Transport Infrstructure & Public Private Partnership

Trimester – V

Case Summary – RSWC and SSLL

 Government of India brought “The Agricultural Produce (Development and

Warehousing) Corporations Act” in 1956 under which they established Central
Warehouse Corporation (CWC) and State Warehouse Corporation (SWCs).
Rajasthan State Warehouse Corporation (RSWC) was formed on Dec 30, 1957
with equal shareholding between Government of Rajasthan and CWC.
 Main objective of RSWC was to build godowns and warehouses in Rajasthan for
scientific storage of agricultural produce, seeds, manure, fertilizers, agricultural
implements, etc. of farmers, traders, government and other institutions.
 Board governing RSWC had 11 members out of which 5 were appointed by CWC
and managing director was appointed by Government of Rajasthan.
 In 2009-10, RSWC had 90 warehouses in 13 districts with a capacity of 7.67 lakh
tons. These warehoused were constructed according to the specifications by the
Centre Public Works Departments (CPWD) and had basic infrastructure which
was not enough for efficient operations.
 Despite NCDEX functioning making it possible to trade with warehouse receipts,
because the RSWC warehouse users were not able to trade because none of the
warehouses were accredited by NCDEX.
 SSLL was established on January 19, 2007 with 75% shares with KPTL and rest
with Bafna family.
 In first phase, they developed 3 large scale cold storages (capacity: 20,000 tons)
and 11 dry storages (capacity: 200,000 tons).
 On July 31st 2009, Mr. Aditya Bafna presented his ideas of modernization of
RSWC warehouses and mandis on a PPP basis to then PSAH Mr. S Ahmed and
CMD Mr. Damodar Sharma. It included storage, funding, laboratory operations,
mandi modernization and procurement for Rajasthan Seeds Corporation. Main
reasons for this proposal were manpower shortage in RSWC, fall in warehouse
utilization trend, decline in income trend need for modernization of warehouses.
He also sent a proposal letter on August 24th 2009.
 Government of Rajasthan used Swiss Challenge mechanism to invite competition
in this proposal.
 A draft MOU was submitted by SSLL to RSWC on November 11, 2009. It stated
that:
o 26 warehouses of RSWC with total capacity of 2.99 lakh tons on income
sharing basis with 60% income from storage charges and 10% from
diversified sources in favor of RSWC.
o RSWC will also receive 10% share from storage income of SSLL’s ALPs
on government stock.
 o SSLL will bear the cost for deployment of manpower, insurance coverage
and installment of weighbridges at RSWC warehouses.
o MOU will be valid for 5 years and could be renewed on agreed terms at
the end of this period. It could be terminated by any party by giving 3
months’ notice and RSWC will take over the weighbridges at book value
or market value whichever being higher.
 SSLL submitted a revised MOU on November 27th 2009 in which they increased
no. of warehouses from 26 to 38. Storage income share was revised to 65%.
RSWC would also receive 20% revenue from testing and certification from APLs
and weighbridges charges from both RSWC’s warehouses and ALPs. RSWC will
now receive 10% of storage income from ALPs all stock. Now the operating cost
and manpower expenses will be borne by RSWC. Notice period for termination
was increased from 3 to 6 months.
 RSWC suggested including procurement activities on on behalf of government
and SSLL on December 9th 2009 responded positive on a profit share of 30:70 in
favor of SSLL.
 RSWC advertised the final proposal in all newspapers according to Swiss
challenge asking for a better proposal than SSLL on January 29th 2010. The
advertisement covered 38 warehouses but some them were different than what
SSLL had proposed. GOR received 4 proposals but none of companies fulfilled
the eligibility criteria. Highest bidder Star Agri was rejected because they didn’t
have weighbridges at their Rajasthan owned warehouses.
 On March 4, RSWC met with SSLL for further negotiations. Storage income
sharing from ALP and RSWC warehouse was changed from 15:85 and 68:32 to
10:90 and 65:35 between RSWC and SSLL respectively. SSLL was required to
guarantee 60% utilization at all 38 warehouses. In case of shortfall, they had to
compensate the revenue. A security deposit of INR 3cr as bank guarantee was to
be submitted by SSLL. SSLL would bear the training cost of RSWC employees
and install weighbridges of 60 tons capacity within 6 months. Contract would be
for 5 years with a midterm review in 2012.
 Contract was signed on March 5th 2010 and SSLL started operations from April 1st
2010.