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BALCO - THE DISINVESTMENT STORY
 BALCO-A Profile
continued from Page 1
STAGE I: THE TUG OF WAR
In mid 2000, leading domestic players like the Aditya
Birla group company-Hindalco Ltd, SIL and the global major, Alcoa, expressed
their interest to acquire 51% controlling stake in Balco. They had to verify the
financial and operating performances of Balco before putting in a financial bid
for purchasing the 51% equity on offer. Once the financial bids were received,
majority stake in the company would pass on to the highest bidder. An
inter-ministerial group (IMG) was constituted to oversee the disinvestment
process. In late 2000, the group visited the Balco plant (Korba) to get a
first-hand impression of the plant and its facilities, its operation and the
mood of the employees prior to disinvestment.
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The Balco disinvestment was mired in controversy right
from the day it was announced. The employees' union of Balco put up a stiff
resistance to the disinvestment process. The union alleged that the MoM was
adopting coercive means to complete the process. In a memorandum to the Prime
Minister, A.B. Vajpayee, the union alleged that the MoM was 'behaving like a
guilty conscious culprit' and resorted to enforcing Section 144 in and around
the Balco plant even before the Committee of IMG arrived. "Although the
situation did not warrant it, the Government of Madhya Pradesh had deputed
thousands of policemen in plain clothes and uniform to terrorize the employees
and facilitate the IMG Committee members' visit to the plant to achieve their
motive. Today, the workers of the PSU are more worried about their survival and
protection of their service conditions subsequent to the disinvestment," the
union said.
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The union cited that Balco was a profit-making company
and had a huge capital base of about Rs. 500 crores. It was the only public
sector enterprise that had paid its 50% equity, i.e., Rs. 244 crores to the
exchequer. The government should not jeopardise the future of the workers by
disinvesting it. Government officials, however, pointed out that in the late
1990s, only 50% of Balco's profits had been on account of operating margins
while the other half was due to interest earned on fixed deposits. The GoI
further said that Balco was under threat as the company was running on outdated
technology and was making profits only because aluminium prices in international
market were ruling high. A downturn in prices would again take the company to
the state of sickness from which it had recovered in 1988-89. The GoI stand was
that it was better to sell the company when it was earning profits to get a good
deal. The GoI said that the cash reserve of Rs 437 crore accumulated by Balco by
giving less dividend to the government was too little for the modernization of
the company. According to government estimates, a total of Rs 4,000 crore would
be required for the modernization and expansion of the company and it could be
infused only by bringing in a strategic partner.
In late 2000, to win the confidence of the agitating employees, the GoI for the
first time announced its decision to offer stock options to the employees of
Balco. It also stated that there would be no retrenchment of labour in Balco for
at least one year after the disinvestments. In case of any decision to reduce
the manpower, it would have to offer a package not less attractive than the
government approved VRS package.
Meanwhile, opposition to the disinvestment was growing, with the union
submitting a memorandum to the Prime Minister seeking his intervention. The
employees alleged that proper evaluation of the company had not been done. They
noted the cost of the Korba aluminium plant and Bidhanbag plant, land, quarters
and buildings (Rs 800 crore) and new cold-rolling projects (Rs 184 crores), has
been grossly underestimated. The union also alleged that there were several
lapses in the tendering process. As per the existing tendering procedure, bids
were to be invited from minimum six parties and the GoI tendering procedure
indicated that there should be a minimum of three parties. However, both had not
been followed.
In February 2001, the union filed petitions with the Department of Company
Affairs (DCA) and the Monopolies and Restrictive Trade Practices Commission (MRTPC)
on the disinvestment process being undertaken in the company. The union in its
petition to DCA said that several factors such as fixation of reserve price
before the start of the disinvestment process, valuation of the company by GoI
and non-settlement of pending dues by many of foreign and domestic parties have
not been taken care of. "The process (disinvestment) is likely to be completed
without valuation of assets of Balco on fair market value as recommended by the
disinvestment commission," the union said.
In February 2001, the GoI approved the sale of 51% stake in Balco to SIL for Rs
551.5 crore. The Cabinet Committee on Disinvestment, at its meeting, endorsed
the sale of Government equity in Balco along with the transfer of management
control to the highest strategic bidder. SIL emerged the winner beating the A.V.
Birla group's Hindalco and the US-based Alcoa. Said Arun Shourie (Shourie),
Disinvestment Minister, "The bid of Sterlite compares well with the expectation
that the Government had formed with the reserve price." However, he did not
disclose what the reserve price was except that it was less than the price
quoted by SIL. "Apart from the highest price, the business plan of Sterlite was
the most credible," Shourie added.
Dispelling fears on the employees' future
post-disinvestment, Shourie said that in the first year after the takeover,
there would not be any retrenchment at all. After the first year, if any
retrenchment took place, the VRS package offered would be as generous as the VRS
package prevalent in PSUs. "The trade union leaders have expressed great
satisfaction in this clause," Shourie added. He reiterated that the entire
process was concluded in a completely transparent manner after exercising due
diligence at every step.
STAGE II: THE CONTROVERSY DEEPENS
STAGE III: THE DEBATE
STAGE IV: POST SELL OUT DRAMA
ALL'S (NOT) WELL THAT ENDS WELL
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This case study is intended to be used as a basis for class discussion rather
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