Governments, it is widely believed, have no business to run businesses. That should be doubly true for a wet-behind-the ears government, which is still trying to find its feet.
However, the coup witnessed at the board meeting of Haldia Petrochemicals Ltd (HPL) would lead one to believe that the government of the day was more deft at board-room manoeuvres than administering a state. The manner in which Parthasarathi Bhattacharyya was eased out, and the almost unseemly haste with which a successor was put in his seat, make the episode open to libel, feel corporate experts. By not being present when the board accepted Mr. Bhattacharyya’s resignation, Purnendu Chatterjee, a key promoter of the company, can always challenge the legality of the decision saying that he was not a party to it, experts argued.
Fears that the company might face a third round of legal tussle were sparked by the fact that key promoter and Vice-Chairman Mr. Purnendu Chatterjee left the meeting in a huff just as Chairman Mr. Partha Chatterjee decided to accept the resignation of the former managing director.
The government, through its apex industry promotion agency West Bengal Industrial Development Corporation, and TCG (The Chatterjee Group) through three of its group companies hold almost an equal stake aggregating 81 per cent of the equity capital of HPL. Under dispute is the transfer of a chunk of controversy-laden 15.5 crore shares to TCG. This was part of an understanding reached by the previous Left Front Government with Mr. Chatterjee but which was held back amid a souring of relationship between the Government and its once-dependable NRI investor. The initial signs of bonhomie between Mr. Chatterjee and the present state government did not sustain for long, leading to a situation where he was forced to move the International Court of Arbitration.
Challenge
As the two main promoters crossed swords, HPL was left to fend for itself. This posed a huge challenge to its management, which, nevertheless, picked up the gauntlet in trying to turn around the company. HPL had gone into the red from 2008-09, the losses being triggered by many factors, including a budgetary levy on naphtha, its main feedstock. This was reversed during the year entailing Rs.300-crore annual benefit. Measures were also taken to stem the slide at the plant, which had begun to suffer repeated shut-downs as the expansion project ‘Supermax’ had somehow rendered it unreliable. The situation in the market place did not help HPL either. The situation came to such a pass that amid mounting losses, HPL, West Bengal’s showpiece industry, was about to make a mandatory reference to the Board for Industrial and Financial Reconstruction (BIFR) as a potentially sick company.
This became necessary as 50 per cent of its net worth had been eroded. However, a referral to the BIFR was averted with the management convincing the banks to pick up a stake in the company. As a result, lenders are now holding an equity stake of eight per cent in HPL.
Business plan
However, the losses have continued till the first quarter of this year. This is bound to dent the bottom line of the company substantially over and above the Rs.850-crore loss it had reported in 2011-12. Cumulative loss is estimated at Rs.1,920 crore. However, through sustained efforts of a dedicated management team and aided by a dipping naphtha price, plus a Rs.50-crore credit from State Bank of India, HPL is hoping to become EBIDTA positive within the next quarter. A Rs.1,000-crore business plan was presented by the outgoing Managing Director. Armed with this plan, the new team is now hoping to negotiate with the lenders for credit.
Given the acceptability that the former Managing Director enjoyed with the lenders, the government is reportedly keen to invite him formally to that meeting.
Meanwhile, IOC and MRPL, a subsidiary of ONGC, have also shown keen interest to play a management role. While IOC already has an equity holding (and is now looking to a board position), corporate experts feel that HPL’s salvation lies in public sector bail-out. The government has said that it would like to invite bids for the company.
The Government, perhaps, is aware that the entire chain of events has not sent a positive signal to investors, in general. Privately acknowledging the present team’s ability to pilot the company, the government is reportedly looking for a deputy Managing Director with technical knowledge to run the plant.
It now needs not only an able Managing Director but also one with universal acceptability. More so as HPL has lost over 60 personnel who deserted what they saw as a sinking ship. The easing out of the Managing director was the proverbial last straw. Many years ago, Damodar Valley Corporation, which was in deep financial distress, was about to sell a spanking new thermal power project which was then under implementation. Co-owned by the Centre and the State governments of West Bengal and Jharkhand, the multi-utility was nobody’s child. It would be a pity to see HPL going that way.
