Columns: Fix the Myanmar rice import tenders

Updated: Oct 30 2014, 07:09am hrs
Two tenders for import of non-Basmati rice (of the 25%-broken variety) from Myanmareach is for 10,000 metric tonnesfor the north-eastern states of Manipur and Mizoram were opened on October 9, 2014, by STC and MMTC (PSUs) on behalf of the FCI. Both have flopped; only one party bid for both tenders, at 588 euros ($753)/metric tonne and 680 euros ($871)/ metric tonne, respectively. The quotes are equivalent to R47/kg and R54/kg delivered at FCI depots in the interior of these two states.

However, Myanmar's 25%-broken non-Basmati trades internationally at $360/mt fob or R22/kg, while open market price at Guwahati and Kolkata are R23/kg and R25/kg respectively. MNCs or rice traders of Singapore, Thailand and Dubai, who are adept in dealing with Myanmar, abstained from bidding.

The FCI has been supplying rice to these states at R32/kg or $516/mt through the rail route, which is now under renovation. Annual requirement for these two states is 5lakh metric tonnes. The non- availability of the rail route for the coming two years compels the import of nearly around 1 million tonnes.

Bids opened on October 9, point at exorbitant expenses for Indian inland handling, of about 110-140% of the purchase price. Perhaps, air-freighting could prove cheaper. Even the shipping of rice from the Far East to Nigeria (West Africa) has a freight addition of $60-65/mt or about 13-14% of the purchase price. This over a distance of 10,000 nautical miles and a 45-50 days sailing period. That is why this single bid, with wild margins, stands rejected by the government.

There is no doubt that the logisticsbad roads, poor trucking facilities, warehousing and local insurgencyin these states are nightmarish. But the lack of response from seasoned traders and the escalated quote can be directly attributed to the terribly flawed terms of the tenders themselves. In the bid documents, quotation for dual prices could have been called forone for delivery at the Indo-Myanmar border and the other for offloading at the FCI depots. This one condition would have led to significant participation as many foreign suppliers may have preferred quoting for deliveries at the border. This could have also formally led to a separate price discovery for both Myanmar and India.

Normally, the delivery of the imported cargo is made at the custom frontiers (or at ports) with the importer taking charge of the consignment from that point, but the two PSUs opted instead for a delivery at FCIs depots in Mizoram and Manipur. It implied that in addition to rice procurement from Myanmar, the entire cost/financing and operational risk/shortages in these troubled regions were also placed upon the foreign seller. The 100% payment was linked to Certificate of Weight and Quality issued by nominated Inspection Agency at the designated FCI godowns in the interior. No trader in his right mind will undertake this type of exposure in the north eastern states.

The generally-accepted norm of payment of 90% upon shipment and balance 10% on receipt at destination was shunned because the PSUs/FCI may not have done any formal logistics price recce. A competent agency/surveyor could have been hired for estimation of handling expenses and transit shortages. STC/MMTC/FCI just confined their role to the paper work of issuing the tenders, finalisation of the bids received and effecting payments. There is no comparative barometer or criteria for assessment of bids for such exercises.

The bid documents also contained the FCIs specifications of rice while there are some deviations in the Ematta rice from Myanmar. If the Indian side insists on the FCI specs being met, then either the carrying this out could prove expensive or the consignments can be manipulated, that too with limited participation of bidders. The government has to relax these technical parameters.

A report dated October 15 appeared in the Burmese media (goo.gl/RfFHqS) which states that the Indian embassy in Yangon announced the tender for rice imports and received two very expensive offers. The embassy has now approached the Myanmar Rice Federation (MRF) with a counter-offer, of half the price, i.e., around $400/mt, for delivery at the Indian border. The MRF is not a corporate body. It may recommend some of its members to participate in the bidding.

The past experience, of pulses import from Myanmar, suggests that the traders/millers prefer advance payment. They are not comfortable dealing with LC-related transactions. If any government-to-government deal through the embassy is envisaged, the advance payment route could be dismissed forthwith. Any price volatility can create a dispute and, thus, advance payment may be jeopardised.

Now, STC/MMTC have issued fresh tenders. The FCI and the two PSUs need to do some homework and have a logical pre-tender recce of all activities and costs for the proper evaluation of any future bids. For ensuring transparency, equity and integrity of transaction, the PSUs/FCI could issue a short-notice local tender asking for bids from Indian traders for the delivery of Indian rice procured from the open market at the designated depots in Manipur/Mizoram by using any mode of transport and any route.

The price determined in this domestic bidding can be the yardstick for deciding whether the rice is required to be imported or local arrangements may suffice. If there is no response from the local traders or they bid well above the Myanmar offers, imports at elevated prices can be appropriately justified. Otherwise, the essentiality of import needs be revisited. In the event of import, PSUs will have to finetune their specifications, payment terms, agree to delivery at the border, and come up with accords with the truckers and handling agents for guarding against pilferages.

By Tejinder Narang

The author is a grains trade analyst