BALCO Snarl

 - Dasu Krishnamoorty

The Tehelka.com revelations about the involvement of Samata and BJP dignitaries in defence deals and media reports about the role of the Prime Minister's Office in backseat-driving the economic establishment lend credence to Opposition charges about irregularities in the sale of Bharat Aluminium Company to the Sterlite group. The case against the government would have been indefensible if its critics had co-ordinated their data and information and not brought in extraneous and chauvinistic issues into play. What began as a simple disinvestment exercise, the BALCO sale to Sterlite has ended up in a quagmire of avoidable controversies, sucking in the Rajya Sabha and the Supreme Court into its vortex. The opposition, led by the Congress, revelled in the embarrassment the central government suffered in the upper house, which approved an amendment to the government decision to sell BALCO to a private industrial group.

At the same time, the Supreme Court administered a snub to the Congress administration in Chattisgarh by asking it to ensure maintenance of law and order. The plan to sell BALCO is four years old and opposition has no explanation for its silence till the deal was through. Suddenly, it discovered a bagful of discrepancies beginning with centre-state relations, evaluation of the assets of the BALCO plant, and even constitutional issues like the transfer of tribal land. The Rajya Sabha victory hardly means anything. The arguments before the Supreme Court reveal, if anything, that the state government was itching for a duel with the central government and thus show to Sonia Gandhi how useful Chattisgarh Chief Minister Ajit Jogi could be in discomfiting Vajpayee.

First of all, everyone is clueless about why the Vajpayee government decided to break the news of the sale of BALCO in Parliament. As S. Swaminathan says in the Hindu (March 9, 2001) "In strict terms of accountability to Parliament, perhaps, an executive decision regarding sale of equity in a public sector unit did not warrant discussion in Parliament much less a formal approval." Therefore, the result of the debate in the Lok Sabha on the BALCO issue did not amount to an approval. Taking Parliament into confidence showed only the ruling alliance's undue anxiety to make a show of transparency. The importance or otherwise of the issue in the eyes of the Congress was evident from the party's indifference to ensure that its MPs were present in the house at the time of voting, though it was the Congress which insisted that a debate take place under Rule 184. Having pioneered the economic reforms with their accent on privatisation, the Congress should have been the last to contest the decision of the central government to disinvest. Its performance in Parliament is likely to hurt the Congress-ruled states with ambitious plans for privatisation

Neither was Ajit Jogi's command performance commendable. After engineering a resolution in Chattisgarh assembly rejecting the BALCO deal, Jogi hurled reckless charges of pay-offs at the Prime Minsiter's Office hoping to prove them later, prodded the workers of the BALCO plant to go on a strike and prevent willing workers from entering the workplace despite an undertaking to the Supreme Court and argued that the lands on which the BALCO facilities are sited are tribal lands according to the fifth schedule of the constitution. In support of Jogi, a former chief justice of the Delhi High Court Rajindar Sachar points out that Article 244 prohibits non-tribal’s holding land in scheduled areas from transferring their lands in favour of persons other than the tribals. Experts, however, maintain that this is not a tenable stand in law because the transfer of shares does not involve any change in the original lease of the lands by the Madhya Pradesh government in the early nineties to BALCO, a fully central government -owned public sector enterprise. Even otherwise, the Congress having accepted disinvestment as a major instrument of economic reform cannot balk in future from such an exercise because that would involve tribal land. Alternative arrangements could always be made to compensate for the losses the Adivasis might suffer as a result of economic reform.

Confusion reigned supreme regarding evaluation of BALCO assets. Ajit Jogi says that BALCO is a profit-making public sector unit estimated to be worth more than Rs. 5,000 crores and that it has been given away for less than one-tenth of its value. But in the Supreme Court, Ajit Jogi's counsel Kapil Sibal offered to buy the company on behalf of his client for only Rs.552 crores, a little more than what the Sterlite had paid to acquire 51% of its equity. Who will pay the balance of Rs.4,448 crores? The Centre of Indian Trade Unions (CITU) said that though BALCO had assets, surpluses and market share worth thousands of crores of rupees, it was sold for much less than one-fifth of its real value. This puts BALCO worth at Rs. 2,750 crores. Earlier, the Chattisgarh government estimated BALCO assets at Rs.1,500 crores. Congress spokesperson Jaipal Reddy asserted that an internal assessment by the Finance Ministry had assessed that BALCO's worth was Rs. 2,000 crores in 1998 and that the firm had a 280 MW captive power plant worth nearly Rs.2,000 crores. This means that BALCO's value is Rs.4,000 crores. Rajindar Sachar thinks that BALCO has two captive power plants of about 250 MW, which would be worth Rs.500 crores today. According to Jaipal Reddy, the capacity of the plants is 280 MW and the value was Rs.2,000 crores in 1998. C.P.Chandrasekhar (Frontline, 16 March, 2001) puts the capacity at 270 MW. Which is the right estimate?

According to the Disinvestment Ministry, the company's book value was Rs.704 crores of which 51% was Rs. 359 crores, well below the winning bid of Rs. 551.50 crores by Sterlite. The Sterlite bid was far in excess of the figure arrived at the three evaluations by Jardine Fleming, i.e., discounted cash flow, balance-sheet evaluation and industry comparisons. The discounted cash flow was the primary valuation relied upon by the strategic investor as it takes into account operational efficiency, key revenue and cost drivers, long-term prospects and competitive environment. Swaminathan says "It is pertinent to note that in 1996, the tangible net worth of BALCO was around Rs. 760 crores and with little capital infusion since then and with even minimum levels of depreciation, it could not have soared much higher. That the bid made by Sterlite was much higher, in fact, than the best value put on the shares by professional valuers, cannot be dismissed as an irrelevant afterthought."

Chandrasekhar has a different theory about how the central government had undermined the profitability of BALCO to stall its modernisation and expansion at Korba (site of BALCO facilities). After damaging the profit profile of the company, the government used it as pretext to undervalue the firm. If the Sterlite were to invest in a captive power plant of the kind owned by BALCO, that alone would cost Rs. 1,215 crores, according to a senior official of the power sector. Chandrasehar also says that once the government has shed 51% equity in favour of Sterlite at an indefensible price, the value of the remaining stock with the government also slumps. There was also no transparency about either the procedure adopted to arrive at the reserve price or about the reserve price itself. Keeping the reserve price secret and declaring that the Sterlite bid was in keeping with the reserve price further fuels suspicion. There were also allegations that even though bids had been invited some time back, the valuation by Jardine Fleming, the fixing of the reserve price and the approval of the Sterlite bid were all completed within a month.

This picture of secretiveness and hurry clashes with reports of transparency appearing in the mainstream press. The Hindu (5 March, 2001) says editorially "The ironical part of the whole controversy is that the disinvestment process in BALCO has been the most transparent of all the cases where it has been attempted, and this came out clearly from the cogent and convincing presentation of the official position in Parliament by Mr Arun shourie and the Law Minister, Mr Arun Jaitley, explaining the whys and wherefores of the government's decision to accept the Sterlite industries' offer." Government's willingness to let the Comptroller and Auditor General audit the entire records regarding the BALCO deal is further evidence of transparency. Arun Shourie told the upper house that the process of disinvestment in BALCO had been going on for almost four years and the detailed work on it had been going on for two years. The entire process had been conducted in public knowledge. He also said that both the houses of Parliament had discussed disinvestment policy in five debates and in the last two sessions alone more than 300 questions on disinvestment were answered. Open, competitive bidding has been the essential element of the process at every stage -- from the selection of the advisor to that of the strategic partner, Shourie said.

The central government has also to answer charges of helping to create a monopoly. As a result of the acquisition of 51% equity, Sterlite is likely to control 20% of the market share in the aluminium sector. This will violate the provisions of the Monopolies and Restrictive Trade Practices Act of 1961 besides running counter to the concept of free competition which is the cornerstone of globalisation. However, it is untenable to defend the monopoly that is likely to emerge as inevitable in a highly capital-intensive industry like aluminium and to assert that the concept of monopoly defined in terms of installed capacity or domestic market share is anachronistic. Time will tell whether BALCO is a sell-out or a good bargain for the government. However, the Congress saying 'daal me kuch kaala hai' is like the kettle calling the pot black.

Though the Rajya Sabha vote is a small setback for the ruling alliance, it can draw solace from the fact that its adversary had suffered such loss of face twice in the past. The first was when the Opposition won an amendment to the motion of thanks to the President’s address in 1980. It expressed regret that the ruling Congress government did not give any categorical assurance that it would not dissolve assemblies in eight states. The second was when six amendments were passed, relating to Rama janma bhoomi-Babri Masjid dispute, the destabilisation of state governments, constitutional amendment on the right to work, Indo-Sri Lankan accord, the Anandpur Sahib resolution and objection to the release of militants in Jammu and Kashmir. Ajit Jogi has asked the Sterlite group to call off the deal or face the consequences. In essence, it is not a confrontation between the central and state governments but between the BJP and the Congress.

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