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Tuesday, June 30, 2015

The Wrongful Act: Mizoram Chief Minister Allots The Road Contracts To His Brother's Firm Instead Of Bidding!

By Mukesh Thapa in Aizwal
The so-called corruption free government under the guidance of NaMo, the small states are making corruption-hit states with a utterly wrongful acts. As an example the Mizoram state which is the gem of all small states making headlines in corruption by it's own chief minister. INNLIVE investigates the multi-fold contract scam.

The profits of infrastructure firm Sunshine Overseas rose from Rs 8.5 lakhs to Rs 96 lakhs in the three-year period during which the younger brother of Congress Chief Minister of Mizoram state Lal Thanhawla had a stake in it.

Step into the office of the Class 1 Contractors’ Association in Aizawl and you wonder if any civil construction happens in Mizoram at all.

Tucked away on the ground floor of an unremarkable building behind the excise office, the office is decidedly laidback. Next to an unattended reception desk, two women roll a large number of Vaihlos, the local cigarettes. Further inside, four men each sit around four tables, playing cards – dus patta.

Their languor is surprising, the first in a series of questions.

Mizoram is witnessing a large road building programme. There are bigger roads coming up linking Mizoram to neighbouring Myanmar and Bangladesh and smaller roads connecting towns and villages to the existing grid of highways. Most of these contracts are awarded by the state Public Works Department. Class 1 contractors, allowed to bid for projects of any size, should ordinarily be bagging some of the bigger jobs and all the smaller ones.

That they are playing dus patta instead confirms what is often heard in Mizoram, from PWD officials, businessmen, contractors and politicians – that most road contracts here go not to local contractors but to a handful of companies owned by non-Mizos. These are Silchar-based ABCI Infrastructures, its sister company GP Projects, Kolkata-based Tantia Constructions, and finally Sunshine Overseas, whose registered office is in Delhi.

Second-tier contracts
These large companies pick up the bigger contracts, like highways, awarded by the PWD. But the Class 1 Contractors don’t get smaller contracts either, like those under the Pradhan Mantri Gram Sadak Yojana, which seeks to build roads between villages and the nearest thoroughfare.

This is puzzling too, the second question that begs answering.

As previous articles in this series demonstrated, Mizoram is struggling to boost economic activity, not to mention create jobs for its youngsters. Given that most agriculture is subsistence and most manufacturing is local and small-scale, the biggest economic engine in Mizoram is the state government. If it was to award these contracts to local companies, a greater percentage of its outlays on road, bridge and building construction would circulate in the local economy.

PWD officials explain away the lack of contracts for local contractors with a number of excuses – that these contractors are too small, that they do not maintain their books of accounts well enough.

But the factor principally at work here, a single explanation to all the questions is this: Politicians in Mizoram have captured the road-construction business in the state.

The wider context
First, some context. Mizoram at present has a 7,548-km-long network of roads, to which it is adding a lot more.

Road projects here are funded in three ways. Some, like the road coming up between the trading town of Champhai and the border town of Zokhawthar, are funded by multilateral donors like the Asian Development Bank and the World Bank. Others like the Kaladan highway are funded by central government ministries like the Ministry of Road Transport and Highways and the Department of North East Region. Smaller roads – like state highways and village roads – are funded by the state government.

According to the Economic Survey (2014-'15) of Mizoram, the state spent over Rs 2,000 crore on road building and maintenance in that financial year. A very small part of this – Rs 20 crore – was funded by the state government. The rest came from central agencies and programmes like Nabard, Central Road Fund, Pradhan Mantri Gram Sadak Yojana, Ministry of Road Transport and Highways, the North Eastern Council and finally Non-Lapsable Central Pool of Resources, where central ministries and departments have to mandatorily spend 10% of their allocations in the North East.

In addition to these, projects were also funded by the multilateral agencies.

Most of these contracts – whether awarded by the state or others – have so far gone to a handful of companies, as even local media has reported.

Small pool
One reason is Mizoram’s isolation. Only companies with road building equipment in or near the state participate in the bids. A senior PWD official who spoke to INNLIVE on condition of anonymity also attributed this to lack of information about the state. “Outsiders think there is insurgency and so do not want to come,”

Local contractors, despite their geographical advantages, are never among the winning handful of companies. The qualifying parameters for the central and multilateral projects are too high. The tender for the road connecting Aizawl to Tripura via Mizoram’s Mamit district is around Rs 500 crore. After winning the bid, contractors have to submit bank guarantees and security deposits adding up to about 10% of the project cost – Rs 50 crore. Local contractors don’t have that kind of cash.

But even when it comes to contracts given out by the state government, eligibility norms – like minimum bank balance and quantum of projects handled till date – are so high that local contractors are walled out, says K Zoliana, general secretary of the Class 1 Contractors’ Association. When the Mizo National Front was ruling for the decade up to 2008, Zoliana added, “Contracts of Rs 10 crore-Rs 15 crore would be broken into smaller pieces and given to seven-10 contractors.” That, he said, has been stopped under the Congress rule.

The senior PWD official concurred, saying it is better to break large contracts into smaller packages. “If one contractor fails to deliver, another company can step in. The whole project doesn’t suffer.”

If even PWD officials feel the eligibility norms should be relaxed, why is the government unwilling to? This is another poser, the third in the series of questions.

The deeper logic
Trawling the database of the Ministry of Company Affairs throws up one possible answer. In the past, there have been allegations of links between Mizoram Chief Minister Lal Thanhawla and a company that is predominant in Mizoram’s road sector – ABCI Infrastructures. Now, a INNLIVE investigation shows that another non-local company winning contracts in Mizoram – Sunshine Overseas – had a link with Lal Thanhawla.

Sunshine Overseas has its registered office on New Delhi’s Sadar Thana Road and its Mizoram office in Aizawl. The person who oversees the state operations, Sanjay Chokhani, is also one of its biggest shareholders – he owns 27% of the shares in the company. Between him and other Sunshine shareholders, also named Chokhani, they control 58% of Sunshine Overseas.

The company’s filings with the Ministry of Company Affairs show that on March 31, 2009, it allotted 476,000 shares – or 21% of the total that year – in two tranches of 246,000 and 230,000 shares to an individual named Lalthanzara. The document says that Lalthanzara is the proprietor of HP Modern Roller Flour Mills and HP Food Products. It lists two addresses for him – A/15, Zarkawt, Aizawl; and T-20, Dr Thanpuli Building, Tuikhuahtlang, Aizawl.

What the document doesn’t reveal, in its administrative features, is that Lalthanzara is Chief Minister Lal Thanhawla’s younger brother. In the affidavit he submitted while contesting the 2013 assembly elections, the address he provided was A/15, Zarkawt, Aizawl. As for T-20 at Dr Thanpuii Building, that is the address of HP Food Products.

Lalthanzara held these shares for three years. On January 5, 2010, he transferred 76,000 shares to Sanjay Chokhani and 100,000 shares to Saralata Chokhani (who has the same residential address as Sanjay Chokhani). On March 31, 2012, Lalthanzara transferred the remaining 300,000 shares to Sanjay Chokhani. This was shortly before the assembly elections in 2013.

The transaction raises several issues. Both Lalthanzara and Lal Thanhawla had won in the 2008 assembly elections, the latter becoming chief minister in December 2008 and the former a minister. Why did Sunshine give shares – and why did Lalthanzara accept them – at a time when both he and his brother were in the state government?

Neither Lal Thanhawla nor Lalthanzara responded to emailed questionnaires and text messages from INNLIVE.

Lalthanzara got the shares, with a face value of Rs 10, at a premium of Rs 40. It is not clear how much he sold them to Chokhani for. When asked about this, Chokhani replied on email: “No comments”.

Starting from scratch
Did Sunshine benefit from its proximity to the chief minister and his brother? According to a local contractor, when Sunshine entered the road construction business in Mizoram, “it had no equipment. And so the equipment was lent to it by the PWD." At that time, he added, Lal Thanhawla was also looking after the PWD.

In his response to a question about this, Chokhani replied “partly true” but did not go into details. When asked, the PWD official said, “On occasion, the PWD does hire its equipment out. But a lot depends on the conditions under which the equipment is hired out.”

While Lalthanzara held shares in the company, Sunshine’s business with Mizoram PWD grew, rising from Rs 6.83 crore (2010-'11) to Rs 24.16 crore (2011-'12). In the financial year ending March 2009, Sunshine’s income from operations was Rs 12.55 crore. Three years later, that figure had almost trebled to Rs 35.63 crore. Its profits, in this period, rose from Rs 8.5 lakh (2008-'09) to Rs 96 lakh (2011-'12).

In the state, a senior member of the Mizo Students Union told INNLIVE, on condition of anonymity, that Chokhani is just a front, that Sunshine is actually owned by Lal Thanhawla. INNLIVE posed this question on ownership to Lalthanzara, Lal Thanhawla and Chokhani.

The first two did not respond. Chokhani wrote back saying: “Not true at all. On the contrary, our company flourished during the MNF reign of 10 years. ie. 1998-2008.”

But the company’s filings with the Ministry of Company Affairs challenge his claim. Sunshine’s profits in 2005-'06, for one, stood at Rs 67,860. Its profits were below Rs 10 lakh till the Congress came to power. Since then, its margins have improved, rising from 0.66% (2008-09) to 2.69% (2011-'12) to 4.3% (2013-'14). These could have been higher yet if the company had not transferred large sums of money – ranging from Rs 13.38 crore to Rs 23.87 crore – between 2009-10 and 2012-13 to one of its shareholders (RZ Enterprise, a company owned by Aizawl resident R Lalremsanga, which holds 5.5% shares in Sunshine).

Neither a Google search nor a query on the Ministry of Corporate Affairs database threw up data about RZ Enterprise. A question to Chokhani on RZ Enterprise and what it was being paid for did not get a response.

Nevertheless, what is certain is the chief minister’s brother held shares in the company at a time it was winning contracts from the state government. Even today, Chief Minister Lalthanhawla holds the additional charge of the PWD portfolio. And, as the Mizoram government’s website says, one of Lalthanzara’s responsibilities as Minister of State is: “He will assist the Chief Minister in PWD & P&E [power and electricity] Department.”

The smaller fish
But all this is just one reason the 160 Class 1 contractors in the state play cards in their office. While bigger state government contracts elude them, the contractors also don’t get the smaller projects – like under the Pradhan Mantri Gram Sadak Yojana – though they are the only ones eligible for these. For some years now, they have faced competition from local Congress workers. Three senior contractors INNLIVE spoke to echoed one allegation: Congress leaders at the district or block level have cornering PWD contracts.

To register as a Class 1 contractor, a person should have executed at least three works costing not less than Rs 20 lakh. They should also meet other parameters like having a permanent engineering establishment with engineers on their rolls, road-making equipment like road rollers and bulldozers, a credit facility from banks for at least Rs 10 lakh, and permanent residence in Mizoram.

Local politicians avoid these procedures by simply taking away Class 1 contractors’ documentations. “Party workers come and ask for our documentation – the work we have done, our financial statement, our list of equipment,” one of three contractors said. “They use the contractor’s name to participate in a tender.”

Given their links to the state government, it is easy for them win tenders. After that, they either hire the machines and complete the work on their own or, as the contractor said, “They sell the project to an unregistered contractor for a profit of 10%-20%.”

The senior PWD official agreed. “What you are talking about happens mostly in PMGSY [Pradhan Mantri Gram Sadak Yojana]. The party workers are taking these projects.” The department, he said, checks documents but cannot reject if the documentation is fine. “Without a strong will or determination from the state government, it is not possible to stop this.”

Quality takes a hit
This has had several consequences. One, lending documentation has emerged as an alternative source of revenue for the Class 1 contractors who, one of them said, charge 2%-5% for lending their name to projects. Two, with the unregistered contractors retaining, say, 10% as profit margin, the projects are being built for 70% or less of the initial estimate.

The final fallout? The quality of the roads suffers. “Work is given to an experienced company but is done by an inexperienced one,” said the senior PWD official. “No one completes a project on time. In case they do not do these roads well, then potholes develop within the first year itself.” For its part, the PWD’s field staff, he said, is working closely with these inexperienced contractors trying to ensure the project comes out fine. “But some companies are willing to take advice, others aren’t.”

In any case, the reputational risk lies with the contractor who lent his name.

There is also corruption in the contracts party workers are not interested in. “We are facing problems because the Congress gives us a contract only if we agree to give them 1%-3%,” said a contractor. “We get a 2% margin but the demand is for 3%.”

That is then the pattern at work: Some projects are taken by companies like Sunshine. Others by state politicians. Little is left for the state contractors.

“I am now getting contracts where others do not dare to go – border areas – or where some contractor could not finish the work,” said a contractor. “I get incomplete work where anywhere between 10%-50% has been completed.”

The endgame
All this goes a long way to explain the state of Mizoram today. Poorly-built roads require frequent repairs. If they are left rutted, that makes it harder for the locals to travel or to start businesses. The cost of transporting raw materials or finished goods, given poor roads, is high. During the rains, some roads are almost impassable.

There are other costs. When very few companies bid for projects, the government's hands are tied. On occasion, tender documents have had to be revised.

Take the project to improve and upgrade the 88.5-km KDZKT Road (Khadacherra-Damcherra-Zamuang- Kawrtethawveng-Tuilutkawn Road). It was sanctioned at an estimated cost of Rs 134.7 crore in January 2013. However, only two companies placed a bid. The 2014-'15 Economic Policy details what happened next: “Since the lowest quoted rate by the agency is 33.35% above the approved cost. Revised DPR amounting to Rs 17.963.00 lakhs which is prepared based on the lowest tender rate is submitted for approval of NEC.”

That is one risk. Having very few bidders creates a risk of cartelisation. At the same time, rising political interference – of the kind seen in the PWD contracts – is one reason why politicians’ wealth is rising steeply. As Zodin Sanga, an activist with a local accountability and transparency NGO called PRISM says, “Our politicians’ assets rose by 600% between 2003 and 2008. And 400% between 2008 and 2013.”

A report from the Association for Democratic Reforms calculated asset growth for 36 Mizoram MLAs who contested in both the 2008 and 2013 elections and found an average growth in their self-declared assets of 217%. Take Lal Thanhawla. His assets grew by 311% between the 2008 and 2013 elections, rising from Rs 2.22 crore to Rs 9.15 crore. As for his brother Lalthanzara, his assets grew by 69% between the two elections – climbing from Rs 1.65 crore to Rs 2.8 crores.

These are related processes. On one hand, the politicians’ wealth has grown. On the other, the state’s ability to look after its most vulnerable has collapsed.
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