Kerala: Irregularities in PPE kits purchase led to additional liability of Rs 10.23 crore, says CAG report

The Comptroller and Auditor General of India's (CAG) latest report highlights irregularities in the Kerala government’s procurement of PPE kits during the COVID-19 pandemic, resulting in an additional expenditure of Rs 10.23 crore. The report also observes that undue favours were extended to certain suppliers of essential COVID-19 management items.

According to the CAG, in March 2020, the Kerala government granted special sanction to the Kerala Medical Services Corporation Limited (KMSCL) to procure PPE kits, N95 masks, and other COVID-related commodities for healthcare institutions. Given the emergency and scarcity of supplies, exemptions were provided from tender and quotation formalities. KMSCL, a government-owned entity, is responsible for supplying healthcare services across the state.

The report notes that the government had set a unit rate of Rs 545 for PPE kits in March 2020 to regulate prices. However, despite four firms offering rates within or marginally above this limit, the government procured PPE kits from five other firms at rates significantly higher—up to 300% above the approved price. 

“This resulted in additional expenditure of Rs 10.23 crore on the PPE kits procured during the above period,” says the report.

San Pharma, A&A Trading Ventures Pvt Ltd, Innov Quotient Pvt Ltd, BNS Health Aids Pvt Ltd, and Kitex Garments are the five firms identified in the CAG report, whose procurement by the Kerala government led to excess expenditure.

The report also notes that the State Level Crisis Management Group had authorised Kerala Medical Services Corporation Limited to pay up to 50% of the purchase value as an advance to suppliers of COVID-19 management items.

However, this guideline was violated, as 100% advance payment was made to San Pharma, a firm that offered PPE kits at the highest rate of Rs 1,550 per unit. 

“The firm was issued orders to supply 15,000 PPE kits at Rs 1,550 per unit for which KMSCL paid an advance amount of Rs 2.32 crore (March 2020) which was the total value of the supply order and the supply was effected in May 2020,” says the report.

The state government argued that the advance payment of Rs 2.32 crore was made against the Letter of Intent (LoI) quantity of 50,000 PPE kits and amounted to only 29% of the total purchase value of Rs 9.35 crore. However, the CAG report refutes this claim, noting that while the LoI specified 50,000 kits, orders were placed for the immediate supply of only 15,000 kits, as the company was new and its product had not yet been verified.

The report further highlights that, as per the purchase file, a decision was made on March 31, 2020, to procure only 15,000 PPE kits initially. Therefore, the CAG concluded that the government’s justification for the advance payment based on a $50,000 kit quantity was not valid.

The irregularities highlighted by the CAG are likely to put the state government on the defensive. In 2022, the opposition had already raised allegations of misconduct in the procurement of PPE kits and other medical equipment. 

Congress MLA P.C. Vishnunadh had, in fact, accused the government of awarding contracts to paper companies at prices significantly higher than market rates and claimed that the Kerala Medical Services Corporation Limited (KMSCL) was involved in a scam amounting to over Rs 1,600 crore in the purchase of PPE kits, gloves, and infrared thermometers during the early phase of the pandemic. 

The opposition leader has already stated that the irregularities highlighted by the CAG have tarnished the "pandemic PR" image of Pinarayi Vijayan's first term. It is certain that the CAG report will provide ample ammunition for the opposition in the assembly debates in the coming days. 

THE WEEK reached out to former health minister K.K. Shailaja for her response, but she was unavailable for comment.