Balco - The Disinvestment Story

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Themes: Corporate Restructuring
Period : 2001
Organization : BALCO
Pub Date : 2002
Countries : India
Industry : Metals & Mining

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Case Code : BECG004
Case Length : 10 Pages
Price: Rs. 300;

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"The deal was like loot of Chattisgarh in a day-light robbery."

- Chattisgarh Chief Minister, Ajit Jogi.

"Sterlite's offer for Balco is more than fair. It is in the interest of the government to close the deal."

- BusinessWorld, March 12, 2001.

Balco - The Disinvestment Story: Introduction

In February 2001, the Government of India (GoI) struck its first disinvestment deal in the fiscal 2000-01. It approved the sale of its 51% stake in aluminium major, Bharat Aluminium Co Ltd (Balco) to Sterlite Industries Ltd. (SIL), for Rs. 551.5 crores. Balco was a profit making public sector company under the Ministry of Mines (MoM). In 2000, it had a turnover of Rs.898 crores and a profit after tax of Rs. 56 crores.

Balco had two working units - an integrated Aluminium complex situated at Korba in Chhattisgarh and the second at Bidhanbag in West Bengal equipped to produce only on downstream facilities. Balco had a total workforce of 7,000.

The Opposition launched a massive attack accusing the BJP Government of 'selling out' to private interests. Also, the Chattisgarh Chief Minister, Ajit Jogi, (Jogi) alleged a Rs. 100 crore kickback in the sale involving key officials. Jogi also threatened to cancel the bauxite mining and land lease Balco was granted as a Public Sector Unit (PSU) in case the GoI failed to review the proposal.

Fierce opposition to the Balco-Sterlite deal forced the BJP government to put off finalizing the sale agreement till the matter was discussed in the Parliament. In March 2001, the Parliament approved the controversial deal with the opposition-sponsored motion being rejected in the Lok Sabha by 239 to 119 votes. But the story did not end here. The employees union launched an indefinite strike protesting against the Balco sell out.

After a protracted battle, an agreement was reached between the Balco management and the union. With this agreement, the Balco disinvestment saga was put to rest. But, with the employees not completely satisfied with the terms and conditions laid down in the agreement, the future of Balco did not seem to be very promising.

Balco - A Profile

Balco, incorporated in 1965, was closely associated with the growth of the Indian Aluminium industry. Balco played a pivotal role in making aluminium a leading metal with myriad uses ranging from household, industrial to strategic defence and aerospace applications. Balco was vertically integrated from sourcing of bauxite from its captive mines, refining and smelting to aluminium production and a variety of semi finished products.

Balco had contributed significantly as a primary aluminium producer, providing sustenance to vital industries. Balco was a supplier of special aluminium alloys to the nation's intermediate range ballistic missile, Agni and surface to surface missile, Prithvi. The GoI held 100% stake in Balco. In 2000, the GoI announced to divest 51% stake in Balco to a long-term strategic partner.

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