India contract a headache for AWB

31 May, 2006 08:45 PM
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AWB'S venture into the Indian market has been complicated by India's State Trading Corporation (STC) refusing to budge from the terms of its latest contract to import Australian wheat.

STC has ruled out retrospective changes to its contract with AWB and raised the distinct possibility that it will apply penalties.

AWB is yet to supply further grain to India as contract negotiations continue to stall and shipping activity grinds to a halt.

Australia's wheat export body was set to supply India with 500,000t of wheat as the Indian market struggled to meet high local demands, but a tender struck on February 20 reached an impasse due to specifications that the imported wheat be completely free of ergot and dwarf bunt.

When the initial importation was held up at the Indian dock those conditions were altered and the new contract allowed for the presence of up to 0.01pc ergot and 0.005pc dwarf bunt.

AWB has delivered only 50,000t of the contract amount because it is finding it difficult to supply India with wheat that is totally ergot-free, forcing it to redirect ships to other destinations.

AWB is reportedly demanding that the 0.01pc allowance for ergot in the May 8 tender be made effective retrospectively, but Indian authorities are refusing to budge.

STC chairman Arvind Pandalai said: "There is no way we can allow it because the two tenders are separate and no terms of the first tender can be changed - it is a closed chapter."

Mr Pandalai said AWB could be forced to pay penalties for late or non-delivery of the contracted wheat.

"Despite the original tender stipulating that the arrivals be completed before mid-May, we will wait until the end of this month," he said.

"In the event of default, there are international clauses like penalties."

The tender provides for cashing a performance bank guarantee equivalent to 5pc of the contract value, valid until May 31.

Pastoralists and Graziers Authority (PGA) policy director Slade Brockman said AWB would find it difficult to complete its contractual obligations, with India not willing to change the contract.

"Completely free from ergot is almost impossible to guarantee," Mr Brockman said.

"AWB could load ships and send them to India, only to have them rejected, but if the reporting is correct then it was a very poor contractual negotiation from AWB."

AWB WA manager Paul Ryan said AWB was continuing to negotiate the Indian deal and remained optimistic of a positive outcome.

Meanwhile, the Australian Federal Police may be called in to investigate a second alleged AWB kickback.

The subject of the latest investigation involves a $3.3 million payment to the Cayman Islands as part of a wheat sale to India in 1998, when the wheat exporter was owned by the Federal Government.

India's Central Bureau of Investigations (CBI) scrutinised the deal, with two bureaucrats and the head of STC accused of corruption.

Exact details of the Cayman Islands payment are not clear, but it is understood the CBI abandoned its investigation two years ago because the Australian Government failed to cooperate.

The Attorney-General's department rejects this claim.

A Cole inquiry document shows that in October 2001, AWB's then chief executive, Andrew Lindberg, told directors the company had found financial records connected to the Indian corruption scandal.

AWB spokesman Christian Sealey said the wheat exporter was not aware of a direct request from Indian authorities to AWB during the investigation.

"The AWB board received a report concerning Indian media coverage of the investigation in 2001," Mr Sealey said.

"No further action was taken after closure of the matter by the Indian authorities, however, the board is reviewing this matter and will take whatever action is necessary."

Indian investigators alleged the wheat was sold at a price of $142.50/t while the same wheat had been sold to Egypt at $135/t.

A similar scheme was used by AWB to funnel money to a Jordanian trucking company part-owned by Iraqi dictator Saddam Hussein.

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