Crony Capitalism in Fertiliser & CBM Sector
UNDER the neo-liberal economic policies in early 1990s, the then P V Narsimha Rao government had destroyed the public sector fertiliser industry step-by-step. Workers under the leadership of the Centre of Indian Trade Unions (CITU) carried out protracted united struggles but the government did not respond to their demands. At the sole initiative of the unions, a techno economic revival plan was prepared, with the help of in-house experts, and submitted to the government. But the government ignored it.
ON GOVT FERTILISER UNITS
During the early years of economic liberalisation, the government had been strongly advocating the use of natural gas as the only feedstock for production of urea, discarding the use of naphtha, fuel oil, LSHS (low sulphur heavy stock), and even coal. The government’s campaign to use only natural gas to produce urea because of the high cost of production with other feedstock was so strong that all the seven public sector fertiliser units at Sindri, Gorakhpur, Talcher, Barauni, Durgapur and Haldia -- all based on naptha or fuel oil or coal -- were closed down. It was more surprising that in a country like India where availability of coal is quite good, two units at Talcher and Ramagundam which did not have any technical problem in their coal gasification units were closed down. On the contrary, at that point of time, China decided to convert 80 per cent of its entire urea production through coal gasification route which was successfully implemented in a time-bound framework. With the closure of the seven giant fertiliser plants, the dependence on import went up hugely and around 20,000 permanent and 15,000 contract employees were rendered unemployed and also other economic ills severely inflicting the industry.
It is true that the production costs of these factories were quite high in comparison to the then international price. But it was purely a capitalist trap and India had knowingly fallen victim by closing down the plants. Soon international prices went up steeply. As of now India is required to import around 80 lakh tonnes of urea per annum at much higher prices than domestic cost of production. The urea exporting countries were benefitted as well as the import lobby of the country. Who knows how much cut money was pocketed by the then political leaders? Cannot it be termed as a primary success of crony capitalism?
PRIVATE SECTOR MONOPOLY
IN NATURAL GAS RESERVES
Importance of natural gas (NG) for various industrial segments cannot be overstated. Shockingly in our country NG reserves -- both on-shore and off-shore -- are mainly with the private sector without any significant investment for discovery today. In order to handover the gas fields to private entrepreneurs, the government started a new exploration licensing policy (NELP). In this way, the Krishna Godavari Basin (KG Basin) was handed over to Reliance Industries Limited (RIL). The term of the contract although being violated every now and then, the government is scrupulously silent. The government did not even move an inch even though there were serious allegations of siphoning gas from the adjacent field of ONGC. RIL is violating the terms of the settlement regarding the quantity of gas evacuation but the government is not interested in taking any exemplary action against the company, which has adopted this as a pressure tactic on the government for increasing the gas price in the country.
In 1996, the country moved into commercial exploration of large quantity of coal-bed methane (CBM) from coal mines and used it as an alternative to natural gas. Although ONGC and CMPDI (Central Mine Planning and Design Institute) were the main architects of this scientific analysis, the government, without giving the right/responsibility to these two public sector firms, ensured entry of private entrepreneurs through NELP. Out of the seven closed public sector urea manufacturing units, four factories at Ramagundam, Talcher, Sindri and Durgapur were situated in coal belts. The government did not consider the revival of these four factories by using CBM.
The government resorted to crony capitalism and the job of evacuating CBM in the Raniganj Coalfield area was allocated in three separate blocks to Great Eastern Energy Corporation (GEEC), Essar Oil and the public sector ONGC. The government has not started any work in the allotted block of ONGC. GEEC and Essar Oil, however, started work taking around 75 per cent of the project cost as loan from government-controlled banks or financial institutions. Though the country is the owner of the gas, there is no certainty as to who will sell the product to whom, how much will be the profitability, how many people will be employed, or what will be the conditions of their services.
DURGAPUR FERTILILSER PLANT – A VICTIM
OF NEGLECT BY CENTRAL GOVTS
The Durgapur Fertiliser Factory of HFCL (Hindustan Fertiliser Corporation Limited) is close to the Raniganj coalfield and the three CBM fields are just a stone’s throw away. Ignoring the closed Durgapur plant on 700 acres of government land, it was decided to supply the gas from the field allocated to Essar to its newly floated sister concern Matix Fertiliser Company. The newly floated company was allocated land at Panagarh, a few kilometres from the Durgapur Fertiliser Factory. It is still a mystery how the right to supply the country-owned gas allowed to be evacuated by a private entrepreneur can be given to its sister concern. Quickly licence was granted to the newly floated Matix Fertiliser Company for investing Rs 6,000 crore for producing urea by using 2.4 million cubic metre (mmscmd) of CBM per day. If allocation of the CBM field to Essar Oil was the first engineered crony capitalism, then giving exclusive right to supply the evacuated CBM gas to its sister concern was the very next step.
GIFT TO ESSAR OIL
Matix Fertiliser Factory is a Rs 6000-crore project having a daily production capacity of 2,200 tonnes of ammonia, 3,850 tonne, of urea and 33 megawatt captive power. It is pertinent to mention that during 1970s when Durgapur, Barauni and Cochin plants were set up with the then available highest capacity technology of producing 600 tonnes of ammonia and 1,000 tonnes of urea per day, all in the public sector, the project cost of each plant was nearly Rs 85 crore. It is true that during the next five decades, there has been abnormal price hike. But Rs 6,000 crore for a plant for producing 3,850 tonnes of urea! The production capacity has, of course, been increased by 3.85 times but the project cost has gone up by 70 times? The price index doesn’t establish this and hereafter whatever similar capacity plant will be set up in the country, the project cost will be either the same or will be more.
Everything is valid in crony capitalism. Inflate the project cost at least twice – get the bank and government stamping/approval, put hardly 20-25 per cent own capital and get the rest amount as loan from public sector bank/investment agencies for which spend some “speed money” for getting the approval. And thereafter transfer a large portion granted as loan to some unknown account/other place and you succeed in moving one step forward. Who knows such thing has not happened in case of Essar-Matix combine? Hereafter, on one pretext or other, such as non-availability of gas in time is causing enhancement of the project cost, submit fresh application for enhanced loan. Non-payment of the interest or the principle amount to the bank in time pushes up non-performing asset (NPA) of the banks. And finally, the benevolent government gives its approval for the treatment of the unrealised money as bad debt.
GAMBLING WITH CBM
RESERVE EVALUATION AT RANIGANJ
Essar has, in its website, indicated that in the allotted block at Raniganj, the CBM reserve is 13 BCF or 3.2 BCM. So far as we know they started their project at Raniganj sometime during 2000 or a little earlier. After the approval of the fertiliser project of Matix at Panagarh, where daily CBM requirement would be 2.4 mmscmd, Essar Oil at a press conference in April 6, 2015, i.e. more than 15 years after the starting of the project, proudly declared that they were producing 0.5 million cubic metre of gas everyday which is likely to go up to 1.2 million cubic metre within the next three to four months. More than a year has passed in between, gas production has not increased. On the contrary, the government declaration is that a total production of CBM in the two fields in Raniganj by GEEC and Essar remains standstill at 0.5 million cubic metre per day.
There is an allegation of gas hoarding by way of deliberately not producing requisite quantity of natural gas from K G Basin against Reliance Industries Limited (RIL). There might be such intention here also. On April 7, 2015, Matix Senior VP (Commercial) Kapil Khandelwal told a press conference, “Matix Fertilisers and Chemicals, the country’s first major project based on CBM gas as fuel, is yet to begin its production for want of gas. The assurance from Essar, with whom Matix has a 20 years suppliers pact, has also prompted the promoter of the project, the Khandarias of the Datamatic Group to speed up the project with mechanical completion set to be ending soon and trial production to start in three to four months.” There has been no change in the position even after one year of such assurance. The factory, which was supposed to start commercial production by April, 2013, continues to remain idle till date.
There is acute uncertainty of availability of gas, but it is more surprising that The Economic Times, dated December 14, 2014, quoted a Matix source that the company is going to invest another Rs 4,000 crore in the second phase towards doubling the capacity of Panagarh factory. Fifteen long years have passed and out of the requisite 2.4 million cubic metre of gas per day only 0.5 million cubic metre is available now. How does one even think of expanding the factory in such a situation? Is it not a deliberate game plan to loot more and more money from the bank? Two-third of the project cost, i.e. Rs 4,000 crore, has already been collected by the company from the consortium of the public sector banks, repayment of which along with interest has not yet started on the plea of non-running of the factory and now application for additional loan due to so-called escalation of the project cost. Actually the entire money is going to become NPA. Who is siphoning whose money?
Matix has been declared as a sister concern of Essar in this article. Journalist Sumit Mitra, in an article in DNA, has written, “The Khandaria’s of Matix and Ruias of Essar are related. Nishan Khandaria, son of Matix Group Head Jogender Khandaria is the son-in-law of Essar’s head Ravi Ruia.” So the game is within the family supported by the ruling party.
The total commercial production of CBM in April was a little over 1 mmscmd. Bulk of the production ramp up is from Essar’s field but supply is clearly not enough to support the Rs 6,000-crore Matix Fertiliser plant, which needs a gas supply of 2.4 mmscmd to run at full capacity. Now the question arises: Will the Matix Fertiliser plant have to wait for the Jagdishpur- Haldia pipeline to come up for its eventual quota of gas? That will be a long and painful wait indeed. The urea plant was set up on someone else’s promise. But then in India, bourgeois political promises are never kept. Might be on this plea, the bank loan and interest will not be required to be repaid adding to the dangerous level of ‘bad debt’ of the banks.
It is well known that how close the petro-giant Ravi Ruia Group is to the Modi government. The equation between the Matix-Essar combine with the party in power in the country is quite clear. Crony capitalism was initiated by the Indian National Congress and is being faithfully expanded by the present BJP-led NDA government.