10/08/2011 (Commodity Online) - In one of the most protracted legal battles in the state of Kerala in South India, palmolein or palm oil import scam is haunting State Chief Minister (CM) Ommen Chandy which took him to the verge of quitting the post.

The Vigilance Inquiry Commissioner and Special Judge have rejected a probe report which exonerated Oommen Chandy in the scam; the report was tendered by vigilance department.

The CM, taking a moral high-ground offered to quit, but after consultations with cabinet colleagues, have decided to relinquish vigilance portfolio and continue as the Chief Minister.

The Vigilance Court dismissed the probe report which tried to drive home that prima facie evidence does not exist in case of Oommen Chandy’s involvement.

The Court, however noted that the concerned file of imports lay with the finance ministry for one and half months and Chandy had been aware of slapping 15% service tax on imports.

History
Back in 1991, Kerala government decided to import 15,000 tonnes of palm oil palm oil from a Malaysian company in Singapore named "Power and Energy Ltd" above the international price which was approved by the Kerala Cabinet then headed by Cheif Minister, late K.Karunakaran.

The price of import was fixed to $405.0 per ton which was higher than the international price of $392.25 per ton and resulted in a loss of more than 2.32 cores to the exchequer.

The import order was signed by Thomas, who was then Kerala's Food Secretary. Reportedly, no tender was invoked in the process and the opposition cried foul.

A vigilance case was filed against K. Karunakaran and seven others including Thomas. Thomas was bailed out in 2003. (Court proceedings against K.Karunakaran were closed subsequent to his death in 2010.)

Now, a vigilance case has been initiated against Oommen Chandy, with the vigilance court ordering a probe into his role as he was the Finance Minister back in 1991.

Background
In 1991, India was in a fiscal crisis with dwindling dollar reserves. The Union government had banned states from importing commodities directly, but asked them to rely on STC (State Trading Corporation) a public sector company, mainly to check dollar reserve drains.

Later on, the govt relented to demands from the states and allowed for palm oil imports paying against rupees; in a barter system where goods would be exchanged and no foreign exchange spent.

But there was a rider according to The Telegraph newspaper, “the price of the imported edible oil would not be higher than the price the STC would have paid for it (the so-called indicative price) on the day the states imported oil, or the average price STC paid in the preceding 30 days.”

Ironically, states like West Bengal imported palm oil to the tune of 8,000 tons at a slightly higher price than Kerala’s, where it did not become a political issue.

Kerala government had to import palm oil because, Coconut Oil prices in the state were ruling at historic highs.

The Telegraph report says, “On November 9, 1991, Singapore-based commodities trading company Power & Energy Pvt. Ltd wrote to then Kerala chief minister K. Karunakaran offering to supply palmolein, after meeting Karunakaran and Kerala chief secretary S. Padma Kumar in New Delhi in October. On November 27, the state Cabinet decided to import palmolein after obtaining New Delhi’s permission. The price would be decided later. It opted to use Power & Energy for this because it didn’t have the machinery to import the oil at short notice.”

But further down in The Telegraph report it is said,

“In fact, Malaysia’s Nalin Industries offered to supply palmolein in a telex dated November 26 to S. Padma Kumar, citing the day’s indicative price of $390 a tonne. This was a day before the Cabinet decided to use Power & Energy as its intermediary, and the price was lower than the $405 the state government bought palmolein for.”

There are allegations that certain official procedures were also violated.

“The price should have been fixed on the basis of the STC’s procurement price on November 29, the date on which the MoU was signed, or the average of the past 30 days (that is, $380 a tonne).” The Telegraph report cited the stance as taken by the opposition leaders, then.

Whatever be the case, Kerala politics is turning murky once more.