Essar in Rs28.6cr dispute with Engineers India

Vol 6, PW 7 (05 Jun 02) Midstream & Downstream
     

FINANCIAL PROBLEMS ARE never far from the surface at Essar Oil so it should come as no surprise to hear the company is locked in a payment dispute with soon-to-be privatised Engineers India.

Disagreement centres on an outstanding sum of Rs28.6cr ($5.95m) that Essar owes for work done by EIL on its uncertain plan to raise a 10.5m t/y refinery in Gujarat. On 29th April EIL directors met to examine a disingenuous Essar proposal to convert the payment into interest-bearing debt! Typically, they couldn't agree and in true bureaucratic fashion left it to "further study by a committee" without revealing details of which commitee or who would be on it.

What exactly is Essar proposing To the untrained eye it looks suspiciously like financial trickery, but first examine the details. In late February Essar wrote to EIL - in response to several letters and a legal notice - offering to settle the dispute by converting the Rs28.6cr into interest-bearing non-convertible debentures.

Essar suggested the debentures carry 12% annual interest and that interest payments could begin three years from the date of allotment. EILs lawyers have found several flaws in the Essar proposal and have concluded that the debentures would be as good as worthless on the open market.

They are now advising EIL that the Essar proposal is "uncertain and ambiguous" especially with regard to "the value of the debentures." Anyone carrying out due diligence of EIL ahead of privatisation could do worse than ask if Essar is the only company that owes it money.