26 July 2016

* Minister says not politically responsible for alleged fraud

* State grain buyer has more than $900 mln credit facility (Adds details, quotes, context)

By Ehab Farouk

CAIRO, July 26 (Reuters) - Official Egyptian inspection committees have so far found that some 4 percent of 5 million tonnes of locally purchased wheat is missing from silos, Egypt's supply minister said on Tuesday.

Khaled Hanafi added, however, that he was not politically responsible for any alleged fraud, as the world's top wheat buyer continued a month-long corruption investigation.

"Why should I be politically responsible? What wrongdoing took place? What is the mistake that the government made that it should not make again?" Hanafi told Reuters in an interview.

Egypt's general prosecutor has said some local wheat was bought by the government in paper transactions only and not physically delivered. He has ordered travel bans, frozen funds and arrested several private silo owners suspected of corruption.

Parliament has also set up a fact-finding commission to look into the allegations of corruption in wheat procurement.

"Reports indicate 4 percent of the value of the wheat," Hanafi said, adding that the parliamentary inspection committee continued to do its work but a committee led by his ministry had finalised inspections.

Egypt contracts with private-sector suppliers to store and deliver wheat to government mills, as the government says it lacks adequate capacity to stockpile the grain.

But the practice was called into question this year after an unusually high procurement figure prompted allegations of possible fraud from top industry officials, traders and members of parliament and led to the recount.


Blumberg Grain said last week its high-tech silos, the first phase of a wheat storage development project in Egypt that could have prevented such fraud, were not used to store grain this local harvest season despite being delivered on time.

The storage systems of the grain logistics company were expected to process and monitor about a quarter of the domestic crop.

"Most of the Blumberg storage sites came into service after the local harvesting season," Hanafi said.

Hanafi said the second phase of Blumberg's project was rejected by the state's Holding Company for Silos and Storage.

"(Blumberg) proposed a second phase to the holding company but the technicians there saw that the offer technically and financially was not suitable," he said.

Hanafi said that for the next local purchasing season, the government would again propose reforms for the system to prevent any corruption.

Egypt annually fixes a procurement price for local wheat that is above global prices in an attempt to encourage farmers to grow the crop, but the practice has encouraged corruption as middlemen take advantage of the price gap.

A new farmer subsidy system, designed to tackle smuggling, was shelved in February after a meeting that included the prime minister, the supply minister, the agriculture minister and the finance minister.


If Egypt's local wheat procurement numbers were misrepresented, it may have to spend more on foreign wheat purchases to meet local demand - even as the country faces a dollar shortage that has sapped its ability to import.

Hanafi said a revolving credit facility of 8 billion Egyptian pounds ($912 million) had been made available through local banks to state grain buyer GASC to purchase commodities including rice and vegetable oils.

The facility "will allow GASC to purchase goods and sell them as subsidised commodities to make balance in the market", he said.

He added that there were enough wheat reserves to last Egypt until mid-January, enough sugar for a year and enough vegetable oil until the end of September.

Egypt plans to buy 2 million tonnes of paddy rice next month and store it as a reserve to avoid any repeat of a subsidised-rice shortage that took place earlier this year. (Reporting by Ehab Farouk; Writing by Maha El Dahan; Editing by Veronica Brown and Dale Hudson)

© Reuters 2016