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DCInsight continues its coverage of alleged L/C frauds that have come to light during the past several months.

Bangladesh

Investigators are saying that Bangladesh Steel Re-rolling Mills (BSRM) used a letter of credit in a deal that made it the main offender behind an increase in iron rod prices in the local market. The price hikes caused turbulence in the iron rod market in Bangladesh and delays in construction work. Iron rod prices rocketed up around 45 per cent within a few days, according to reports that add that this has had a severe impact on major government development programmes. Volatility in the iron rod market was also said to be particularly affecting the housing sector.

An investigation into the price hike of the iron rod reportedly revealed that BSRM opened an L/C for 10,000 tonnes of billet at USD 500 per tonne in January 2008, which was scheduled to reach Bangladesh in late March. But BSRM announced an increase in the price of iron rod in early March, a move that prompted other manufacturers to follow suit by announcing similar price rises.

Local media quoted an intelligence report that said BSRM illegally increased the price of iron rod that it had imported at a lower rate by prior L/C arrangements. "The BSRM increased the price of iron rod for making extra profit," the report said.

Nigeria

Further details emerged about the L/Cs used in financing arrangements for the expansion of Nigeria's power sector. Some commentators suggested that the authorities probing spending in the power sector are failing to realize the significance of L/Cs in the financing arrangements.

The House of Representatives Committee on Power and Steel was investigating the USD 16 billion spent on the power sector between 1999 and 2007 amidst several allegations of corruption involving officials and private sector contractors. The authorities maintain that L/Cs helped ensure that contractors could not be paid unless they fulfilled specific conditions. It now appears that only a portion of the L/Cs reserved for Nigeria's power sector expansion scheme, known as the National Integrated Power Projects (NIPP), were used. As of March 2008, the NIPP L/C report indicated there was only a 29 per cent utilization of US dollardenominated L/Cs and a 14 per cent utilization of euro-denominated L/Cs. Meanwhile, in an apparent defence of the authorities' probity, Nigeria's Sunday Vanguard newspaper pointed out to its readers the rigorous checks on documentation required before payment is made against L/Cs.

"Clearly, the House committee appears unaware of these safety nets - especially given their insistence that billions of dollars has been paid out with nothing to show for it," a report in the paper said. It also pointed out that since L/Cs are opened with a government banker - the Central Bank of Nigeria - the government and not the contractor retains control over them.

Pakistan

Reports emerged from the Faisalabad region of Pakistan that a financial institution had yet to act on an alleged L/C fraud that appears to have cost it the equivalent of more than USD 5 million. The alleged scam was reported to involve two exporters and the management of a financial institution who have drawn a total of 327 million rupees (Rs327 million) on fake L/Cs, according to a local news source. "Despite knowing about this alleged fraud, the financial institution has not yet adopted a legal course," a finance ministry source reportedly told The News. It said that the alleged fraud had been known about for several months. The management of the financial institution is reported to have failed to deal properly with the bank that opened the L/C before it paid out on it and did not verify signatures related to advising banks on the documents.