July 4, 2013

Haldia's future hangs in the balance

Digbijay Mishra & Ishita Ayan Dutt  |  Kolkata  June 13, 2013 Last Updated at 23:25 IST

It ought to have been a success story for West Bengal, but the economic slowdown and a long-standing shareholders' dispute have messed up its chances
At the inauguration of Haldia Petrochemicals Ltd (HPL) in 2000, Bengal's chief minister and one of India's longest serving head of state, Jyoti Basu, had said that the plant was the most visible symbol of success of the state government's policies directed towards rapid industrialisation. But, perhaps, he would not have imagined even in his wildest dreams that the company would run out of steam and land up on the auction block-all in less than 15 years.

Actually, some of the biggest names in the business are now eyeing it. At the close of the deadline for submission of expression of interest on June 10, six companies-Reliance Industries, Cairn India,Essar, Indian Oil Corporation, ONGC and GAIL (India)-had formally evinced interest in the Bengal government's 40 per cent stake in eastern India's biggest petrochemical venture. The rush to bag HPL is hardly surprising. The quality of HPL products is of global standards, and, above all, it has 400 acres of unutilised land that could fetch Rs 800 crore in the market.

"The land is one of the main reasons why so many big companies have shown interest in HPL. Setting up a greenfield unit in present-day situation would require huge tracts of land coupled with some blockbuster investment. HPL had chalked out a long list of downstream projects to be set up on the surplus land," HPL's former managing director, Partha Bhattacharyya, says.

But the financials of HPL are anything but rosy. HPL's net worth eroded from Rs 2,347 crore in FY10 to Rs 2,097 crore in FY11. This marked the beginning of its downhill journey. With intermittent plant shutdowns due to inefficiency, the net worth now stands at around Rs 500 crore as on March 31, 2013.

The HPL plant is running at 50-55 per cent capacity owing to acute fund shortage, So much so that the plant is unable to buy naphtha, a key raw material. For a plant of HPL's scale, losses occur when it operates below 75 per cent of total capacity. Add to it a muted market as a result of the global economic slowdown and it takes much of HPL's sheen away.

But market dynamics apart, a long-standing shareholders' dispute has been a significant spoiler for HPL's performance. The infighting among shareholders has made the lenders wary and a much-needed Rs 1,000-crore lifeline has been pending for over a year now.

Too much infighting

HPL's principal promoters-the Bengal government and Purnendu Chatterjee-led The Chatterjee Group-have been engaged in a legal tussle for almost eight years now. At the crux of the battle is ownership and management control of the company.

At one point in time, on the sidelines of the 10th Confederation of Indian Industries Partnership Summit in Kolkata in 2005, at a high-profile meeting between Tata group Chairman Ratan Tata, HPL Chairman Tarun Das, West Bengal Commerce and Industry Minister Nirupam Sen, and Chief Minister Buddhadeb Bhattacharjee, it was decided that the state government would hand over its shares to Chatterjee at Rs 10 apiece.

"But Chatterjee paid only the first installment. He did give us a comfort letter from Citibank, but it wasn't good enough," a Left Front minister close to the development says. The net result was that the shares were not transferred to TCG.

Chatterjee's entry into the picture dates back to 1994 when Jyoti Basu summoned him to bail out the project which had failed to make headway even after the Tatas were inducted.

"When Darbari Seth came down to ask for land to build the Taj Bengal Hotel in Kolkata, Basu personally approached him. Though Seth had initially agreed, he later expressed his inability to pursue the project. But Ratan Tata, keen to keep a prior commitment, invested," the Left leader says.

The greenfield project was conceived in 1985 as a joint venture between the West Bengal Industrial Development Corporation and Rama Prasad Goenka, but mounting losses in CESC, the power utility, prompted Goenka to abandon the plan.

Finally Chatterjee, who was then funding several ventures with George Soros, was called to salvage the project. Over the years, his investment in HPL would be Rs 600-800 crore out of a total investment of close to Rs 10,000 crore in India.

Shareholder rumblings are nothing new to HPL. The Tatas took a 10 per cent stake in HPL, at the behest of Basu. "After a not-so pleasant board meeting, the Tata group decided to withdraw its nominees from the board. In 2002, Ratan Tata and Shyamal Gupta, a Tata group nominee, stepped down from the HPL board. The Tatas now have a token 2.7 per cent stake in HPL," the former Left minister says.

Waiting for change

Employees are usually wary of any change in management. But perhaps a constant tussle among shareholders has pushed the workers to welcome the impending change. And the eagerness to embrace a new management is palpable at various levels at HPL.

"The current management is not keen on running this plant properly. We have seen so many senior engineers leaving the company and joining Reliance due to insecurity about the plant's fate," a senior executive of HPL's marketing department says.

"I am a basic worker and I think if Indian Oil comes on board that would be the best for people like us. It's a government undertaking, so our future would be secure," the worker says.

The workers' feelings are unsurprising. Compared to an earlier model of paying workers on handling raw material on per tonnage basis, they are now paid for 20 days in a month. As a result, there is a net drop in earnings from Rs 7,000 to Rs 4,900 a month. HPL has 800-1,000 permanent employees, while around 5,000 are contract-based.

The Left Front-led Bengal government had earlier tried to hand over management control to Indian Oil that marked the beginning of a dispute with HPL.

TCG contested the government's sale of 150 million shares to Indian Oil. According to the agreement of 2002, the state had agreed to sell 155 million shares at a price of Rs 10 per share for Rs 155 crore to TCG.

According to TCG, the government was also trying to sell shares to Indian Oil through the back door, though the Left Front government's version is that Indian Oil was first mooted by TCG, but the Navratna company wanted 26 per cent equity as well as management control. Handicapped by the agreement, the state government instead gave it in writing to Indian Oil that if TCG failed to buy out the state's shares then it would be handed over to the public sector company.

TCG has the first rights of refusal for the government's shares. In fact, even after the current bidding, the first rights would have to be offered to TCG. If it fails to match the highest bid, only then the government would be able to hand over its shares to a new company. The company now will have to report to the Board of Industrial and Financial Reconstruction after the audited results are published. Obviously, there is much left to be seen in the HPL saga.


* 1985 Haldia Petrochemicals was incorporated as a venture between West Bengal Industrial Development Corporation and the R P Goenka group

* 1990-93 RPG exits, the Tata group steps in

* May 1994 Purnendu Chatterjee becomes a part of the venture by signing an MoU with WBIDC and the Tatas

* 1997 Project execution starts

* Aug 2001 Commercial production commences

* Jan 2002 WBIDC transfers the disputed 155 million shares to TCG. Shares were transferred at a price of Rs 155 crore at Rs 10 per share. WBIDC gives a loan of Rs 147 crore to TCG to buy these shares

* 2005 The state decides to sell the remaining 520 million shares to TCG, but the deal falls through. TCG approaches the Company Law Board (CLB)

* 2007 CLB rules that the entire stake should be sold to TCG. The state approaches the High Court and it rules in favour of the state, setting aside the CLB order. TCG approaches the Supreme Court

* 2011 The Supreme Court dismisses the TCG petition against the decision of the Calcutta High Court, thereby setting aside the CLB directive asking the state government to exit the project by selling its stake to TCG

* 2011 Plant shut down in July and August resulting in high losses

* 2012 Plant shut down owing to technical glitches; change in management

* January 2013 TCG files a special leave petition (SLP) in the Supreme Court, challenging the Calcutta High Court order that barred TCG from filing a petition in the International Court of Arbitration in France.

* 9 May 2013 State government comes out with expression of interest (EOI) in newspapers.

* 13 May 2013 TCG cautions probable investors who might participate in the share -sale process.

* 4 June Calcutta High Court bars TCG's move to Paris to the International Court of Arbitration over control of 155 million shares.

* 10 June RIL, Cairn India, Essar, ONGC, IOC and GAIL (India) submit EoIs to participate in states' share sale drill