NLC scam: Military brass pre-empts civilian action

Kayani orders probe just as PAC was set to deliver verdict.

ISLAMABAD:

Top military officials at the General Headquarters (GHQ) are said to have pre-empted action by a parliamentary body on a Rs4 billion scam in the National Logistics Cell (NLC) by setting up their own inquiry commission to probe the matter on Tuesday.

The move came after the officials received inside information that the Public Accounts Committee (PAC) was all set to give a sweeping verdict on the matter in the first week of December.

According to a press release issued by the Inter-Services Public Relations (ISPR), Army chief Gen Kayani has ordered a high-level inquiry into the alleged NLC irregularities.

It said that a serving corps commander has been nominated to head the inquiry along with two majors-general as members. Appropriate action will be taken on completion of the court of inquiry, as per relevant army rules and regulations.

The PAC’s verdict would have come in light of three major inquiries which confirmed massive irregularities committed by two Lieutenant Generals and one Major General with the active collaboration of two civilian officers.

One inside source revealed that the military leadership ordered an inquiry as it was feared that any recommendation to the defence ministry by the PAC would have caused a huge embarrassment to the GHQ.

The sources said it was quite strange to note here that the NLC inquiry report was submitted before the PAC on January 22 this year and scandalous news about its findings were being published in the media for the last one year.

However, the military leadership did not react to those reports till it was known to the GHQ that the PAC was going to give its own verdict which might cause embarrassment.

The sources said, even some PAC members who intriguingly sat on the NLC inquiry report for the last ten months might even be feeling quite relaxed now after coming to know that the army chief had set up an inquiry commission to probe the whole scam.

PAC Chairman Chaudhry Nisar Ali Khan in the last meeting had dropped clear hints that he would take up the NLC scam report in the first week of December and would announce certain sweeping measures to hold three top military generals accountable.

Now the orders of Chief of Army Staff, General Ashfaq Pervaiz Kayani, have raised questions about the fate of the inquiry report pending before the PAC since January 2010.

It is not known whether the PAC would hold its meeting on the NLC in the first week of December as earlier announced or would now wait for the military inquiry commission to first issue its own report into the scam.

Meanwhile, the inquiry report pending before the PAC, had established the involvement of two retired lieutenant generals, one major general and two civilians in causing a colossal loss to the institution since 2003 by openly defying the orders of then prime minister Shaukat Aziz.

The report had disclosed that pension funds of NLC employees were also invested in the volatile stock markets by these generals, who remained at the helm of affairs from 2003. The most shocking finding of the inquiry report was that these generals borrowed Rs2 billion from four banks and threw them into the stock markets, of which Rs1.8 billion had already been lost.

The banks from where the loans were obtained are Bank Al-Falah (Rs650 million), National Bank of Pakistan (Rs90 million), UBL (Rs800 million) and ABL (Rs500 million).

The NLC is still paying commercial interest on these loans.

The inquiry had held two lieutenant generals, Afzal Muzaffar (15.6.2005 to 17.10.2008), Khalid Munir Khan (15.1.2004 to 14.6.2005), DG NLC Maj-Gen Khalid Tahir Akthar (25.7.2002 to 27.2.2008), DFA Najeebullah (25.10.2002 to 10.4.2007) and chief finance officer Saeedur Rehman (25.10.2002 to 10.4.2007) responsible for this faulty investment.

Saeedur Rehman is now working in the Capital Development Authority

(CDA) as the chief financial manager while the military officers have retired from service.

According to the report, on September 8, 2003 the then finance minister Shaukat Aziz while presiding over the board meeting of the NLC, had approved the investment policy of the NLC advising it not to invest in stocks and carry over transactions.

In the 38th Board meeting held on January 7, 2005, while reviewing the status of the NLC investment, former prime minister Shaukat Aziz pointed out that public-sector companies should not trade in the stocks. He further directed that a strategy should be worked out by the NLC in consultation with the secretary finance to disinvest from the stock markets.

The DG NLC reiterated that irrespective of the policy, the prime minister’s directive to withhold trading in the stock till fresh guidelines from the finance division would be followed in letter and spirit. Likewise, in the 39th Board meeting held on December 31, 2007, findings and recommendation of the executive committee constituted under the direction of the prime minister were presented to the board.

The committee recommendations said that the NLC should avoid investing its surplus funds in the stock exchange and follow the finance division rules on investment of surplus funds.

The OIC NLC confirmed that in the future compliance would be ensured to the recommendation made by the executive committee of the Board.

But, the inquiry committee found out blatant “omission and commission” and the committee gathered instances of persistent violation of the instructions/procedures as laid down by the finance ministry. The inquiry report said, total investment cost, as on April 10, 2009, was Rs4.1 billion and the present value of investment was Rs2.3 billion, thus Rs1.8billion is the net loss to the NLC.

Key findings of NLC inquiry

The findings of the NLC inquiry report are:

1- The NLC was authorised to invest its surplus funds. However, it has transpired during the inquiry that the NLC even borrowed Rs2 billion from banks and invested them in the market.

2- The NLC was authorised to invest to the extent of 20 per cent of its surplus funds in non-government securities, TFC, shares with specific eligibility criteria. But the management invested Rs4.1 billion, including Rs2 billion borrowed money over the period during the review (2003-2008) in total disregard to the instructions of the prime minister and its own Board.

3- No written investment procedure was ever devised, as required in the investment policy, nor an investment committee with defined investment approval authority was constituted, which was a prerequisite to the investment decision-making.

4- Size of the investment portfolio, which was to be determined on a yearly basis on the basis of funds surplus to the operational requirements of the NLC, was never determined.

5- The NLC did not avail the opportunity of best prices of brokerage. It was required to maintain a list of brokers and dealers authorised to provide transactions execution to the institution. The procedure for selection of brokers and dealers was clearly laid down in the policy but it was never followed.

6- OIC NLC was made responsible by the NLC board for the implementation of the instruction contained in the finance division memorandum but instances have been noticed where it did not adhere to those instructions.

7- The DG NLC being the chief executive officer of the NLC was required to issue a certificate on annual basis regarding compliance with provision of investment policy but most of the investments were approved by the DG NLC himself against those provisions and instructions.

8- DG NLC/OIC NLC and National Logistics Board were responsible to review and approve board guidelines and ranges of investments and disinvestment that were to be established in consultation with the NLC official fund adviser. The NLC did not appoint an OFA, a required in the policy.

9- There is nothing on record to indicate that written operational procedures were devised to maintain a system of internal controls.

10- The principles of financial prudence specified in the investment policy were not adhered to. Even employees’ retirement benefit fund were utilised for investment against provision of the policy.

Published in The Express Tribune, November 24th, 2010.

Published in ThKey findings of NLC inquirye Express Tribune, November 24th, 2010.