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M. Ramesh

CHENNAI, May 8

THE Bombay High Court has recently directed Industrial Development Bank of India Ltd (IDBI) to give SPIC Petrochemicals Ltd a copy of the full report of Tata Consulting Engineers (TCE). The TCE report went into the question of viability of the petrochemical project the latter was implementing.

According to sources in the SPIC group, IDBI is ``on the job'' of handing over a copy of the TCE report to SPIC Petro, for the company to prepare a revival proposal. Sources in the company say that with this ``breather'', this is the closest that the company has come towards a solution, in several years. The court gave this ruling in the course of a petition filed by SPIC against ICICI Bank when the latter sought to launch recovery proceedings. .

Based on the report, SPIC Petro is supposed to give a proposal for revival of the project, including how the lenders would be repaid. The company shall have four weeks' time from the date of receipt of the report to forward the proposal. The report shall be the basis for the future course of action, the sources say.

``It is to give an opportunity to the petitioner (SPIC Petro) that we are adjourning these petitions,'' the judge has said in the interim order. The court may admit SPIC Petro's writ petition and allow the full case to be heard, or could dismiss the petition and order both the parties to go back to DRT, for the final hearing.

TCE went into the feasibility of the project, at IDBI's instance, and although SPIC Petro paid the consultants' fees, the company was not given a copy of the report, but only an `executive summary' of it. TCE came out with an interim report in March 2002, and a final report in August. The report basically said that the project was still viable, according to the sources.

Jinxed project

Workon the project suffered a setback following an injunction issued by the Madras High Court in October 1997. By then, the project had already incurred an amount of Rs 946 crore. Of this, SPIC's contribution was Rs 252 crore (against a commitment to the project of Rs 210 crore, the company points out), and the lenders had brought in Rs 694 crore (principal), against their commitment of Rs 1,347 crore.

At that stage, the PFY plant was more than 75 per cent complete, or about 12 months away from commencement of production. The PTA plant had progressed about 11 per cent, or about two years from completion.

Even as of that date, the project had suffered a huge delay. It was originally conceived back in the late 1980s, as a joint venture between SPIC and Madras Refineries Ltd (now called Chennai Petroleum Corporation Ltd). The private-public sector joint venture made sense at that time because MRL had the licence for the petrochemicals project and the basic raw material, naphtha, and SPIC had the capital. But when the winds of liberalisation swept in, SPIC needing neither MRL's licence nor its naphtha, started another company — SPIC Petrochemicals Ltd — to put up a similar project, all on its own. So there were two companies running parallely, the joint venture (called Arochem) and SPIC Petro, doing the same project at the same location, with one common promoter, SPIC.

MRL went to the court against SPIC in 1996 (surprisingly, because in private conversations with this correspondent, the company's officials have always said they did not want to be a part of the project). The courtroom battle went on for about a year and a half, which finally resulted in the injunction, in October 1997.

Within ten months of the injunction, SPIC and MRL agreed upon a `Memorandum of Settlement' (MoS), which had to be approved by the Government of India (MRL's owner). This approval came in March 2001, after 20 months.

At that time, it looked as if the project would re-start soon, but that was not to be. Then came the point of difference between SPIC and the lenders. While SPIC wanted about Rs 250 crore more from the lenders — partly to pay MRL about Rs 35 crore as agreed in the MoS and partly to restart the project — the lenders wanted SPIC to get an equity partner first. SPIC did try to get a joint venture partner on board, but all the potential suitors wanted SPIC to first get out of the legal entanglements and also have a financial restructuring plan in operation, before they would come in.

This deadlock continued until December 2002 (although in the meantime, IDBI mandated TCE to reassess the feasibility of the project now), till ICICI moved the DRT for recovery of its loans. The DRT passed an order allowing ICICI to take possession of SPIC Petro's properties. Subsequently, when SPIC lost its appeal to the Debts Recovery Appellate Tribunal, the company moved the Bombay High Court.

ICICI's position is that with the talks leading nowhere, it can hope to get its money back only by seizing the hypothecated assets.

SPIC has taken a stand that since it had no control over the events that took place starting from the Court's injunction, it cannot be expected to pay the interest charges for the period after October 1997. Besides, what assets are there to seize? The land cannot be resold, because if it is not used for the purposes of the project, it has to go back to the original owners. All the key machinery is in a bonded warehouse — ICICI would have to pay the customs duty plus the interest to seize it.

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