NITI Aayog has come up with a blue print for 74 loss making and sick public sector undertakings [PSUs]. Of these, it has recommended ‘strategic’ sale of 6, closure of 26 and revival of 22. The selection of units for revival will be based on a three-fold criteria: (i) ‘public purpose’; (ii) revival program is already under-way and (iii) ‘market principle’. While, the first two do not instill confidence, whether the third will actually be practiced is suspect.
As regards (i), in this era of reforms and liberalization when the Modi – dispensation has gone that far to open even railways and defense sectors [considered to be exclusive preserve of the state for decades] to private sector including foreign investment and the overwhelming emphasis is on best outcomes – irrespective of who does it – use of ‘public purpose’ as a criteria is completely out of sync.
The invocation of this criterion assumes that in areas where wider good of public is involved, the government is better placed to deliver and therefore, revival of such undertakings while remaining under its control, should be the preferred option. It is anomalous that NITI Aayog whose birth owes it to abandonment of archaic concepts of ‘planning’, ‘commanding heights’, ‘social purpose’ etc is now keen to embrace those very concepts.
As regards (ii), this is no criterion at all. If, the government has already gone ahead with implementation of a revival program [e.g. recently, union cabinet approved revival of Sindri [Jharkhand] and Gorakhpur [Uttar Pradesh] fertilizer plants of Fertilizer Corporation of India Limited [FCIL], then, it is a fait accompli. It leaves no scope for any objective evaluation.
As regards (iii), the criterion is laudable. There can be no two opinions that the undertaking after revival should be capable of surviving under market-based environment. But, the big question is whether the government will really work on this dictum?
The top brass in the political establishment [prime minister and fertilizer minister, Ananth Kumar included] has already announced government’s plans to revive almost all the plants under ailing FCIL and Hindustan Fertilizer Corporation of India Limited [HFCL]. To get to the bottom of whether they will pass the ‘market principle’ test after revival, let us take a quick look at their background.
HFCL emerged as a separate company following reorganization of the erstwhile FCIL and NFL [National Fertilizers Limited] group of companies in early 1978. It got control of the operating Units at Durgapur [W. Bengal], Barauni [Bihar] and Namrup [Assam]. A fertilizer–cum–chemical project at Haldia [W. Bengal] was also annexed to it [it never took off, courtesy flaws in conception, design, choice of technology/equipment, commissioning etc]
In view of mounting losses, the company was declared sick and was referred to Board for Industrial and Financial Reconstruction [BIFR] in 1992. Meanwhile, after de-merging Namrup Unit into a new company Brahmaputra Valley Fertilizer Corporation Limited (BVFCL), Govt. of India declared closure of all its remaining 3 plants in 2002. In May, 2013, the cabinet granted its approval to their revival via bidding route.
FCIL has under it five units viz., Sindri [Jharkhand], Talcher [Odisha], Ramagundam [Telangana], Gorakhpur [UP] & Korba [Chhattisgarh]. These were shutdown during 1990-2002. In 2010, the government approved their revival through ‘nomination route’ by PSUs and by private sector through ‘bidding route’.
The nominated PSUs were Steel Authority of India [SAIL] for Sindri; Rashtriya Chemicals and Fertilizers [RCF], Gas Authority of India Limited [GAIL] & CIL for Talcher; NFL and Engineers India Limited [EIL] for Ramagundam. The Gorakhpur and Korba units were proposed to be revived through ‘bidding route’.
Coming to real action on the ground, for Sindri, in August 2011, the cabinet committee on economic affaris [CCEA] roped in SAIL to invest Rs 35,000 crores for setting up urea plant 1.15 million ton, steel plant 5.6 million ton and 1000 mw power plant. Within 3 months, a special purpose vehicle SAIL Sindri was also incorporated.
In 2014, SAIL decided to exit alleging delay in getting various approvals, acquisition of land etc. Elucidating on its decision, SAIL board argued ‘it cannot wait endlessly to get the land all the more when its own expansion and modernization plans worth US$ 12 billion are crying for attention’.
For Talcher [Odisha], in 2013, GAIL, CIL and RCF were roped in its Rs 8000 crores revival plan for 1.2 million tons per annum of urea. Under a memorandum of understanding (MoU), two joint ventures were planned viz., (i) upstream coal gasification and coal purification unit where GAIL would own 50%, CIL 35% and RCF 15% and (ii) a downstream ammonia-urea complex where RCF and CIL would hold 40% each and remaining 20% with FCIL.
As per the MOU, the revival project was slated to be commissioned by 2017. But, the then UPA-government left it in a limbo. Modi – government resurrected the plan within 6 months of its taking charge. But, CIL expressed its un-willingness to continue citing its articles of association (AoA) which do not permit diversification in to an un-related area [read fertilizers].
In case of Namrup IV unit of BVFCL, after an earlier attempt by then UPA – government [2006] failed, in 2014, present regime decided to set up a brown-field plant 860,000 tons urea per annum at Rs 4400 crores. A JV was formed in which Oil India limited (OIL) was to hold 26% equity and 11% each from BVFCL and Assam government [on nomination basis]. The balance 52% was to come from private company/strategic investor. But, one does not hear about it any more.
Given the two-and-a-half decade history of these plants confined to the hospital [read sick], state pumping thousands of crores in just keeping them on ventilator and several failed attempts to revive them, now to expect that they will be revived and remain viable that too under market-based environment looks like day dreaming.
It is most unlikely that the hurdles faced under previous attempts to revive will go away now. This is all the more when these plants are located in sensitive states viz., UP, Bihar, WB etc. Even if these get commissioned, given the huge investment [e.g. revival of Sindri and Gorakhpur is estimated to cost Rs 18,000 crore], they won’t be viable under a market-based scenario.
The government would do well to shed its current approach of first taking decisions on ‘extraneous’ considerations and then looking for a criteria to justify it. Its decisions should be based purely on socio-economic parameters. On that basis, in case of fertilizer plants, their closure should be the preferred option.