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Spat over Mantralayam plant lease pact -- ITC takes Agro-Tech to London court

Our Bureau

HYDERABAD, Sept 27

ITC Ltd has approached the London Court of International Arbitration (LCIA) against Agro Tech Foods Ltd (AFTL), a subsidiary of the ConAgra Inc. of the US, with regard to the lease agreement of ITC's processing plant at Mantralayam in Andhra Pradesh. The lease agreement expired on Wednesday (September 26).

AFTL stated that ``what happens with respect to the Mantralayam plant in the future is disputed by ITC, and they have taken the matter to LCIA. As and when the LCIA gives an award in this matter, it will be binding on all the concerned parties, including ITC and AFTL''.

On the other hand, ITC said that in terms of an agreement in October, 1997, between ITC Ltd and ConAgra, upon expiry of the initial licence period five years, either the plant would be purchased by AFTL on agreed terms or the lease period would be extend ed for a further period of five years.

Accordingly, an ITC representative said, AFTL, in August 2000, wrote to ITC exercising its option to extend the licence. However, since AFTL's claim as to the amount payable as licence fee for the extended period was not in accordance with the October, 1 997 agreement, ITC was ``forced to file an arbitration claim in the LCIA''.

The lease amount being paid by AFTL ranged from Rs 2 crore per annum in the first year to Rs 12 crore per annum in the fifth year. But, according to then ITC representative, AFTL had written to ITC in September, 2000 that it wanted to extend the lease fo r an amount of Rs 4 crores per annum. This was not acceptable to ITC.

Subsequently, the ITC representative told Business Line, AFTL wanted to exercise its second option of buying out the Mantralayam plant but for a price of Rs 14 crores. This was also not acceptable to ITC as the plant was purchased by ITC in 1996-97 for a n amount of Rs 112 crores.

As of now, ITC maintains that the licence for the Mantralayam plant stands extended for another term from September 27, 2001. The dispute before the arbitrator is only with respect to the amount of licence fee payable ``under the agreement in force betwe en ITC and AFTL''.

AFTL, formerly known as ITC Agro-Tech Ltd, was originally promoted by ITC Ltd. Five years ago, ConAgra has acquired a controlling stake in ITC Agro-Tech and in June, 2000, changed the company's name to AFTL. During 1996-97, as a part of the terms and con ditions of the acquisition, ConAgra sold the Mantralayam undertaking to ITC and then taken it on lease.

However, in the current scenario where the import component in edible oils consumed by the country has crossed 40 per cent, AFTL feels that the Mantralayam facility is no longer economically viable. The company has stated that the Mantralayam plant conti nues to suffer from the logistical disadvantage of being located away from ports.

Besides, adequate seed for processing is not available in areas around Mantralayam due to changes in seed production pattern. Consequently, ``the Mantralayam facility is no longer a competitive asset in a market that is increasingly demanding the utmost in cost efficiency'', AFTL stated.

With regard to the fate of the employees at the plant, Mr. Raju Vir, AFTL's Vice-President - Human Resources, stated that, under the prevailing circumstances, the company has no option but to either settle with employees through a voluntary separation sc heme or transfer them to other locations.

It is learnt that AFTL has so far transferred 40 out of the 120 permanent employees at the Mantralayam plant. AFTL maintained that it had transferred the employees to other locations as the company was not in a position to provide gainful employment to them at Mantralayam.