FIX THE MYANMAR RICE IMPORT TENDER-FINANCIAL EXPRESS 30TH OCTOBER 2014
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RICE IMPORT TENDER COMMERCIALLY FLAWED.
Pre-estimation of costing is pre-requisite for integrity in evaluation
Two tenders of import of non-basmati rice (25% broken variety) from Myanmar for 10000metric tons each for north-eastern states of Manipur and Mizoram opened on 9th October 2014 by STC/MMTC (PSUs) on behalf of FCI, have flopped; only one bidder quoted for both PSUs respectively at Euro 588($753) pmt and Euro 680($871)pmt equivalent to Rs 47pkg to Rs 54pkg delivered at FCI depots in the interior of these two states. Myanmar 25% broken rice variety is traded internationally at $360 pmt fob or Rs 22pkg, while open mkt price at Guwahati and Kolkata are Rs 23 and Rs25 pkg respectively (see chart). MNCs or rice traders of Singapore, Thailand and Dubai who are adept in dealing with Myanmar abstained participation.
FCI has been supplying rice to these states at Rs32 pkg or $516 pmt through rail route which is now under renovation. Annual requirement for these two states is 500000 metric tons. Non- availability of rail route for about two years compels such imports that may be around one million tons.
Bids opened on 9th October 2014 suggest exorbitant expenses for Indian inland handling of about $400 to $500pmt (Rs25-32pkg) or 110% to 140% of purchase price. Perhaps airfreighting would be much cheaper. Even shipment of rice from Far-East to Nigeria (West Africa) has freight of $60-65/mt or about 13-14% with distance of 10000 nautical miles and 45-50 days sailing period. . That is why this single bid with wild margins stands rejected by the government.
Undoubtedly logistics-bad roads, poor trucking facilities, warehousing and local insurgency— in these states are nightmarish. But non- responsiveness and over escalated bid can be directly attributed to terribly flawed terms of tenders. In bid documents, price quotation for dual prices could have been called for—one for delivery at the Indo-Myanmar border and second for offloading at the FCI depots. This one condition would have led to significant participation in tender as many foreign suppliers may have preferred quoting for deliveries at the border. This could have also formally led to separate price discovery both for Myanmar side and Indian part.
Normally delivery of imported cargo is taken by the importer at the custom frontiers (or at ports for sea shipments), but PSUs opted for supply at FCI’s depots in Mizoram and Manipur. It implied that in addition to rice procurement from Myanmar, entire cost/financing and operational risk/shortages in troubled regions also devolved upon foreign seller. 100% payment was linked to “Certificate of Weight and Quality issued by nominated Inspection Agency at designated FCI godown” in the interior. No trader in his right senses will take this type of open exposure for North Eastern states.
Generally accepted norm of payment of 90% upon shipment and balance 10% on receipt at destination was shunned because PSUs/FCI may not have done any “formal” logistical price recce. A competent agency/surveyor could have been hired for pre- estimation of handling expenses and transit shortages. STC/MMTC/FCI just confined their role only for paper work of issuing, finalization of bids and effecting payments. There is no comparative barometer or criteria for assessment of bids.
Bid documents prescribed FCI’s specifications of rice, while there are some deviations in Ematta rice available from Myanmar. (Chart above). If Indian side insists on FCI specs, then either the performance may be expensive or manipulated and that too with limited participation. Government has to take view on relaxation on these technical parameters.
Implications of G to G deal
A report of 15th October appearing in Myanmar (http://goo.gl/RfFHqS states that Indian Embassy [in Yangon] announced tender for rice imports recently and received two very expensive offers. The Embassy has now approached Myanmar Rice Federation (MRF) with some counter offer at half the price, around $400/mt, for delivery at the Indian border.
MRF is not a corporate body. They may recommend some of their members to participate in bidding. Past experience for the import of pulses from Myanmar suggests that traders /millers prefer advance payment. They are not comfortable dealing with LC related transactions. If any G to G deal is envisaged through Embassy, advance payment route may be dismissed forthwith. Any price volatility can create dispute and advance payment may be jeopardised.
The way forward
This import is now being retendered by STC/MMTC. FCI/PSUs need to do homework by having a logical pre tender recce of all activities and costs for factual evaluation of prospective bidding. For ensuring transparency, equity and integrity of transaction, PSUs/FCI may issue a short-notice local tender asking bids from Indian traders for delivery of Indian rice procured from open market at designated depots in Manipur/Mizoram by using “any” mode of transport and “any route”.
Price received against this domestic bidding can be yard stick for deciding whether rice is required to be imported or local arrangements may suffice or may be supplemented. If there is nil response from the local traders or they bid well above Myanmar offers, imports at elevated prices can be appropriately justified. Otherwise essentiality of import may be revisited. In the event of import, PSUs will have to fine tune specification, payment terms, delivery at the border, agreements with truckers and handling agents and safeguards for pilferages.