Mulayam Singh wants GAIL to avoid Haldia

Vol 6, PW 15 (25 Sep 02) Midstream & Downstream

POWERFUL OPPOSITION MP Mulayam Singh Yadav is determined that state-owned oil companies should not invest money in loss-making Haldia Petrochemicals.

In July Yadav wrote a three-page letter to oil minister Ram Naik outlining his opposition to GAIL's reported plans to buy a 10% stake in Haldia. "By deciding to invest in Haldia at par value of Rs10 per share, GAIL will be paying infinite premium for investing in a loss making company, whose book value is less than Rs1 per share or even negative." Yadav expresses "shock" that GAIL is seriously looking at Haldia and supports his case with the following figures: Haldia Petrochemicals has a high debt burden of over Rs5,000cr ($1bn) and a debt equity ratio which is nearly 10:1 as of 31st March 2002 The capital cost of the project is high as compared to projects by GAIL and Indian Petrochemicals It has a locational disadvantage of being in eastern India which accounts for only 4% of India's demand for petrochemicals Its Rs650cr ($135m) 'off balance sheet' financing of a power and utilities plant Yadav writes that Haldia's lead lender IDBI reckons a minimum Rs1,000cr ($208m) "equity infusion" is required to wipe out accumulated losses and financially restructure the company.

"To tide over this grim situation," writes Yadav, "Haldia has been desperately looking for a partner whose balance sheet can be used to raise debt and fund losses." Yadav claims Haldia promoter Purnendu Chatterjee tried to sell his stake to Shell and Dow Chemicals but both turned him down. Yadav adds that Indian Oil has decided not to invest in Haldia or sell naphtha to the plant on credit.