From rice heist to strategic non-performing loans: Reining in corruption in Thailand's rice business
By Jon Fernquest[Introduction|Article]
[Reading Questions|Answers]
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Empty rice warehouses and mysteriously disappearing rice hit Thai TV news two weeks ago.
A major rice heist from a warehouse in northern Thailand captivated Thai news audiences for three nights.
Where did all the rice go?
A rather wild and complicated story began to unfold.
Over a period of six days starting on August 13th, eleven 18-wheel trailer-trucks stole 54,675 sacks of rice from an unguarded warehouse at a rice mill in Phichit, northern Thailand.
The police discovered that the owner of the rice mill (Amnuay Khathanyarun-grueng) stole the rice from his own warehouse, rather strange to say the least.
The rice wasn't Amnuay's though. He was just storing it for the government.
It was part of the government rice intervention scheme that guarantees farmers higher than market prices for their rice.
The price support scheme, over 20 years old, has proven useful in winning the votes of rural farming communities so essential to election victories nowadays.
In the heyday of Thaksin populism, the government offered farmers as much as 10,000 baht per tonne when the market price of rice was only 7,000 baht per tonne, a full 43% more than the rice was actually worth.
With populist subsidies so out of whack with reality, government rice stockpiles shot up to 4 million tonnes from 3 million tonnes three years ago.
The Public Warehouse Organisation (PWO), the government agency responsible for storing this rice, had to contract out to rice mills to store these huge rice stockpiles and didn't have anywhere near enough personnel to guard it properly.
The police are still figuring out where all the rice went. Some of it ended up in southern Thailand.
After he was caught, Amnuay the rice mill owner claimed he only turned to stealing rice because he owed the government (PWO) 70 million baht.
He threatened to disclose the tactics used by the PWO to pressure rice traders.
Those tactics drove him into a cycle of debt and forced him to steal rice, he claimed.
Corruption is certainly a difficult thing to unravel, trace to its roots, and punish.
People who engage in corruption manage to cover up their tracks so well that it appears that nothing out of the ordinary ever happened.
In fact, many have become so jaded about corruption nowadays that they say that it's part of the "system" and the normal way of doing things.
When Thaksin made this claim in an interview with international media some time ago, Prime Minister Surayud quite reasonably lashed back at him.
Recently, Samak, the head of Thaksin's newly revived political party also made such a claim.
Today's article looks at the latest twist in this developing story, how a rice trading company that has been doing a brisk and profitable business in rice trading suddenly doesn't have any money to pay back the money it borrowed from banks.
(Information from the following Bangkok Post articles was used in the above news summary: Why I stole rice: mill owner (02-09-2007), PWO calls for end to rice price subsidies (03-09-2007), New round of rice auctions to begin next week to drain stocks (30-08-2007))
For further reading, read previous Bangkok Post articles on the government rice intervention scheme. [article #1, article #2, agriculture articles]
heist - a case of theft, a case of stealing things
captivated - held attention, made people interested in
the heyday of - the period when they were most successful and popular
out of whack - does not match or agree with
stockpiles - large quantities stored
contract out - pay someone else to do it
unravel a mystery - it gradually becomes clear what happened and the mystery is solved
engage in - do, participate in an activity
cover up their tracks - hide where you have been and what you've done
out of the ordinary - strange, unusual
jaded - lose trust and confidence in the world
twist - strange and unexpected turn of events
brisk - quick, rapid
Reading Questions
Here are some questions to guide your reading (See answers at end):1. What evidence is there that President Agri Trade (PAT) had enough money to pay back the money it owed banks?
2. What is the big question that has to be answered in this case?
(Use inference)
3. How much does the company owe to banks?
4. How many banks does the company owe money to?
5. What claim are bankers making about the nature of the company's default?
6. What triggered the company's current financial problems?
7. Why did banks deny the company further loans?
8. What has created suspicions about the company's first quarter reported losses?
9. In what areas is the company being investigated for corruption?
10. What measures has the government taken to combat fraudulent rice transfers and theft from public warehouses?
11. How has state intervention in rice markets been abused for private gain?
Bangkok Post Article September 06, 2007
Banks rip President Agri for not paying
Cameras mandatory to keep tabs on millersDARANA CHUDASRI and PHUSADEE ARUNMAS
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The bankers pointed to the company's rice exports of 200,000 tonnes in the first seven months of the year as evidence that it had adequate cash flow.
But none of the funds have been repaid to creditors, who are owed 9.5 billion baht among nine banks, including Bangkok Bank, TMB Bank and Krung Thai Bank. Bank executives said they had given up on a negotiated settlement, and were taking legal action.
"The export numbers alone are cause for suspicion. Where has the money gone? The company has always insisted that it needs more credit," one banker said.
"But if you look at the export figures, at 10,000 baht per tonne, the firm should have incoming cash flow of at least two billion baht in the first seven months."
Another banker said President Agri was clearly a "strategic non-performing loan", and had deliberately defaulted on its debt despite the ability to pay.
deliberately - happened because you wanted it to happen, not an accident, intentionally, on purpose
cash flow - money flowing into a business less money flowing out, money retained by a business
negotiated settlement - making an agreement to avoid taking legal action
taking legal action - bring the case to a court and judge to settle
credit - loans
strategic non-performing loan - when someone can pay back a loan but chooses dishonestly not to pay as a business strategy
President Agri, whose financial troubles first arose in the second quarter, had asked local banks for an additional 2.23 billion baht for packing credits and letters of guarantee to purchase raw materials and as working capital.
The company's creditors have refused to give new loans, especially after seeing evidence of possible internal fraud.
The auditing firm KPMG, retained by creditors to investigate President Agri's accounts, noted that the company in the first quarter had revenues of 3.82 billion baht and losses of 1.15 billion.
Yet the figures clashed with financial information given to one creditor, which suggested that President Agri posted a profit for the quarter.
Of the nine banks exposed to the company, only the Islamic Bank of Thailand has received any repayment, covering 200 million baht for packing credits.
packing credits - "Thailand's export or packing credit program promotes agricultural and industrial exports. Under this program, a loan is granted to accredited exporters by commercial banks when the exporter places a promissory note with the bank. (Source: United States Department of Agriculture: Foreign Agricultural Service)
letters of guarantee - a letter from a bank to a brokerage firm which states that a customer (who has written a call option) does indeed own the underlying stock and the bank will guarantee delivery if the call is assigned. Thus the call can be considered covered (Source: Glossary of Options Trading & Stock Market Terms)
working capital - money for the day to day running of the business
creditor - person who is owed money
internal fraud - cheating and stealing money by people within the company
auditing - checking accounting, to see if all business transactions have been recorded correctly and that there is no hidden fraud
retained by - hired by
clashed with - did not match
exposed to - faced risk of not having loan paid back
President Agri is not only facing significant financial troubles, but is also the subject of several corruption inquiries.
The Assets Scrutiny Committee has alleged that the company paid kickbacks to former politicians of the Thaksin Shinawatra government to win contracts to build housing units under the Ua-arthorn housing programme.
Other investigations are focusing on the company's success in winning export contracts during the Thaksin government and alleged fraud in rice transfers from the Public Warehouse Organisation.
Assets Scrutiny Committee - the post-coup committee investigating corruption charges
kickbacks - money paid as a reward to a person who helps you get a contract (this is private gain by the person receiving the kickback, not the company or government department they work for)
alleged - claimed, but not yet proven, to be true
The irregularities, meanwhile, have prompted the Commerce Ministry to require rice millers to install closed-circuit TVs in front of their mills to prevent rice from being stolen. The equipment should have the ability to continuously record for at least three days.
The system will help check the volume of rice entering the mills and to whom it is actually sold, according to Siripol Yodmuangcharoen, director-general of the Internal Trade Department.
A major theft of government rice kept at a Phichit miller's warehouse last month prompted the clampdown.
irregularities - strange happenings
closed-circuit TVs - the cameras and TVs used to monitor a building's secutiry
clampdown - enforcement of a law
Mr Siripol, who will become the ministry's permanent secretary next month, said he would propose the new measures to the Rice Policy Committee.
According to sources, the problems stem from the annual rice-intervention plan itself. Farmers pledge their paddy with the state to obtain higher market prices. The government allows farmers to pledge the rice with designated millers, who in turn keep the rice on its behalf and earn fees for storage and improvements.
But in reality, many millers make extra profits from the state inventory under their care. Instead of maintaining the rice, they sell it when prices are high and buy it back when they know the authorities will conduct a check.
stem from - caused by
designated - chosen (to form a small group)
Answer Key:
1. What evidence is there that President Agri Trade (PAT) had enough money to pay back the money it owed banks?
Through July the company exported 200,000 tonnes of rice which indicates that there should have been adequate cash flow of 2 billion baht to pay back loans.
2. What is the big question that has to be answered in this case?
(Use inference)
Where did all the money go that the company earned from rice exports?
3. How much does the company owe to banks?
9.5 billion baht.
4. How many banks does the company owe money to?
Nine banks.
5. What claim are bankers making about the nature of the company's default?
Bankers are claiming that the loan default was strategic, that the company had enough money to pay back its loans but chose not to for strategi reasons and because it thought that it could get away with it.
6. What triggered the company's current financial problems?
Denial of loans to the company by banks during the second quarter of the year (ending June 30th).
7. Why did banks deny the company further loans?
Evidence of internal of possible internal fraud was one factor.
8. What has created suspicions about the company's first quarter reported losses?
The company provided financial information to one creditor that indicated profits.
9. In what areas is the company being investigated for corruption?
a. Fraud in rice transfers from public warehouses.
b. Export contracts that it won under the Thaksin administration.
c. Kickbacks for housing construction contracts.
10. What measures has the government taken to combat fraudulent rice transfers and theft from public warehouses?
Since they do not have enough personnel to guard the warehouses, they've installed TV cameras to monitor rice and people going in and out of warehouses.
11. How has state intervention in rice markets been abused for private gain?
Farmers handed their rice over to the state for higher than market prices.
The rice was kept in warehouses under the control of certain rice millers who earned fees for storage.
These millers than violated this trust, buying and selling the rice for profit.
