In this episode, the writer speaks about the problems he faced when market conditions were tight and negotiated prices became the norm. Besides, with shortage of pig iron products from India it became necessary to seek products from China. This is the fourth part of the series describing the travails faced when setting up an international business in the seventies
The market conditions of bouncing cheques and some of the traders taking the easy way out to run away from the country, leaving their employees in the lurch and millions of rupees worth of unpaid bills became the norm of the day. No one accepted the purchase orders anymore nor the post-dated cheques, which became the substitute practice, when POs were declined. But, then, post-dated cheques did not assure the holder that payment is guaranteed on the due date!
After a spate of such runaway partners, it became a mandatory practice to have all the passports of senior executives also in custody of the owners. Before, it was the junior staff who had to surrender the passports once they got the ‘pataka’ or the local ID.
Most of us played it safe. We would rather give the buyer a cash discount than his personal and ‘guaranteed’ assurances that the cheque would be honoured. Even when contacts with the buyers were ‘close’, almost every time a cheque became due, there would be a ‘personal’ request that it be presented on so and so date, or after we get a call from them.
The situation in the market was tight. Prices came down for the cash customer. The foolhardy method of inflated imports to meet the big demands in the near future was no longer the mantra. We did not allow buyers to loiter around our godowns. It was tense.
The ‘buyers’ in general were a special breed. In the heydays of supplies, they would come around to the market, which was mostly located in the old town, known as ‘Deira’; Bur Dubai was the new township across the creek, where multi-storied buildings and well-designed apartment houses began to come up. The Karamah colony was about to be completed, as Al Shaab was already full, brimming with residents.
The buyer would carry his POs and requirements for the site under construction or even completion. He would carefully choose his supplier, with whom he had a few dealings in the past, which ‘mutually’ benefitted them. Let us say, he wanted to get 30 half inch galvanised pipes, as required by his site engineer. If the market price, of which he had a chart of several prospective suppliers with prices, delivery, payment schedules, etc was ranging between (per piece of 6 metres) Dh 11 to Dh 13.50, he would ‘negotiate’ and choose a supplier who was pricing his wares at, say, Dh 13. He will make phone calls, from various shops, and convince his site manager to accept the ‘final’ price of say Dh 13.25, when, in actual practice, he ‘concludes’ his buying price at Dh 12.75 with the shop assistant. The difference of 50 fils is to fill the pocket of the buyer and the assistant. One would not know how much of this pocketed difference would go to the site engineer or the cashier/accountant when the payment becomes actually due. By and large, the kick-back arrangement was rampant, and greatly aided by hundreds of ‘floating’ brokers, who would be moving about the market and stores/godowns. It was a mugs game, with no end in sight.
As for lower prices in his chart, the delivery was promised four to six weeks from date of payment. There would be such ‘recordings’ which would probably be attached to final purchase order sheet, so that, it will be on record that every effort was made to get the goods at the best possible price and ensure delivery so that work at site does not ‘suffer’.
Our own salesmen, too, would come back and spin their yarns. It was confusing but we had to get on with work and pricing and collection of dues became the most important aspect of our business. Sometimes, we landed up being the only stockists of an item, whose demand and urgency had suddenly cropped up at site, without whose physical supplies, work and ‘delivery’ could not be completed. At such events, we simply made a price killing and demanded advance payment before delivery.
While we had continuous orders for supplying manholes to Abdullah, and many of our regular clients stocked our quality goods, they also bought supplies from other sources (in India) and China. We earned a commission for sales in Saudi Arabia, but our bread and butter had to come from our local sales.
Sometimes, we bought with cash and sold at much higher prices on credit because the client was ‘solid’ and would definitely make payments, even if there was a slight delay. We began to look into other areas to set up offices and diversify in to new items. We opened up new supply sources, like going to Bucharest (Romania) to obtain pipes to supplement our own foundries, which were making pipes in feet, while, we could get pipes in metre lengths. This involved persuading site engineers to make the necessary adjustments, and if completion was the sole objective, to get the metre pipes and cut them to size! All such actions were crazy, but, at times brought us good profits.
Since our contact in Saudi Arabia was good and regular, we would get information about the shortages in that market. We would them mop up the available supplies from the local market and await the buyers to pick up our stocks at profitable prices. Sometimes, such moves backfired on some of the items in which we had not gained adequate experience, and after a couple of beatings, withdrew from the scene, slowly, and concentrated on what we knew best.
In the meantime, one of our big and regular buyers could not make payments when the bills became due. But he was honest enough to admit this and requested that we take a lot of his steel scrap in lieu. We had dabbled in getting quantities of scrap cables from Jebel Ali Free Zone contractors and learned the art of salvaging the copper wires, other non ferrous items and had made a good profit. So we accepted this steel scrap, which lay with us for more than a year, until one fine morning we got a call to kindly supply this scrap so that the Dubai rerolling mill continue to work its furnace. We did make a small profit, but more importantly, we sold the scrap that was a “dead loss” investment which was occupying a lot of our godown space!
The bad news from India was delays and short supplies of pig iron from primary producers, despite guaranteed supplies for exporters. There was a lot of commotion and public debate on this issue, and direct pig iron imports was permitted. We had good contacts in China and our Hong Kong agents had some connections, at least they claimed they had. We had some feelers from the Pakistani businessmen in the local market that they could obtain supplies from their steel mills.
After hectic parleys, we decided and attempt to buy pig iron from China, which was trying to establish commercial relations in a big way with India. We felt, if a good number of Indian buyers were to get supplies from China, maybe, just maybe, their supplies of cast iron products to our market come down. Many offers were in the market from Pakistan, and we decided to investigate this further by visiting their plants.
Amanda, our representative in Hong Kong confirmed that she would be able to get the visa for a visit to Beijing. Vijay joined me in Dubai and we took our flight to Hong Kong to obtain the visa, for onward journey a couple of days later, as they had two flights a week at that time.
We had a couple of days to prepare ourselves for the tough negotiators in China, which we were visiting for the first time.
(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce and was associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts. From being the advisor to exporters, he took over the mantle of a trader, travelled far and wide, and switched over to setting up garment factories and then worked in the US. He can be contacted at [email protected].)
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In many cases like wrong reporting to CIBIL, upgrading credit card without consent, mis-selling and blank clause in loan agreement by banks, the Ombudsman has ruled in favour of the customer
Banking customers continue to run from pillar to post to resolve their grievances, however, many of them fail to approach the Banking Ombudsman, who over the last year has ruled in customers’ favour on several occasions. According to the Reserve Bank of India’s (RBI) annual report on Banking Ombudsman (BO), during 2010-2011, total number of cases registered with the BO fell by 10% to 71,274 cases from 79,266 cases a year ago.
Interestingly, of the total complaints received, 31% belonged to the State Bank of India (SBI) group, followed by 29% of other nationalised banks. While complaints relating ATM, debit and credit cards continue to dominate the list, the report has explained some of the interesting cases dealt by the BO in favour of the customers.
Moneylife brings you some of these cases
Wrong reporting to CIBIL
Pinky (named changed) was not given a home loan as her CIBIL score was not good. She had made full and final settlement of her outstanding dues on her earlier personal loan. However, she learnt that the payment made was credited to the usual account and the account was not closed. This resulted in accumulation of charges and she was denied the home loan. Despite complaining to the bank, the issue remained unresolved and she approached BO. The BO observed that the bank made the outstanding amount as ‘Nil’ but updated CIBIL as ‘Settled’. It held bank guilty of deficiency in service and ordered to pay Pinky a compensation of Rs5,000 as expenses. The BO observed that since a CIBIL report is crucial parameter in sanctioning loans, banks should regularly update it.
Upgrading credit cards without consent
Mr Nair (name changed) a senior citizen is a credit card holder. Seeing a bank’s offer on platinum credit cards, he asked the bank to send him the related literature which will allow him to take a buying decision. However the bank, without his consent, sends him the platinum card along with the literature. It later sends him a bill of around Rs5,500. Mr Nair was not interested in this card and requested the bank to cancel it. The bank, instead of resolving the issue, harassed him for the outstanding amount on the platinum card. Mr Nair approached the BO. The ombudsman directed the bank to reverse the card fees and related charges and confirm Nil on the card account. It also asked the bank covert the platinum card into a lifetime free card.
Cheques dropped in drop box
To avoid the long rush at the counter to deposit his cheque, Rahul (name changed) dropped it in bank’s drop box. Surprisingly, his cheque was not credited and on inquiring it was revealed that the bank did not receive it. Later he learns that the cheque was paid to some other bank. On complaining to the other bank, he finds that a new account was opened in his name and the amount was withdrawn soon after it was credited. He complained to the BO, who found that the bank, which had opened the account, was lax in monitoring the account and the KYC (know your customer) norms and the account holder was not traceable. Rahul was paid his cheque amount by the other bank on the direction of the BO.
Ashok (name changed) bough two insurance policies, each of Rs50,000 from his bank. Later he realized that he has to pay a premium of Rs50,000 on half-yearly basis. Considering his weak financial position, he approached the bank, which in turn asked him to contact the insurance company.
The insurance company assured Ashok that nothing was payable on these polices. But later when he asked them to cancel his polices, he was informed that the policies have lapsed due to non-payment of premiums and no amount is payable to him. The matter went to BO. Representatives of the insurance company and bank’s branch manger were present. The insurance company argued that they had sent repeated reminders to the policyholder on premium payment but were unable to produce any document. Meanwhile, the bank manager confirmed that he had sold the policy on the condition that it required one-time payment as explained by the insurance company. The BO observed that policy was sold to Ashok without even considering his financial status and education level and insurance company did not produce any evidence. The BO concluded that the company mis-sold insurance policy and bank was party to it. The company agreed to refund the collected amount of Rs1 lakh.
Blank clause in the loan agreement
An education loan was sanctioned to Veena (name changed) against the collateral of JDA patta of a property by the bank. Veena wanted to construct house on the plot and thought of foreclosing the loan. However bank insisted on the payment of foreclosure charge of Rs38,960. Veena paid the said amount but also complained to the BO office. While hearing the matter, the BO found that that the relevant clause in the loan agreement was left blank. It directed the bank to refund the foreclosure charges.
RIL’s SEZ refinery, which is designed to process far heavier crudes, is unable to use Rajasthan crude as the same has been classified as a restricted item under the current Foreign Trade Policy provisions. The unit has, therefore, sought approval of the BoA for the importing crude oil from Cairn India
New Delhi: Reliance Industries (RIL) wants to buy Cairn India’s Rajasthan crude oil for processing at its only-for-exports Jamnagar refinery in Gujarat and has approached the government for its approval nod for the same, reports PTI.
RIL currently buys 80,000 barrels per day (bpd) or 4 million tonnes a year crude from Rajasthan, that it processes at its old 33 million tonnes a year domestic tariff area (DTA) refinery on the west coast.
It has now applied to the government to buy another 30,000 bpd of Cairn crude for turning it into fuel at its 29 million tonne SEZ (Special Economic Zone) refinery adjacent to the old unit.
Official sources said the company’s request would be considered by the Board of Approval, headed by commerce secretary Rahul Khullar, next week.
Any sale to a SEZ or only-for-exports unit is considered outward shipment or exports out of India. The current policy does not allow export of domestically produced crude oil.
RIL’s request comes just when Cairn is beginning to ramp up production from Rajasthan fields. Cairn currently produces 125,000 barrels per day from Mangala oilfield, the largest find in the Rajasthan block. Another 20,000 bpd is produced from Bhagyam fields.
Mangala can go up to 150,000 bpd or 7.5 million tonnes a year anytime now while Bhagyam has an approved peak of 40,000 bpd and can go up to 60,000 bpd with more investments.
Sources said Cairn currently sells 15,000-20,000 bpd to state-owned Indian Oil Corporation (IOC) and another 30,000-40,000 bpd to Essar Oil.
RIL’s refinery complex at Jamnagar, consisting of the old DTA refinery and an SEZ unit, are connected by a heated pipeline to the Mangala field in Rajasthan.
Rajasthan crude is very heavy with API (American Petroleum Institute) gravity between 25-30. Also, waxiness of the crude turns it into solid at room temperature.
Transportation of the Rajasthan crude therefore, requires special heating arrangements in the pipeline to keep the crude in a liquid form. Most Indian domestic refineries lack the configuration to process Rajasthan crude due to its quality while others face logistical issues.
Sources said RIL’s SEZ refinery, which is designed to process far heavier crudes, is unable to use Rajasthan crude as the same has been classified as a restricted item under the current Foreign Trade Policy (FTP) provisions.
The unit has, therefore, sought approval of the BoA for the importing crude oil from Cairn India.