The mystery of Bhutanese Gypsum, the Nepal market and a controversial past

Before SMCL took over in 2019 the main market for Bhutan’s Gypsum was in India in the North-East, West Bengal, Uttar Pradesh, Sikkim and Bihar which have no Gypsum mines.

Nepal and to an extent Bangladesh were always the much smaller markets barely comprising around 10 to 15% under Druk Satair.

Import surge to Nepal under SMCL

However, after SMCL took over in January 2019 a curious and massive change started happening. In 2019 itself SMCL started exporting a lot more to the Nepal market to the point that it was neck and neck with the larger Indian market. Bhutan exported 444,000 MT of Gypsum in 2019 of which a significant portion went to Nepal.

As Nepal started getting more priority in 2020 it raced ahead to become Bhutan’s largest Gypsum market. Of the 329,000 MT of Gypsum exported in 2020 the majority of it went to Nepal.

For example, as per audited figures the Gypsum mine under the erstwhile Druk Satair in 2012 exported 248,946 MT to India compared to 24,329 MT to Nepal. This means that Nepal for a long time constituted only around 10 percent of its export market.

Lower prices for Nepal than Indian markets

One would have expected that the export surge to Nepal under SMCL is due to higher prices being offered from Nepal, but in fact Nepalese middlemen pay the lowest price for Bhutanese Gypsum at Nu 1975 per MT which with loading charges comes to Nu 2,015 per MT.

In contrast Indian companies who buy directly from Bhutan on an average pay a higher price at INR 2,200 to even INR 2,700 (in the North East).

Rational business sense would demand that Gypsum be sold at the same price to India as Nepal given India has a far bigger market than Nepal, and unlike landlocked Nepal it has an option to import Gypsum from Oman and Iran via its many sea ports.

However, SMCL has persisted in giving cheaper Gypsum to a much smaller market in Nepal and more expensive Gypsum to a bigger market in India thus losing major Indian clients in the process. While Gypsum is sold to Nepal at Nu 2,015 per MT it is sold at Nu 2,700 to the North-East market.

Also, now new Indian buyers including those from Kolkata have also been denied Gypsum citing that the Gypsum is already booked for Nepal.

The SMCL General Manager Marketing and Sales, Sangay Rinzin earlier told The Bhutanese that when it took over the mines the government instruction was for seamless operation and to not lose the existing market. This was also the reason given for not entering new markets or entertaining new buyers.

However, on the contrary it has expanded its exports rapidly into Nepal offering cheaper Gypsum and lost long standing Indian clients.

Kumar Pradhan’s key role

After the SMCL took over in January 2019 it had little experience in Gypsum mining or trading and so it came to rely heavily on the former Druk Satair General Manager Sales, Kumar Pradhan who was retained as a Marketing Specialist.

He had joined Druk Satair in 1993 and was its General Manager Sales until the mine was handed over to SMCL in January 2019.

A senior management figure in the erstwhile Druk Satair said that Kumar was a key person in the marketing and sales of Gypsum from Druk Satair and had an extensive network outside Bhutan and good contacts. He effectively ran the show with marketing, transport, logistics and sale and paper work.

Druk Satair came to rely on him hugely and the same happened when SMCL took over.

The SMCL got its own General Manager Sales and Marketing in Sangay Rinzin a former teacher at Gedu College with no experience in mining and marketing but Kumar Pradhan who worked as a marketing specialist under him essentially ran the show.

A complaint

A complainant on 1st March 2021 had put up an official complaint to the ACC on the large difference in prices between the official price of Gypsum sold to Nepal and the actual price.

The Bhutanese in its investigation also found a significant price difference, money being cut from trucks amounting to Nu 3,000 to Nu 8,000 per truck in Bhutan and allegations of commission being offered in Bhutan.

The ACC finding a prime facie case of corruption has also launched an official investigation.

The complainant said that the reason why SMCL now prefers Nepal is due to the fact in the case of Nepal the buyers are middlemen in the form of a Nepalese Syndicate who have a tight control on the Gypsum market in southern and eastern Nepal and so they pay commissions and give under ‘under the table incentives’ to get exclusive supply from Bhutan.

He alleged that Indian buyers who actually pay more have lost priority as these buyers are private cement factories who do not pay commission. 

Losing the Indian market

In fact, when The Bhutanese reported about a complaint alleging large differences in prices between the official and actual price of Gypsum sold to Nepal the main accused in the Gypsum scam Kumar Pradhan in a rebuttal told a private paper that Indian factories in Farakka which is 100 km from Siliguri stopped importing Bhutanese Gypsum due to cheaper and better Gypsum from Oman, Iran and Thailand.

This statement was backed up by Sanjay of Shree Cement.

However, this situation was allowed to take place in the first place as SMCL’s hike for Indian buyers was much higher than those for Nepalese buyers. This is even though Indian buyers always had the capacity to buy in much higher volumes.

The Indian buyers with closer access to ports then started importing Gypsum from Iran and Oman.

The former Druk Satair management figure said that at onetime gypsum from Thailand threatened Bhutan’s eastern India and North-East markets around 2016 but this later stopped due to environmental concerns in Thailand.

A controversial past in sale of Gypsum to Nepal

Gypsum sale to Nepal and Bangladesh has a murky past right from the Druk Satair days. A 2014 performance audit on mines by the Royal Audit Authority (RAA) found that while Druk Satair a Public Limited Company was directly selling Gypsum to its main market in India, but in the case of Nepal and Bangladesh, it was doing so trough RSA Pvt Limited which was owned and operated by the then Chairman of DSCL. The Chairman was one of the promoters owning 5 percent each.

Gypsum at the time was being sold to India at Nu 1693.90 per MT but Druk Satair was giving it at Nu 1,326.05 to RSA Pvt Ltd to sell to Nepal and Bangladesh.

The RAA said the review of relationship between DSCL and RSA Pvt. Ltd., showed that the engagement of RSA Pvt. Ltd. by the DSCL was purely driven by common interest of the Chairman. It said it appeared that the business dealings between the two were merely to transfer the business profits of DSCL to the RSA Pvt. Ltd. If DSCL had not entered business contract with RSA Pvt. Ltd. and managed the export to Bangladesh and Nepal on its own, the company could have earned additional profit of Nu. 45.665 mn from 2008-2012.

The RAA said that is a related party transaction, clear case of conflict of interest as there had been common ownership of controlling shareholders in both the DSCL and RSA Pvt. Ltd and it contravened Section 89 of the Companies Act of the Kingdom of Bhutan 2000 on pre-conditions to be fulfilled by the directors before entering into any contract with the company in a capacity of a director. There was also no consent of the Board that allowed the Chairman to enter into business contract with the company. RSA insisted it had board clearance.

It is interesting to note that RSA Pvt Ltd continued to be the intermediary seller to Nepal up until 31st December 2018 when its lease expired and so Druk Satair by itself never had direct contact with the Nepal market, prices and dynamics there.

A question to be asked here is what was so lucrative about the Nepal market that even Druk Satair was not allowed to sell directly but it had to be done via RSA Pvt Limited, a company owned by the Chairman of DSCL.

After SMCL took over in 2019 Kumar Pradhan was the only major link between the past Druk Satair and the current SMCL and so he played a key role when direct contact was established with the Nepal market.

An unethical company culture and Kumar

Kumar himself features prominently in the 2014 Audit Report with the report saying his spouse had 10 to 12 trucks registered in her name transporting Gypsum outwards to Rangia in Assam and RAA could not rule out the possibility of similar engagements of additional trucks in absence of ownership certificates.

RAA said the engagement of Kumar’s trucks for outward transportation of gypsum from Samdrupjongkhar to Rangia was apparently not done at arm’s length as the employee held a key position in the company capable of influencing business decisions of the company. RAA said Kumar had represented both the parties and this appeared to be a deliberate act by employee concerned to avoid entering into any form of legally binding agreements to protect and further their own personal interest.

The RAA’s report gives a clear picture of illegal and even unethical related party transactions within the main promoters, Chairman and key employees to benefit themselves at the expense of the company, public shareholders and the state. A culture of mutual backscratching was already rampant going by the audit report and Kumar was a key player in it too.

Druk Satair (DSCL) formed the Druk Plasters and Chemical Limited (DPCL) and the Druk Gyp Products and Chemicals Limited (DGPCL) to undertake processing of Plasters of Paris (POP) at Pemagatshel and Nganglam respectively.

RAA said with the formation of DGCL, the shares held by seven promoters in the DGCL had increased substantially, while there had been reduction of proportion of shares held by Central Monastic Body and the general public.

In aggregate, the shareholdings of promoters  increased to 51% compared to only 35% in the DSCL.

RAA said that overall the establishment DPCL and DGPL resulted in substantial reduction in the interest of minority shareholders

RAA said the legality of the incorporation of DGCL, diluting ownership pattern of the original minority shareholders appeared questionable and may be subject to legal consequences. RAA found that DGPCL bought finished products of DPCL and packaged and marketed under its name.

Gypsum was also sold at a much cheaper price to DPCL and DGPCL at Nu 868.29 per MT.

RAA also pointed out that DSCL bought land at inflated price from a board member.

RAA said DSCL had paid fines and penalties amounting to Nu. 5.467 mn to Indian Railway for rake overloading of gypsum consignment in the rail at Rangia, India.

As transpired from the minutes of the Board, overloading had occurred due to negligence of permanent employee and General Manager Sales (Kumar Pradhan) who was overseeing the loading of the consignment. The lapse had occurred despite being repeatedly cautioned by railway officials in the past.

The discussion of the Board also hinted malicious intentions of dealing officials for which administrative actions on individuals were proposed to be taken. However, no actions were found taken and the DSCL had incurred huge loss at the cost of its stakeholders.

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