‘Reinstating fertilizer order could result in Rs1b loss’

- Sangam Prasain, Kathmandu

Mar 16, 2017-

The Agriculture Inputs Company (AIC) has said that it could lose Rs1 billion if it obeys a court ruling to reinstate an order for fertilizers placed with an Australian company seven years ago.

Representatives of the state-owned enterprise told the parliamentary Agriculture and Water Resources Committee on Wednesday that in 2011 its board had awarded a contract to supply 30,000 tonnes of chemical fertilizers to Lobana Trading. The Australian company had quoted the lowest price of $565 per tonne.

The shipment has not happened due to continuous disputes between the supplier and AIC. “Fertilizer prices have now plunged to $323 per tonne; and if we reinstate the old order, we could lose Rs1 billion,” Amar Raj Khair, managing director of AIC, told lawmakers.

“We are in a dilemma. If we obey the Supreme Court’s order, we may be out of a lot of money. It would be unwise to buy fertilizer at a price given seven years ago.”

Lawmakers and government officials have urged AIC to make an out-of-court settlement. “The issue is complicated. However, we are looking for ways to buy fertilizer at the current market rate,” said Kashi Raj Dahal, joint secretary of the Ministry of Agricultural Development.

Lawmaker Navaraj Sharma said that the matter could be discussed with the supplier and settled out of court.

The Australian company did not submit a performance bond within seven days or sign a consignment contract within 10 days after receiving the letter of acceptance from AIC. Subsequently, AIC seized the bid bond of Rs30 million submitted by Lobana Trading.

On January 5, 2012, the Australian company’s local representative Swaniga Services filed a writ petition in the Patan Appellate Court, since renamed High Court, stating that AIC had acted with malice and seized the deposit money without notice.

On January 9, 2012, the court issued an interim order forbidding AIC from seizing the bid bond pending a final verdict. The court eventually handed down a decision on April 18, 2012 ordering AIC not to seize the bid bond and reinstate the supply contract.

Likewise, on September 14, 2012, the Commission for the Investigation of Abuse of Authority (CIAA), ordered the AIC to sign a contract with the company within seven days in response to a separate complaint.

Following these orders and recommendations from the Ministry of Agricultural Development, AIC decided to sign another contact at the reduced rate of $539.88 per tonne which was based on the prevailing market price at that time.

Further complications arose after the Australian company failed to open a letter of credit (LC) to import fertilizer due to its poor credit rating. As a result, the CIAA’s directives were annulled on November 12, 2012.  

On February 22, 2013, Swaniga Services told AIC that they would open an LC. However, the company’s performance bond expired on March 31, 2013, and AIC wrote to Nepal Investment Bank to seize the $847,500 performance bond for failing to fulfil the contract.

On September 11, 2013, the Patan Court issued a mandamus ordering AIC not to seize the performance bond. AIC filed an appeal in the Supreme Court but it was turned down. On December 27, 2015, the Supreme Court issued a final verdict to implement the past agreement.

Published: 16-03-2017 09:16

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