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Can Rao Survive The Urea Scam?

Yet another scandal tumbles out of Narasimha Rao's family closet. His third son Prabhakar is named in a Rs 133-crore fertiliser purchase deal. The political fallout could be heavy.

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Can Rao Survive The Urea Scam?
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A Rs 133-crore deal is signed with a fly-by-night Turkish company, which is supposed to deliver two lakh tonnes of urea to India. In a trice, the entire sum disappears from Indian shores to various accounts around the globe. The Turkish firm, in turn, disappears from Turkey. Not an ounce of urea reaches India. Seven months later, as the scam breaks, the key suspects—the former prime minister's son, Prabhakar Rao, and former fertiliser minister Ram Lakhan Singh Yadav's son Prakash Chandra Yadav—issue pat denials to all charges, despite over -whelming evidence. After weeks of frenetic investigations, the CBI has caught only the scent of the money in flight.

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AS investigations into the Rs 133-crore urea scam moved into top gear this fortnight with the CBI, Enforcement Directorate and other agencies looking at the stakes, a key official of the External Affairs Ministry was told to get in touch with the Indian mission in Ankara. His brief: to figure out the antecedents of the Turkish company, Karsan, which was to supply two lakh tonnes of urea to India. The reply from the Indian mission stunned him. The firm accused of defrauding National Fertilisers Limited (NFL), and responsible for setting off the first major political crisis for the new Government in New Delhi, was described thus: "Karsan is located in half-a-room of a third-rate hotel in Ankara. Antecedents unknown."

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 There was more to follow. When Indian investigators got in touch with the fax numbers available with Karsan agent Sambasiva Rao, who is currently in custody, it transpired that Karsan chief executive Tunkay Alankus had quit Ankara and set up a new company in Alma Ata, Kazakhstan. There was no Karsan representative left in Ankara. But some interesting information came to light. Karsan was registered with the Turkish authorities in November 1988. In its eight years of wheeling-dealing, it had changed addresses thrice. Turkish officials also said that Karsan had no background in urea trade.

With little to fall back upon, investigators in the country may have to depend on the Indians accused of accepting payoffs in the deal. But as the week wore off, it became clearer that even that may not be easy. Amidst the host of interrogations carried out by the CBI and notices issued by the Enforcement Directorate, two characters stood out. Prabhakar Rao and Prakash Chandra Yadav.

The problem, as investigators understand, is going to be twofold. Apart from the heavy political pressure that has come into play, of the $38 million (Rs 133 crore) that has vanished, barely $4.4 million is traceable. "We have managed to touch the tip of the iceberg," admits an official. And unlike other similar payoff scandals like Bofors and the HDW submarine deal, the end-product is never going to see the light of day. There is simply no urea around to be imported.

Taking largely from the confessions of Sambasiva Rao, co-accused Sanjeeva Rao, and its own preliminary findings, the CBI has managed to trace payoffs worth $4.4 million to Dubai and US-based company Edible Oil and Foodstuff. Officials say Prabhakar Rao is the man behind this company. Investigators have also zeroed down on US-based Rea Brothers—recipient of $200,000. The man behind Rea Brothers: Prakash Chandra Yadav. The remaining $200,000 were received by Sambasiva Rao and his company Sai Krishna Impex. In the days to come, he is expected to provide vital clues to where the money disappeared and who the main recipients were.

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The interrogation of Prabhakar Rao and Prakash Yadav was no less dramatic. While Yadav's two-day appearance at the CBI headquarters in Delhi was marked by popping flashbulbs and TV journalists begging for 'bytes', his interrogation inside the office was quite sedate. Interrogators who repeatedly questioned him about Rea Brothers and the $200,000 payoff drew a blank. According to them, Yadav turned the technical examination into a political counter-offensive. "Even as his examiners produced bank papers signed by him, he said the charges were politically motivated," says a source.

CBI officials quizzed him about four other accounts held by him through certain 'offshore' companies in celebrated tax havens around the world. He was also asked about other urea import deals ciary—in some cases the sole beneficiary. Yadav kept denying all charges, even his association with Sambasiva Rao. The only information he volunteered was that "none of the staff members with his father (when he was the chemicals and fertiliser minister) was involved".

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Prabhakar Rao, who was also served a notice by the CBI, played cat and mouse for all of one week. His whereabouts were largely unclear until he was traced down to the capital's Ambassador Hotel. Even there, SPG men zealously guarded all information. Journalists who reached the hotel found it swarming with SPG, Delhi Police and Special Branch men, who were not making any special efforts to make themselves discreet.

On the last day of the week—June 14—he made his appearance at another CBI office, Lok Nayak Bhavan, not far from his hotel. As compared to Yadav's, his interrogation was modest. For three hours, CBI sleuths questioned him from all possible angles. He, too, denied the existence of Edible Oil and Foodstuff, the company which received $4 million. Did he know Sambasiva Rao, who claims to know him well? No, said Prabhakar Rao. "He sounded as if he was hearing the word urea for the first time," says a source.

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INVESTIGATORS say Prabhakar Rao's denials notwithstanding, they were beginning to discern some trends. For instance, his financial assets seem to have increased considerably after the deal was signed in the latter half of 1995. Under the Prevention of Corruption Act, criminal liability can be established if there is a direct connection between a decision taken and the apparent affluence that follows it. No details were available yet, the interrogations having yielded little. CBI Joint Director P.C. Sharma refused to say whether the case was moving in a 'positive' direction. All he would say is "we have to call them again".

The urea scam is not the first time Prabhakar Rao has been at the centre of controversy. When the securities scam broke, the CBI looked into the business dealings of the then prime minister's third son. The focus was on Srikakulam Paper Mills Ltd, of which he was the promoter. Also of interest was the manner in which three finance companies, again promoted by Prabhakar Rao, told financial institutions that they could raise a phenomenal Rs 37 crore equity through private placement for the Rs 247 crore project.

The three finance companies were Sphinx Investments, Sinclaire Holdings and Investments and Nav Nirman Investment and Estates. Of the seven promoters, three were members of the Rao family and the rest were friends of Prabhakar Rao. What raised eyebrows at that time was the fact that not many finance companies can raise Rs 37 crore through private placement. Certainly not the fledgling Sphinx group.

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Indeed, the finance companies did show phenomenal growth. In 1990, Sphinx had a net worth of Rs 4,000. The following year it shot up to Rs 1 crore. In 1992, it invested Rs 1.27 crore in Goldstar, another company with which Prabhakar Rao was associated, and was ready to invest Rs 14 crore in the paper project. Similarly, Sinclaire's net worth in 1990 was Rs 6 lakh. It rose to Rs. 91 lakh in 1991. The next year, it invested about Rs 96 lakh in Goldstar and was now ready to invest Rs 14 crore in the paper project. It was only after the Fairgrowth-Goldstar scandal broke that the paper mill project was scrapped.

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What Prabhakar Rao wanted was an IDBI loan of Rs 154.3 crore for the Srikakulam project and an underwriting of Rs 30 crore. The promoters, the same three finance companies, agreed to raise Rs 37 crore through private placement. When the murky details came to light, Prabhakar Rao denied any link with Srikakulam Paper Mills. This despite official records showing him as one of its seven promoters. The mill's phone in Hyderabad, too, was strangely in Prabhakar Rao's office.

But in a big-time operation of this sort, there has to be more than just two players. Sources say the omnipresent hand of the PMO was there when the deal was initiated. No payment of such a magnitude is possible without the RBI clearing it. When the State Bank of India (SBI) first sounded the RBI about the payment, the latter raised some objections. But within a week, those objections were overridden. Sources recall speculation that Amar Nath Verma, principal secretary to Narasimha Rao, may have been the prime mover in forcing the RBI's hands. What's known is that the RBI responded to the SBI in most ambiguous terms, asking them to "use their discretion".

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BY the last week of March, the chemicals and fertiliser ministry was buzzing with details of the deal. On March 24, Fertiliser Secretary Indrajit Chaudhari wrote to the PMO that "major deviations" had been made in awarding the contract to a "relatively unknown and bogus company" called Karsan. On April 2 again, Chaudhari shot off a letter to Cabinet Secretary Surendra Singh, detailing the one-sided agreement. The next day, Singh wrote back asking Chaudhari to "take a decision on his own." On April 11, Chaudhari sought directions from Verma in the PMO; again, there was no articulate response. By April 24, the CBI had been handed over the case. Around the same time, the cabinet secretary set rolling an independent investigation to be headed by former CBI joint director Shantanu Sen. This, however, was a probe without any legal jurisdiction.

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For the investigators, the issue is two-fold: who are the recipients and where has the rest of the money—$34 million—gone? The Directorate of Revenue Intelligence (DRI) feels that one per cent of the total sum—$380,000—has come back to a suspense account in the SBI's South Extension branch in New Delhi. The remainder seems to have been divided into small sums and deposited in safe accounts in various states of the former Soviet Union. The DRI is focussing on two hawala operators, Rajendra Bhawani and Dhar-mesh Yadav, who allegedly played a pivotal role in the entire affair. It is also looking into a large investment made in a fertiliser plant in Ukraine, money for which has gone from these payoffs.

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Clearly, the scope of the investigation spreads across countries. A CBI team is expected to globetrot across the CIS countries, the Middle East, North America and Europe for details. "It could take several months before a chargesheet is issued," says a CBI official. The agency's record in foreign investigations is pretty dim, since it is always looking to foreign governments and police for the necessary inputs. As a preliminary, junior heads in the NFL and SBI have started to roll. The point is can they catch the big fish? 

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