Finally, Haldia Petro could be on better turf

Pratim Ranjan Bose Kolkata. June 5 | Updated on June 05, 2011 Published on June 05, 2011

Ms Mamata Banerjee

Mr Purnendu Chatterjee

Relationship between Mr Purnendu Chatterjee, the principal private promoter of Haldia Petrochemicals Ltd, and the West Bengal Government — the co-promoter — is perhaps entering a new phase.

Going by the signals from the press conference that Mr Chatterjee hurriedly called last week, and the silent cues from the new Government led by Ms Mamata Banerjee, it appears that both are reaching out to each other in a spirit of mutual accommodation.

Once a poster boy of the Left Front Government's industrial initiatives in the late 1990's, Mr Chatterjee's contributions in improving the investment outlook in the State were overshadowed by his differences with the Mr Buddhadeb Bhattacharjee led-government (2000-2011). So much so that he was literally considered as a stumbling block in Haldia Petrochemicals's growth path.

The conflict came to the fore when Mr Chatterjee disputed the State's intention to rope in IndianOil as a strategic partner in the project in 2005. Since then, his role in the company was limited in fighting courtroom battles for “management control” leaving it to the State to do business.

To the Government's credit, the modern standalone petrochem unit is now running an accumulated (gross) loss of Rs 1,000 crore accrued during the last three years. The company is now struggling due to a cash loss of Rs 18 crore in May and a ballooning debt burden of Rs 3,300 crore.

To many, Mr Chatterjee's first-of-its-kind media conference in nearly a decade, therefore, symbolises an early initiative on the part of the new state leadership to restore the ‘interest' of the principal private promoter in the project.

The Government, it is learnt, has also held a preliminary view to encourage TCG's active involvement in bringing the company back on profit mode. Mr Chatterjee may also be allowed to become the chairman of Haldia Petrochemicals (HPL) – a right that TCG always felt was denied by the previous government.

However, restoration of TCG's interest may not help avert a looming financial crisis at HPL. In 2006 – soon after the promoters fell apart – the State Government had discontinued the 12-year full sales-tax remission incentive scheme on HPL's sales of motor spirit to oil companies. According to the current estimates, it forced the company to sacrifice as much as Rs 300 crore profit annually.

To add to the woes, the Union Government in 2008 imposed a 5 per cent import duty on naphtha. HPL, being the only standalone petrochemicals project, was singularly affected by the decision.

Delayed project

Together, the two decisions impact HPL bottom line by Rs 700 crore annually, equivalent to the accumulated profits between 2005 and 2008. In addition, the company ended up paying almost Rs 700 crore extra for a hugely delayed capacity expansion project (Supermax) concluded last year when the margins in petrochem business were getting thinner.

“Except a dramatic improvement in market conditions, this company's finances will go completely out of gear in three to four months,” says an industry analyst.

While market conditions are anybody's guess, the immediate expectation from Ms Banerjee is resumption of the sales tax remission scheme and her active interference to convince the Centre to withdraw the import duty of naphtha.

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Published on June 05, 2011
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