NEW DELHI: The UPA government is staring at yet another massive scandal that has resulted in the state exchequer losing thousands of crores.

A test audit by the comptroller and auditor general ( CAG ) of the railway’s dual policy for transportation of iron ore has confirmed widespread suspicion that exporters have been blatantly misusing the policy. A multi-disciplinary investigation team, led by the Central Bureau of Investigation (CBI), is already investigating some of these cases, and TOI has been reporting over the past year about the scandal.

The scandal goes back to May 22, 2008, when the railways had introduced dual pricing for iron ore transportation. Those moving it for domestic consumption were allowed to do so at a significantly cheaper rate than those exporting it. The cost of transporting iron ore for export was on an average three times the cost of transportation for domestic consumption.

Now, a draft para of a CAG audit sent to the railway ministry says that just in cases where it carried out the test audit recoverable dues to the government is over a staggering Rs 17,000 crore. And the figure is on the basis of an audit carried out at only 26 of the 75 loading points and 10 unloading points out of a total of 41.

On April 26, 2013, TOI had reported — based on its assessments, documents and information available from an ongoing multi-agency investigation— that total recoveries for the railways from the fraud could be as high as Rs 50,000 crore. The estimate now seems to be coming true as the CAG audit and the multi-agency criminal investigation progress.

The test audit by the CAG was done in the three zones of railways where iron ore loading is maximum — South Eastern, South Western, and East Coast — and for transportation done between May 2008 and March 2012.

The CAG has found several ways by which the fraud was being perpetuated by exporters.

For availing the domestic rate, those transporting had to submit several documents, affidavits, indemnity note etc. A test check by the audit revealed that 126 parties did not submit any of the prescribed documents before booking 386 rakes carrying iron ore between May 22, 2008 and March 31, 2012.

“The railway administration permitted these parties to avail of the domestic rate despite non-submission of any of the prescribed documents.” And by letting them pay domestic rate, railways suffered a revenue loss of Rs 258.38 crore, the audit para says. “This indicates collusion between the railway administration staff and the parties,” it says.

The audit also revealed that another 290 parties availed the domestic rate with incomplete documentation. “The railway administrations permitted these parties to avail of the domestic rate despite non-submission of some of the essential prescribed documents resulting in revenue loss of Rs 2090.15 crore” just in south-eastern railway, the scrutiny finds. And the total revenue loss due to partial submission of documents has been pegged at Rs 2228.30 crore.

“The total revenue loss of Rs 2343.53 crore due to non-submission/partial submission of documents,” the audit para concludes.

Based on the estimates, the audit points out that the entire scheme, where domestic consumers were allowed to transport iron ore at a fraction of the cost, was premised on full compliance with documentation.

Instructions issued by the Railway Board in May and July 2008 specifically laid down pre-conditions for availing the domestic rate. The instructions stipulated levy of penalty if it was detected that the endorsement of the forwarding note and or affidavits were false, inaccurate or misleading. “It is obvious that the penalty was to be levied in case there was irregular use of the concessional freight,” the audit points out.

It pointed out that during the test check carried out between October 2012 and March 2013 showed that “153 parties did not submit any of the documents while 290 parties failed to submit some of the essential documents”. This indicated a “deliberate attempt to circumvent the conditions governing the domestic rate” and thus should be levied penalty.

“The total penalty against 443 parties is estimated at Rs 17588.16 crore,” the audit para says.

The audit says the key characteristic of the entire policy was its pre-conditions, including submission of separate documents before registration of indents and issue of railway receipts, and submission of an affidavit and an indemnity bond at the time of delivery.

The policy “stipulated levy of penalty if it was detected (at any stage) that the endorsement of the forwarding note and or affidavits were false, inaccurate or misleading. It is obvious that the penalty was to be levied in case there was irregular use of the concessional freight,” it adds.