072. Kerala’s Timber E-Auction Leads To Billions Worth Of Timber Rotting Away In Depots. Investigative Article By P S Remesh Chandran

072

Kerala’s Timber E-Auction Leads To Billions Worth Of Timber Rotting Away In Depots. Investigative Article. 

P. S. Remesh Chandran

Editor, Sahyadri Books & Boom Books, Trivandrum
 Article title image by Free-Photos. Graphics: Adobe SP.
  

Timber is one of the costliest commodities needed for from rail, ship, bus and bridge building to houses and furnishing them, available unfortunately only in timber producing countries. India, especially the densely forested state of Kerala, has an abundance of timber which rots away in depots since when the manual auction of old days was replaced by electronic auction, due to the carelessness and indifference of state forest officials. The loss of revenue on this account comes to billions.

Every Forest Division in Kerala has logs rotting away without being of use to anyone.

The Divisional Forest Officers responsible for auctioning away this timber are considered to be intelligent and clever as they come from the prestigious Indian Forest Service (IFS). But if they fail to find a solution to these billions worth of logs remaining technically Un-Bid after putting under auction and rotting away in depots throughout the state, what meaning and relevance is there to their intelligence and cleverness? Every Forest Division in Kerala has such rotting logs which are decaying without being of use to anyone, in spite of people being there ready to purchase them. The one nearest to Trivandrum is the Achenkovil Division near the Trivandrum-Schencottah Inter-State Road, 120 Kilometers from Trivandrum.

A government timber sale is a complex process which an ordinary non tech-savvy person cannot master easily.

01. Timber Logs By Frank Vincentz.

Government timber sale is a very complex process, involving sealed bids and contracts which an ordinary and non tech-savvy person cannot easily master or even understand. Timber can be sold through Sealed Bids, Fixed Price Negotiations or Percentage Basis Negotiations. In Kerala, government timber is sold through auctions which were manual in the past and electronic now. Government determines the value and volume of their timber and advertises for their selling through auctions. In some cases, the type and volume of timber may limit the number of potential buyers in which cases the government may adopt the method of Fixed Price Negotiations or Percentage Basis Negotiations. In Fixed Price Negotiations, government negotiates with a buyer for a lump sum fixed price for all the timber in an acre or area or for a Pay-As-Cut Price per unit of timber which is to be paid as and when each unit is cut. In both these cases, the timber would be standing timber, sold in as-is-where-is condition. Sealed Bids are applied mostly to not standing timber but felled timber.

Some buyers knowing about the best markets for timber creates incentive and competition in auction.

02. Release Note of article by Sahyadri Archives. Image by Gorkaaz.

Some of these buyers would know about the best markets for timber and would also have the means for transporting timber to such market places economically. It will not break them to purchase timber at prices higher than what those without these conveniences would offer. This creates an incentive and a competition among buyers resulting in bringing in the highest price for a lot. 

Forward Auction, Reverse Auction, Online Auction, Offline Auction and Negotiation.

03. From forest to depot by U.S. Dept. of Agriculture.

Where government wishes to buy and sellers bid for supplying, it is a Reverse Auction. When government wishes to sell and several consumers submit bids for buying, it is a Forward Auction. Government’s timber sale is a Forward Auction. Here the goal is for the seller which is the government to get the highest prices possible for their timber under sale. The buyers bid the prices upward, and the highest bidder gets the item. In Reverse Auctions where government buys, the sellers bid against one another by bringing down the price, and the lowest bidder gets government’s Supply Order. In both categories of auctions- online or offline and electronic or manual- there is expected to be a negotiation phase in the process when bidders are called in for a meeting and asked to offer more flexible prices- higher or lower than their highest or lowest bids as the case may be. In timber e-auctions in Kerala, this negotiation phase is seldom written into the process, which is standard in all auctions in the other departments of the government. 

Specific Bid Amount, Reserve Price, Target Price, Step Size, Time Allowed and Waiting Period.


04. Timber transport truck by Silvio Pašmik.

Timber e-auction is an e-business between timber-producing government departments and timber-purchasing businessmen and individual buyers. It is an electronic auction between the auctioneer and the bidders, happening in an electronic marketplace, conducted over internet. Specific bid amount, reserve price, target price, step size of bidding and time allowed before bidding is concluded are the defining factors in any e-auction. There is also a waiting period factor which stipulates the time allowed for competing bids to come in- a dreaded period during which a bidder can win or loose an auction and a period which all bidders want to be shorter. When this waiting period is over, the highest bidder gets confirmation for his bid and he can execute a contract binding the seller to deliver the timber and the purchaser to accept it for the bid price. 

Timber e-auction was introduced to provide equal opportunities for genuine domestic buyers.

05. Timber in yard by Frank Vincentz.

E-auction of timber was introduced in November 2014 in the six sales divisions of Trivandrum, Punalur, Pathanamthitta, Palakkad and Kozhikode, following the examples of other timber-selling countries and other states in India, as a measure to bring in transparency in government timber sales and provide equal opportunities for all who are in genuine need of timber, thereby freeing this field from the grip of auction lobbies. Introduction of e-auction was expected to break the grip of merchant cartels on timber sales and increase the number of bidders in auctions. Revenue from timber auction in 2013 was around Rupees 200 crores and by introducing e-auction government hoped to raise it to 250 crores. Government’s argument was that the cartels threaten private individuals from participating in auction and they artificially bring down prices and that, by introducing e-auction under which only the bid amount would be known and not the name of the bidder, government can make more private individuals to participate in auction and fetch higher prices for timber. Government also argued that existing timber sale prices do not correspond with existing demand for wood. Transparency was also supposed to be a byword. It was also argued that the one or two months’ period of delay in delivering timber to the successful bidder could be reduced to just two days. One thing was true: this period of delay did indeed come down to days from months. But experienced persons in the field of timber auction and sales soon found out that since when e-auction replaced manual auction, the quantity of timber lying unsold in depots and rotting away has only increased many fold. 

Why pay a huge amount as commission to an outside agency for conducting e-auction?
 
06. Timber log bridge by Morrow Long.

Selling less quantity of timber for bringing in more revenue than the previous year is success. Increase in the price of timber must also reduce this quantity of timber further, to fetch the same amount the previous year brought. In manual auction, the auction was conducted by department personnel and no amount had to be paid to outside agencies as commissions for conducting auction. E-auction changed everything. More timber had to be sold for bringing in the target amount regardless of the hike in timber price, and a huge amount had also to be paid to an outside agency for conducting e-auction. Besides, more lots began to remain unsold in depots due to shortcomings and glitches in the system. 

Even the department does not know how much timber was sold, in spite of full computerization.
 
07. Timber foot bridge by Gorkaazk.

Even the Statistics Wing at the Forest Headquarters in Trivandrum does not know how much timber was sold during 2013-14 and 2014-15! Even after fully computerizing their offices, if they need this information, they still have to write to each timber division in Kerala and wait for their replies which would take months. Computerization in this department in particular, and in Kerala in general, is a folly. (Also see the article ‘What Computerization Without Electricity In Kerala?’ at http://sahyadribooks-remesh.blogspot.in/2012/08/043-what-computerization-without.html ). 

Statistics show e-auction did not increase revenue from timber sales.

08. Timber foot bridge by Jakec.

The Annual Administrative Reports of the Kerala Forests & Wildlife Department for the years from 2012 to 2015 in the Financial Break Up section state that ‘202.25 crores were collected towards revenue from the sale of timber during 2012-13, 268.29 crores during 2013-14 and 269.44 crores during 2014-15, which accounted for 85.22 %, 81.31 % and 89.69 % of the total forest revenue for those years respectively. The report does not record the projected increase of 25% in timber sales by introducing e-auction. There was only a slight increase of 115 lakhs in 2014-15. E-auction was introduced before the hectic financial and sales months of November, December, January, February and March but the sales for the year do not reflect the anticipated hike. But still it did not bring in the expected rise in revenue. The Administration Report is silent about how much money was paid as commission to MSTC (Metal Scrap Trade Corporation Limited) for conducting timber e-auction for the Kerala Forest Department, how many metric tones of timber were sold in 2014-15 to bring in this revenue of 269.44 crores, whether this quantity was higher or lower than that of the previous year, and what was the hike in market prices for timber during this period. When these facts also are factored into the equation, it can be seen that e-sales of timber was a great loss. If government departments’ standard working methods for preparing administration reports for submitting to government are considered, this 269.44 crores was the amount before deducting commissions to the MSTC, fetched by selling more metric tones of timber than the previous year, even while undergoing a good hike in the market prices for timber. Amount paid to MSTC must have been too high to be justified. Market price for timber must be too horrible to be factored into the sales strategy to break even and justify the e-auction. The Administrative Report shows that the unsold timber in depots still lies there as unsold timber rotting away; only they advanced one more year in age. Administrative Report for the year 2015-16 has not yet been submitted to government. 

Starting Price, Subject To Approval Price, Reserve Price, Auto Bid and Offered Price: Dynamics of Kerala’s Timber E-Auction.

09. Timber walkway by Hermann Hammer.

In the timber e-auction interface of Kerala maintained by the Metal Scrap Trade Corporation for the Forest Department, there are the three entries for Starting Price (SP), Subject To Approval Price (STA) and Reserve Price (RP) of which the first entry is visible to the bidder and the latter two are not. There is also the option for Auto Bid for bidders to enter their Offered Price above Starting Price, the Offered Price meaning the amount they are willing to pay above the Starting Price for a particular lot of timber under hammer. Rs. 25/- for Hardwood and Rs. 100/- for Softwood are the minimum stages fixed by government that can be raised above the Starting Price in the Auto Bid by a bidder. In cases where there is no other bidding in competition, when a bidder opens Auto Bid and clicks the stages of Rs. 25/- or Rs. 100/- as the case may be, e-auction network rejects this higher bid, or stalls at this particular stage, and refuses to provide the bidder yet another opportunity for entering still higher prices. The problem is the raised bid is rejected by the system as it won’t be anywhere near the Reserve Price or the Subject To Approval Price for the item as recorded in the system which are not visible to the bidder anyway. The result: The lot remains unsold and rots in the depot. This situation was created by officers of the Kerala Forests Department alone and no one else is to be blamed, and it causes billions of rupees of revenue loss to government. The Finance Department and the Vigilance Department of the Government of Kerala are yet to begin investigating this willful loss of revenue to government. 

Even if a businessman spends his whole life online, he cannot still purchase enough timber for his business.

10. Timber boardwalk by Rheins.

Considering the time allowed remaining bidding for a particular lot under auction, even if a businessman spends his whole life online, grappling with this hostile interface, he cannot still purchase enough timber for carrying on his day-to-day business. This dissuades good businessmen from participating in e-auction. The timber sales of Kerala Government cannot survive by excluding businessmen and by depending on individual domestic buyers alone. Individual householders purchase only a small portion of the timber sold by the Forest Department each year. This is because they cannot go through the tedious process of participating in the un-people-friendly e-auction, obtaining necessary papers from authorities within a reasonable time (without paying bribe if possible), loading and transporting the logs from where they are lying, and unloading them on their premises. The businessmen are experts in this field and it is easier for domestic buyers to buy timber from these businessmen who certainly will transport and unload them to the buyers’ premises at no cost. So, if it is thought that businessmen who deal in timber can be excluded from auction and individual buyers can be depended on for buying and removing the whole lot of timber in depots, it is just a daydream. The result is, due to official indifference, inaction and lack of imagination, the whole lots are rotting away in depots. 

The vicious cycle of inter-netted labyrinth created by more vicious officials and an unimaginative system!

11. Riverside timber walkway by Carlo Columba.

This vicious cycle of inter-netted labyrinth created by more vicious officials and an unimaginative system certainly has a simple solution, suggested by experienced persons in the field of timber sales in Kerala who are doing this business for a long time. They point out that in the present pre-sets for e-auction, if the Raised Bid offered by an online bidder above Starting Price does not arrive anywhere near the Subject To Approval (STA) Price or the Reserve Price (RP), the system rejects all offers and the sale becomes unsuccessful. Then the Divisional Forest Officer in-charge who has the password for logging in as administrator fixes the Highest Bid in this unsuccessful auction as the Starting Price for the lot in the next auction which would probably be during the next month. The next month also this bidding and rejecting repeats, which cycle can be repeated any number of times, and the Starting Price for that lot is raised thus in each turn by the DFOs. The result: the lot remains unsold and rotting in the depot. The simple solution the experts in the field offers is, if Auto Bid exists for a lot rejected by the system, open that Auto Bid and see if it is higher than the Subject To Approval Price (STA) and Reserve Price (RP), and if it is, consider that Auto Bid as an Offer and confirm the sale. It is that simple! But simple solutions are not savory to Kerala Forest Department officials. They want complex solutions, involving millions of rupees of expenditure. 

Sale of timber remains a major source of fraudulent revenue for government officials.

12. Timber for railways by Kiwi Birdman.

The good practices essential to the success of e-auction such as unquestionable ethics and infallibility of strategies are totally alien to Indian officials in general. In a country where Parliament Members, Cabinet Members, Chief Ministers and Top Defense Services personnel are jailed for corruption, much cannot be expected from the lower ranks of hierarchy. Even defense procurement is under question in the country; so, sale of timber remains undoubtedly a major source of fraudulent revenue for government officials. From rigging the software to accepting amounts for issuing the final delivery notes, timber e-auction is riddled with unbelievable corruption in Kerala as it is in every other state. 

Where are those mandatory undisturbed 50 feet buffer zones for both sides of Forest Rivers and streams?

13. Everything timber by Wolfgang Sauber.

There are not much pre-qualifying checks for online bidders, so unscrupulous people with track records for heavily bribing officers can freely take part in auctions, and they are in fact the darlings of that department. It is they who cut and remove unmarked trees and trees which are marked for higher prices. It is they who take away the mandatory Undisturbed 50 Feet Buffer Zone for both sides of Forest Rivers and streams. How heavily they bribe the officials and connected politicians are evidenced by the fact that these buffer zones are now nowhere to be seen in Kerala. 

The department has never conducted orientation training courses for non tech-savvy bidders.

14. Timber rotting away by Henk Monster.

Bidders in timber e-auctions in Kerala have never had any training in using e-auction tools and the department has never cared to conduct orientation training courses for them. Nor is the department positive in training people and adapting the available software imaginatively. One move to impart training to bidders was aborted. They unwillingly hold e-auctions because the central government has directed them to do so. ‘System’ is their byword and they attribute the reason for their shortcomings also to the ‘system’. 

Incompetence of software, lack of encryption, poor security, less monitoring time, long cycle time, and limited participation.

15. Timber rotting in depots by Jacek Karczmarz.
 

E-Auctions are invariably followed by its many limitations such as incompetence of software used, lack of encryption and poor security, less monitoring time and long cycle time, and above everything else, limited participation by people, especially in countries like India where people are pathetically non tech-savvy. Besides, e-auctions at least in India are almost always accompanied by fraud by government officials. 

A fleet of loyal officers and guards, with ingenious courage, determination and help from local forest protection groups, protected the 60,000 sandalwood trees at Marayur.

16. Marayoor Sandal Reserve by Jaseem Hamza.
 

This article does not intend to discredit the Kerala Forest Department or its officers in anyway but just to point out that an important shortcoming in their e-selling policy is detrimental to public interests and is resulting in huge quantities of valuable wood remaining unsold in depots and rotting, without being of use to anyone except beetles and white ants. No one questions their general integrity in protecting the forest resources of Kerala. One of the largest natural sandalwood forests in the rain-shadow regions of the world, of about 60,000 trees, is situated at Marayoor in the Idukki District of Kerala. The legendary forest looter, Veerappan of South India who devastated all sandalwood forests in Karnataka and Tamilnadu states, went to his grave grieving that he could not touch a single sandalwood tree in Kerala’s Marayoor Reserve Forest. A loyal fleet of officers and guards of the Kerala Forest Department, with ingenious courage, determination and help from local Forest Protection Groups, protected these trees and they are still standing there. Where Karnataka and Tamilnadu felled their trees and stored them in depots fearing this bandit killer, the trees in Kerala are still standing there erect and proud. They do not cut sandalwood trees at Marayoor but just collect the dead and fallen ones and auction them- the largest sandalwood auction in the world, with 57 tonnes sold last.

First published on: 3rd Mar 2017

Article title image by Art Tower. Graphics: Adobe SP. 

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Pictures Courtesy: Wikimedia Commons
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Picture Credits:

01. Timber Logs By Frank Vincentz
02. Release Note Of Article By Sahyadri Archives
03. From Forest To Depot By US Dept. of Agriculture
04. Timber Transport Truck By Silvio Pašmik
05. Timber In Yard By Frank Vincentz
06. Timber Log Bridge By Morrow Long
07. Timber Foot Bridge By Gorkaazk
08. Timber Foot Bridge By Jakec
09. Timber Walkway By Hermann Hammer
10. Timber Boardwalk By Rheins
11. Riverside Timber Walkway By Carlo Columba, Palermo
12. Timber For Railways By Kiwi Birdman
13. Walkway, Houses Everything Timber By Wolfgang Sauber
14. Timber Rotting Away By Henk Monster
15. Timber Rotting Away In Depots By Jacek Karczmarz
16. Marayoor Sandal Reserve By Jaseem Hamza
17. Author Profile P S Remesh Chandran

About the author.

17 Author Profile P S Remesh Chandran from Sahyadri Archives.

 
Editor of Sahyadri Books & Bloom Books, Trivandrum. Author of several books in English and in Malayalam. And also author of 'Swan, The Intelligent Picture Book'. Edits and owns Bloom Books Channel. Born and brought up in Nanniyode, a little village in the Sahya Mountain Valley in Kerala. Father British Council-trained English Teacher and mother university-educated. Matriculation with High First Class, Pre Degree studies in Science with National Merit Scholarship, discontinued Diploma Studies in Electronics and entered politics. Unmarried and single.

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