CAG exposes Rs 1,200-cr sugar mill scam in UP

The Comptroller and Auditor General (CAG) has unearthed a Rs 1,200-crore scam in the sale of 21 sugar mills, during Uttar Pradesh Chief Minister Mayawati’s regime, on account of discrepancies in the valuation of land and machinery. Transactional advisor, IFCI, has also come under attack from the auditor for lowering valuations. A number of these mills went to liquor distributor Ponty Chadha, perceived to be close to Bahujan Samaj Party (BSP) supremo Mayawati.

The Mayawati government decided in 2007 to privatise 10 operational sugar mills belonging to the Uttar Pradesh State Sugar Corporation Ltd (UPSSCL) and 11 closed mills belonging to its subsidiary Uttar Pradesh Rajya Chini Evam Ganna Vikas Nigam Ltd (UPRCGVNL). The 21 mills were sold between July 2010 and March 2011.

CAG has found anomalies in the sale process, related to undervaluation of land and plant machinery and lack of competition. According to CAG, disclosure of the expected price to bidders and a change in bid methodology during the process adversely impacted the price received, though the financial impact cannot be quantified. The prices received were far below expected in 14 of the 21 mills sold, it said.(Click here for table)

CAG has also pulled up IFCI for reducing the valuation of land by up to 30 per cent against what was arrived at by the valuers. That resulted in a combined hit of Rs 90 crore in the case of four mills: Amroha, Bijnore, Bulandsahar and Saharanpur. Acceptance of land undervaluation by the registering authorities also resulted in a loss of stamp duty worth Rs 100 crore to the state exchequer.

CAG said there was complete lack of competition in the case of bids for UPSSCL mills, as two of three competing companies (Wave Industries and PBS Foods) were related and promoted by Chadha. The purchase of sugar mills in sugarcane-rich areas helped Chadha ensure raw material (molasses) security for his liquor business.

So far as the 11 closed mills of UPRCGVNL are concerned, all the bidding companies, according to the CAG report, bid in a concerted manner followed by the withdrawal of bids by the original highest bidders. That indicated carterlisation by a group of related companies, affecting the realisation of fair value, it said.

In respect of three mills (Bijnore, Bulandsahar and Saharanpur) of UPSSCL, only Rs 167 crore could be realised against the expected Rs 290 crore. In the case of 11 closed mills of UPRCGVNL, Rs 91 crore was realised against the expected Rs 173 crore. The management and core group of secretaries failed to detect these issues as they did not insist on submission of the requisite documentation by the bidders.

With two phases of the Assembly election left in Uttar Pradesh, the CAG findings could provide the Opposition parties in the state with fresh ammunition to take on Mayawati. The parties made increased corruption under the BSP an election issue.