One question begs an answer in the Haldia Petrochemicals episode: why did Reliance Industries stay out of the auction? With the Oil and Natural Gas Ministry deciding to keep other PSUs out, IndianOil emerged the sole bidder, agreeing to buy the West Bengal Government’s stake at Rs 25.10 a share.
According to Reliance sources, they didn’t see much value in the project. But if that were true, why did the company show so much interest in the project in the run-up to the auction? Also, it is no secret that the Mamata Banerjee government wanted Reliance on board.
Unlike Cairn or Essar, which backed out early on (Essar pulled out in August while Cairn made up its mind a couple of days ahead of the final bidding on October 7), Reliance literally kept its decision for the final hour.
Industry sources believe a mismatch of expectations between the government and Reliance led to the petrochemicals giant’s pullout. The government, the sources say, was keen to raise close to Rs 1,900 crore by selling 67.5 crore equity shares (including 15.5 crore disputed shares). This expectation was a couple of times the fair value of the company, based on its financial status and revenue potential. The sources said Reliance found the government expectation high though no company official would comment on this.
No comfort zone
Reliance was also looking at the other player in the equation: The Chatterjee Group (TCG), Haldia Petro’s co-promoter. If TCG got control of the 15.5-crore disputed shares, it would hold 82.24 crore shares against Reliance’s 52 crore (67.5 crore shares less 15.5 crore disputed shares).
To be in control of Haldia Petro, Reliance would need the support of banks and financial institutions, especially if the State decided to exercise its voting rights against the 27.1-crore preference shares it held (the State is eligible to do so because Haldia Petro never paid dividends). IndianOil, on the other hand, was more comfortably placed as it already had an 8.9 per cent stake in Haldia Petro.
TCG had apparently declined a buy-out offer from Reliance, though a TCG official denied any discussion on the issue.
Incentives not granted
But, according to the sources, Reliance may still have entered the race had the West Bengal government agreed to its demand for fiscal incentives as is offered to new industrial investments.
While Reliance’s wish-list is not known in its entirety, the sources say the company wanted tax breaks on feedstock (naphtha) purchase. This, the company apparently insisted, was necessary for viability of the project and to get the support of lenders.
But the Trinamool leadership, which had in the past raised a hue and cry on incentives granted to Tata Motors’ Nano project, was not ready to oblige anticipating financial and political issues. With this, Reliance’s interest in Haldia Petro waned.
For IOC, which is one step closer to getting control of Haldia Petro, the icing will be the 400 acres of excess land available with the petrochemicals project. The excess land can make any future expansion of its downstream facilities, located a few hundred metres away, easy. Haldia Petro gets easy access to the all-important naphtha from the IOC refinery. It’s a win-win for both.