A complainant has sent The Bhutanese a copy of his complaint letter to the Anti Corruption Commission (ACC) alleging large scale corruption in the sale of Gypsum to Nepal from the State Mining Corporation Limited’s (SMCL) Pemagatshel mines and also in its transportation from the Samdrupjongkhar SMCL depot to Nepal (see separate story on transportation in page 1).
It has been learnt that the ACC is conducting a preliminary enquiry within Bhutan to see whether the case merits investigation.
However, given that most of the alleged illegality is happening outside Bhutan and ACC is only looking inside the country for now The Bhutanese decided to verify and investigate the allegations.
Alleged corruption in the sale of Gypsum minerals
The complainant alleged that Gypsum is not being auctioned off in line with government procurement rules and is being sold to certain select buyers directly.
He said that Gypsum is officially being sold by SMCL at Nu 1,970 per ton (1000 kg) to buyers in Nepal, but he alleged that the SMCL General Manager Marketing and Sales, Sangay Rinzin and SMCL Marketing Specialist Kumar Pradhan have colluded with a Syndicate in Nepal to get a much higher real price of around Nu 5,500 per ton which is then sold for around 8,670 metric ton by the syndicate in Nepal.
He alleged the 1,907 rate added to the Nu 900 per ton transport cost means that Gypsum is worth around Nu 2,870 when it reaches Nepal.
He said when 2,870 is deducted from 5,500 the loss per ton to Bhutan comes to 2,620 per ton and if the final profit of Nu 8,670 is applied then the loss per ton is Nu 5,800. He alleged this illegal profit is shared between the syndicate in Nepal and colluders in Bhutan and even India.
He alleged this scam runs into the billions in losses for SMCL every year.
The complainant had visited Nepal from 4th February 2021 to find out some of this information.
The transportation rate varies based on the distance and availability of trucks but it hovers around Nu 900 per ton for the main Nepal border destination near Siliguri called Panitanki from Samdrupjongkhar.
Bhutanese Gypsum is regarded to be of high quality with higher purity level than most that are available and hence in demand.
The Bhutanese calls the Syndicate members
The reporter called up a coal dealer in Nepal with offices in Kathmandu and businesses in Nepal and India. He was interested in the Gypsum business and had planned to approach SMCL for importing Gypsum but was unable to do it as he firstly was unable to break the monopoly of the Nepal Syndicate and secondly he did not have their level of resources and coordination.
On the condition of anonymity but in a recorded statement the dealer said, “Your Bhutan government people (SMCL) are selling at INR 2,000 per ton on paper only but the real rate is around INR 3,500 or 4,000 as INR 1,500 or more is their cut in Bhutan. Then a middle man in India takes another cut of INR 1,000 or so per ton and so when the final product reaches Nepal it is INR 5000, INR 5500 or INR 6000 per ton. The Nepal dealer then sells it for INR 8,000 plus per ton (around 13,000 in Nepal currency) to cement factories and others.”
The complainant said that those involved in SMCL and the Indian middlemen are actually partners and are jointly sharing the commissions. He said it is not just a Nepal Syndicate now but a joint Bhutan-Nepal syndicate now.
The reporter then called up members of the syndicate in Nepal disguised as a private Gypsum supplier from Bhutan, otherwise none of them would have been honest on the mobile phone especially after seeing the call coming from Bhutan.
One of the main importers of Gypsum is the Arvind Emporium. The reporter called a co-partner of Arvind Emporium Chaitu Lal Rajbongshi who owns the land and the stockyard in Biratmore that receives Bhutanese Gypsum in large quantities.
The reporter first asked him at what price he was buying cement from SMCL which he declined to reveal. He also declined to cite a rate at which he would be willing to buy cement from this fictional private Gypsum company. He said he would have to discuss with his colleagues before disclosing such figures and information.
However, when the reporter asked about the selling price of Gypsum in Nepal he said he sells his Bhutanese Gypsum at around INR 8,000 (Nepal currency 12,000 to 13,000) per ton to cement factories. He said this is the rate in Nepal.
The complainant has a picture he took at this stock yard with large quantities of Bhutanese Gypsum and also a picture of Chaitu Lal Rajbongshi talking to his business counterparts (see image). Chaitu Lal is a big player in the area and supplies around 15 cement factories and others.
The reporter then called the Mega Cement Industries (located close to Siliguri) manager Bikas Saral, again posing as a private Gypsum supplier from Bhutan. Bikas said that he currently buys Gypsum from the main Nepalese dealers who import Bhutanese Gypsum. He initially said he pays around Nu 6,000 to 7,000 per ton, however, he said this price in the context of trying to get cheaper Gypsum from the private company.
When the reporter told him Gypsum prices in Bhutan are around Nu 2000 per ton he offered to drop the Nepal dealers and pay Nu 5,000 per ton to Bhutan directly.
The reporter called several syndicate members posing as a private gypsum company but not only did they refuse to share the rate at which they buy Gypsum form SMCL but two of them within hours informed the reporter that they already knew from their colleagues that price enquiries were being made from Bhutan and they refused to share the rate.
An important breakthrough came through an Indian truck driver who has been plying Gypsum between Bhutan and Nepal (till the border) for around 10 years.
The paper is withholding his name to protect his employment but has a statement from him where he mentioned that once his truck was short of around 200 kg of Gypsum.
A syndicate member in Nepal cut Nu 550 per 100 kg for the shortage coming to Nu 1,100 for 200 kg.
The driver said he is not interested in Gypsum prices but only his transportation rate but at that time he realized that if Nu 550 was cut for 100 kg then the price rate of Bhutan’s Gypsum export to Nepal must be around Nu 5,500 per ton (1000 kg).
With all the above information the scam, if proven, will be worth in the billions. In 2019 and 2020 SMCL exported 773,000 tons of Gypsum. Even if a conservative 60 percent of this was sent to Nepal coming to 463,800 tons then calculating an estimate loss of Nu 5,000 per ton this scam could well be worth around Nu 2.3 bn within just two years.
This is potential revenue lost by the government at a time when it is struggling to balance the budget.
The letter also alleged that Indian merchants are not being allowed to buy Gypsum favoring the Nepalese buyers. One such merchant named as Tariq said those who normally bought Gypsum all the way from Kolkata are now being told there is no Gypsum as it is being sent to Nepal.
The complainant alleged that the main master mind in this is SMCL Marketing Specialist Kumar Pradhan who knows the system well as he has been working previously under Druk Satair since 1993, and it is he who established links with the Nepal syndicate and later got Sangay Rinzin on board.
The complainant also alleged under invoicing of amount of minerals sent with more minerals being sent than those on the invoice.
Meanwhile an interesting link emerged between Kumar Pradhan and the Nepal Syndicate. The syndicate in Nepal has hired the services of a transport company in Samdrup Jongkhar called East Bhutan Private Limited (EBPL) to help in the transport logistics and advance payment of drivers ferrying the Gypsum.
Kumar Pradhan helped found the EBPL along with a former Druk Satair Administration head Kuenzang Leki and a former Druk Satair CEO Sangay Wangdi.
The Bhutanese found Kumar still has shares in EBPL and his younger brother also works as a manager there.
The complainant has also alleged a nexus between EBPL and Nepal syndicate to benefit Kumar and others in Bhutan as part of the larger Gypsum scam where money is illegally collected from each truck driver by EBPL which also ends up impacting the Gypsum price (see story on page 1).
SMCL denies allegation and findings
The SMCL General Manager Marketing and Sales, Sangay Rinzin and SMCL Marketing Specialist Kumar Pradhan when asked about this ACC complaint denied all the above allegations.
Sangay Rinzin said the government’s instruction to SMCL while handing over the Gypsum mines in January 2019 was to go for a seamless operation without losing the existing market and this has been followed as instructed by the government. He said the focus has been in securing the old market and not getting new ones.
He said he is open to any investigation against him.
Kumar Pradhan also denied the above allegations against him and said he has nothing to do with any price fixing which is done by the SMCL board.
Even the SMCL CEO Kezang Jamtsho who is based in Samtse denied such allegations against his officers in the Gypsum mine. He said that the complainant is a motivated one since he had not got some transport business from SMCL.
The SMCL General Manager and CEO both said that the SMCL board was the one that fixed the price after being presented to them. SMCL said the current average price to Nepal is Nu 1,975 per ton and with loading charges of Nu 40 per it ton it comes to Nu 2,015.
The SMCL CEO said 444,000 tons of Gypsum were sold in 2019 and 329,000 in 2020. The two main markets are India and Nepal but in 2020 more Gypsum was sold to Nepal than India.
The SMCL CEO said it is possible that Gypsum prices are higher in Nepal once the transport rate is added and local syndicate factors come into play but he did not believe such a large price difference as stated above would be there.
However, the SMCL CEO himself acknowledged the presence of a syndicate in Nepal as SMCL had tried to sell to a new player in September 2019 but the syndicate or duopoly refused to buy from SMCL and sales plummeted in October 2019 forcing SMCL to go back to the syndicate.
The CEO said he, the chairman of the board, another board member and a HR manager had visited Nepal to explore the Gypsum market there but in their whole time there, syndicate members decline to share their rates with them.
He said SMCL would like to increase prices if higher prices are available but Bhutan cannot increase prices in Nepal too high as there is a danger of losing the market to other competitors from Jammu or even external sources like Oman. He discounted what the complainant said saying such high price differences or collusion is not true.
The CEO said that SMCL under DHI does not fall under the Finance Ministry procurement rules. He said the danger of going for spot auction is that syndicates across the border could form and drive down prices of Gypsum.
He also said that it is not true that under invoicing has happened and all the invoices are open for examination.
Kezang Jamtsho said that in fact after SMCL took over the price of Gypsum to Nepal has been increased by Nu 200 per ton and to the North East of India by Nu 500 per ton.
He said that before SMCL took over the return on Gypsum per ton was Nu 398 under Druk Satair and in 2019 with the same prices the return increased to Nu 508 per ton and with the price increases in 2020 it would jump to Nu 808 per ton.
On the truck driver’s statement, the CEO said it is possible that he may have been charged the price of the Gypsum there.
Here the complainant said if the CEO says there is the possibility of higher prices in Nepal then he should allow an open auction of the Gypsum minerals.