation. In 2012-13, estimated losses for the railways are pegged Rs 24,600 crore.

On the orders of the Central Vigilance Commission (CVC), a multi-disciplinary agency comprising CBI, Customs and other investigative wings, are investigating in eastern India, and have unearthed fraud perpetuated by over a dozen iron ore exporters that has resulted in a loss of over a thousand crore to railways.

iron ore rakeAn interim report a few months ago had said that of the 10 companies examined nine had indulged in claiming the subsidized railway freight rates by misrepresenting exports as movement for domestic consumption. The investigation began initially against Kolkata-based Rashmi group, which was accused of duping railways of almost Rs 700 crore by transporting iron ore meant for export at domestic freight rates. Noticeably, even after it was served notices, the group is alleged to have continued with its `illegal activities’ in 2011-12, resulting in a loss of another Rs 202 crore to the railways, official documents show.

Exporters like Rashmi group have claimed that they were transporting iron ore for domestic consumption, and thus claimed massive concession in railway freight charges. If iron ore is being moved for domestic use freight charge per tonne is around Rs 300-Rs 400, where as it is over Rs 2,000 per tonne for exports.

According to ongoing investigations by the multi-agency probe and vigilance officials in various divisions of the railways, ever since it introduced the dynamic pricing in 2008 the losses suffered by railways runs into thousands of crores.

An ongoing audit by the CAG only in South Eastern Railway has detected Rs 4193.52 crore of revenue leakage. This audit was limited to five select loading points of the Chakradharpur Division. South East Railway alone has around 50 loading points. Another CAG audit report tabled in Parliament in 2011-12 on the East Coast Railway had disclosed that undue benefit of Rs 1795.5 1core to the iron ore exporters.

The chief vigilance officer of Southeast Railways has so far sent notices to several other companies for evasion running into over Rs 1,000 crore, sources said.

A special court officer appointed in 2011 to supervise the movement of iron ore by Rashmi group after the evasion came to light, has complained in a report to the court that he was shown not records by the company, nor did the group respond to his letters.

In 2010-11, railways earned Rs 9,011 crore by transporting 118.4 million tonnes of iron ore. Of this, iron ore for integrated steel plants within India was 44.67 million tonnes, and it earned railways Rs 1,359 crore. Strangely, iron ore for other domestic users was 48 million tonnes, earning railways Rs 2,668 crore. Hence, smaller domestic users, mostly sponge iron plants, have ended up using more than integrated steel plants such as that of SAIL, Tatas and Jindal.

In contrast, the total iron ore export during 2010-11 was 25 million tonnes. But because the freight charge for exports is several times more, railways got Rs 4,983 crore revenue.

According to sources involved in the investigations, against a domestic requirement of 30 million tonnes for smaller users railways records show that there was transportation of 48 million tonnes in 2010-11. This calculation is based on the presumption that entire iron ore is being transported by train, whereas there is a segment moving by road.

So at least 18-million-tonne iron ore was transported in the name of domestic consumption, but found its way into foreign countries, mostly China. At an average of Rs 200 crore revenue for every million tonne of export, the total loss is Rs 3,600 crore in 2010-11. This trend has been on since 2008, when the dynamic pricing was introduced.

Besides the losses, a penalty is recoverable at four times the loss, according to the dynamic pricing mechanism. So the annual revenue gain for railways works out to around Rs 18,000 crore. Calculating the revenue gain from May 22, 2008, sources are arguing that till 2012 the total revenue gain for the railways could be over Rs 50,000 crore. That is, if the law is implemented in letter and spirit.