A dream gone sour

Written by Indronil Roychowdhury | Updated: Oct 21 2012, 05:48am hrs
As two dream projects of West Bengal, Haldia Port and Haldia Petrochemicals, are allowed to flounder and fail, the signal going out to future big-ticket investors is grim. The state government should take it as a wake-up call and sort out the Haldia mess, says the industry

February 1977: A landmark year in West Bengals industrial history. The Haldia Dock Complex, Kolkata Port Trusts (KoPT) main cargo handling arm, is set up on 6,377 acres, with a large hinterland extending to Nepal, Bhutan, the seven north-eastern states and the eastern states of West Bengal, Bihar and Jharkhand (then Bihar). The port was established 140 km from Kolkata.

August 2000: Another landmark year with the state getting its first foreign direct investment (FDI) through Haldia Petrochemicals Ltd (HPL). A dream project, it was then touted as Asias most modern petrochemical plant, set up on 1,100 acres.

Cut to 2012, and the financial health and capabilities of both these star projects of the state are in a disarray. And yet, when the Haldia port was conceived, it was expected to boost trade and investment in the east and open a gateway to the far east. When Haldia Petrochemicals was commissioned, the state government had hoped that Haldia would be the Jamnagar of Bengal, facilitating at least 900 downstream industries.

Today, the Haldia port is battling closure, with the Centre threatening to withdraw the R400-crore subsidy it gets for dredging; slipping volumes and low trade, and both Paradip and Dhamra ports eating into its business. Haldia Petrochemicals problems run even deeper. The state government and the promoters are locked in an ownership battle; the company is mired in loans and will have to go for forced shutdowns to repay loans from working capital.

For would-be investors, the Haldia story isnt good news. If the two showpieces of the state are allowed to flounder and fail, where is the hope for future investors

Haldia Port

Politics of land & water

The problems of Haldia port are plenty. The countrys only riverine port has always battled draught issues, forcing it to turn away big vessels. The Hooghly estuary, on which the port was set up, has heavy siltation and even continuous dredging doesnt help. The government of India provides a dredging subsidy of R400 crore every year. Although the dock system was commissioned with a design draught of 12 metres, till 2008 the normal draught available was 8.5-9 metres (with the help of dredging) for which vessels of only up to 50,000 dead weight tonnes could call on the port.

From 2009 onwards, despite continuous maintenance dredging, the draught started falling due to heavy siltation and at one point of time in 2010 it stood as low as 5 metres. At that time, TR Baalu, then shipping minister, decided to downgrade Haldia to a barge port and bring it out of the ambit of the 12 major ports formed under the Major Port Trust Act of 1963. The finance ministry even thought of stopping the dredging subsidy. It shot off show-cause letters to the port authorities, seeking an explanation as to why the Centre should provide dredging subsidy to the port when its cargo handling was on a decline.

In 2008, KoPT was the countrys fourth-largest port, handling 43.5 million tonnes of cargo and earning profits of R432 crore. In FY09, Haldia handled 41.79 mt of cargo and profit was down to R194 crore. Subsequently in FY10 and FY11, cargo handled was 33.37 mt and 35 mt, respectively, and profits were at R116 crore and R187 crore, respectively.

But the port has been making losses since 2009 if the dredging subsidy is taken into account. With Haldia slipping, the shipping ministry began planning a deep sea port off the coast of the Bay of Bengal, and said that till it came up, the ports of Orissa would be used to serve the hinterland.

The government suggested that Dhamra could be one port and Haldia could supplement its operations by handling barges. But former KoPT chairman ML Meena, currently with the Union finance ministry, took the initiative of setting up a transloading facility at Sandheads, which is actually a floating operation to unload cargo from the ships in the middle of the sea and then bring it to the port in small vessels. However, the Orissa government objected to it, saying it would eat into Dhamra and other Orissa ports business. The matter is still pending with the Supreme Court.

There were great expectations for Haldia when Mukul Roy became minister of state for shipping with the Trinamool Congress part of UPA-2. While he did assure the state that the dredging subsidy would continue, he formed a group of experts to look into the proposal of setting up two new dock systems, one at Shalukhali near Haldia and the other at Diamond Harbour opposite Haldia costing R1,250 crore. These two places were selected because it was connected to a channel called Rangafala, which had 8.5 metres draught. Another option that was mooted was opening a new channel beside the Auckland channel (the riverine path or the shipping lane used to get into the port).

Dr Anup Chanda, former KoPT chairman and now additional chief secretary in the government of West Bengal, says opening the new channel was the most viable plan to save the port. But then Roy became the minister of railways and all revival plans for Haldia port went into a deep freeze.

Now the port is saddled with litigation, lawlessness, strife among handling agents and trade unions. The cargo handling level has come down to 31 mt in FY12, with profit down by 110% to R89 crore in the fiscal. Officials say the current trend shows the port will end up handling 26 mt in FY13 and profit will be R30 crore at best if private operator ABG LDA continues to handle berths 2 & 8, the most productive of all berths at the port.

Although chairman Manish Jain says plans of setting up dock systems at Diamond Harbour and Salukhali are on track and the port has initiated efforts to have at least eight mechanised berths among the 14 berths it has at present to increase efficiency of operations, officials are asking where is the cargo going to come from

Loss of cargo

The port has already lost 10 mt of cargo, with the Indian Oil Refinery shifting its crude handling to Paradip and transporting the entire crude from Paradip to Barauni via Haldia through a 120-km-long pipeline. With government bringing in restrictions of iron ore exports, iron ore handling at the port has also drastically dropped. NTPC is looking at its own option to set up a transloading facility on the Bay of Bengal and carry coal to the Farakka plant through its own barges. Tata Steel is betting high on Dhamra port to support its Jamshedpur unit since Dhamra is a JV of the Tatas and L&T. SAIL has also started looking for other options to handle cargo for its Durgapur, ISSCO and Bokaro steel plants.

Former HPL managing director Partha S Bhattacharyya says the petrochemical unit had to incur an additional R100-crore expenditure for using Haldia Port. Mitsubishi Chemicals PTA India Ltd (MCPIL) has made it clear that the conditions of the port dont allow it to go for the second phase of expansion, costing R1,750 crore (MCPI has already invested R1,600 crore in its first phase). Port officials admit that one of the major reasons for Tata Motors to pull out of Bengal with its Nano project was the poor condition of the port.

So where does the future lie

Says Bikram Sarkar, former KoPT chairman: The future lies in transforming Haldia to a barge port and that is the only plan alive. The port has already issued tenders for construction of barge jetties, Jain informs FE. According to Sarkar, sharing 40,000 cusec of water with Bangladesh in 1996 was the main dampener to the ports future and it has sealed the fate of Haldias industrial prospects.

At the dock, handling contractors are now fighting over share of cargo and today the port administration is not working towards the ports best benefit claims Ramakant Burman, secretary, Haldia Dock Bachao Committee, and assistant manager at the port.

Former port chairmen rue the fact that successive state governments have never been concerned about the well being of the port, though this port is the bedrock of the states industrial dreams.

Haldia Petrochemicals Locked in disputes

The HPL story is bizarre. When it was set up with an investment of R5,170 crore, it was one of the most modern plants in Asia making best grade polymer. There was no dearth of buyers for the product, and it had the first mover advantage, being one of the early entrants to the petrochemicals business. So why is HPL in such a sorry state

The answer lies in the fact that the two promoters, US-based The Chatterjee Group (TCG), and the West Bengal government, are locked in a bitter ownership dispute that has not been settled yet. Moreover, in its 12 years of existence, the plant has been technically mismanaged as well. Virtually none of the promoters has controlling stake and each is scrambling to get control of the business, while leading the company to deep losses.

Incidentally, HPL had a very inauspicious beginning. In its first year of operation in 2000, the plant posted a net loss of R35.72 crore, because with assembly elections round the corner then, the plant was forced to be commissioned without a trial run, which led to huge damages. In FY01, the plant again reported a loss of R37.21 crore, which climbed to R502 crore in FY02 and to R518 crore in FY 03. But in FY04, HPL turned around to post a profit of R134 crore, which rose to R452 crore in FY 05, down to R300 crore in FY06 and again increased to R581 crore in FY07, its best year, and again down to R278 crore in FY08. But from 2009 onwards it again ran into losses. Its books of accounts currently have an accumulated loss of above R1,860 crore and accumulated dues of R4,300 crore.

The company in FY12 posted a net loss of R400 crore and in the first quarter of FY13 posted a net loss of R260 crore. Now it is looking for a R1,000-crore credit line for working capital (R600 crore bank loan and R400 crore letter of credit to buy naphtha) without which it will not be able to run the plant.

The plant is now running at a 40% capacity, which means it is incurring deep losses and the more it runs in lower capacity, the more losses it makes. But what do we do asks Sumantra Chaudhuri, managing director, HPL. We are on the lookout for funds and are in talks with the banks, says Partha Chatterjee, HPL chairman, who is also the state commerce industry & IT minister.

While the West Bengal government, which at present is managing the company, is out to hunt for loans, though with limited success, the other promoter, TCG, is keeping a low profile because TCG chief Purnendu Chatterjee feels he had been wrongfully put out of management control, with the government denying to transfer 15.5 crore shares, which was pledged against a R147-crore West Bengal Industrial Development Corporation loan during the Left Front regime. These shares were pledged during the tenure of the earlier Left Front government in 2008 and the shares were supposed to be transferred in four tranches in commensuration with the repayment of loans ending April this year. TCG chief Purnendu Chatterjee claims that though TCG did not default in repaying the loan, the government, blocking the repayment, kept the shares under its control to hold majority stake. The repayment amount is lying in escrow account, TCG sources claim. If the 15.5 crore shares were transferred to TCG then its holding in the company could have gone up to 53.7% and governments at 44.5%.

Soon after the change of guard in West Bengal, TCG was expecting that the government would go for an out-of-court settlement and transfer them the majority stake and leave management control. But that did not happen. The new government too refused to transfer 15.5 crore shares and instead increased its stake to 54.2% ( including Indian Oil Corporations 9.06% holding) on the strength of a Supreme Court order. So TCG at present holds 44.5%. With dilution stakes worth R249 crore, holding of both the promoters have virtually come down. But with a court order barring physical transfer of shares till the legal battle is over, the promoters presently hold the above mentioned stake with the rest being with financial institutions.

Partha S Bhattacharyya, former HPL MD, tells FE that if the two promoters dont stop fighting, there is no way to save the plant. There has been enough damage done to the plant through managerial disputes, political disputes and technical mis-management. The promoters need to pay enough attention to all these issues, he adds.

The TCG, after a change of guard, planned to invest another R 4,000 crore in downstream units so that the company could increase its cash flow and tide over the financial crisis. Bhattacharyya says for every R100 earned, the company had to fork out R166 for debt servicing. But with legal disputes taking centrestage, all revival plans have withered away. The two promoters are battling in the International Court of Law.

According to Tushar Chatterjee, an industrial consultant, HPL needs technical persons at the helm and not ministers and IAS officers. Ashok Ghosh, a TCG insider, claims that when the government allowed TCG to manage the company in its own way, the plant made profits, but the governments interference always put the company on the wrong track Now, a group of ministers, comprising state finance minister Amit Mitra and panchayat minister Subrata Mukherjee overseeing the affairs of HPL has recommended the governments stake sale, but that will have to wait till the litigation is sorted out.

It is the successive governments to be blamed for driving the states industrial policy in a wrong way and giving trade unions the space to hold sway, says an industrialist, not wishing to be identified.

Another questions if both the Haldia Dock System, the bed rock of West Bengals industrial prospects, and HPL, the biggest showpiece of Bengal industry, are in a shambles, what will encourage investors to put money into the state

Economist Ratan Khasnabish feels West Bengals industrial prospects are bleak. There is no comprehensive approach towards development and only ad-hoc measures are being taken to breed populism, feels Khasnabish.

The messy affairs of the Haldia Dock Complex and Haldia Petrochemicals Ltd are symptoms of a disease in the West Bengal economy, but the two star units are not diseased as yet. There are still chances of revival if these projects are made free of external control, says P Roy, director general of Bengal Chamber of Commerce & Industry.

The industrys message to chief minister Mamata Banerjee Treat Haldia as a wake-up call.

No Jamnagar this

With an Indian Oil refinery already existing at Haldia, HPL was conceived as another industry that was capable of transforming Haldia into a region like that of Jamnagar in Gujarat. If Jamnagar houses large industries like Reliance Refinery, Essar Oil Refinery and Tata Chemicals, Haldia houses an Indian Oil Refinery, a Mitsubishi Chemicals Unit and HPL as well. Interestingly, HPL was commissioned just a year after the Reliance Refinery was commissioned and both Haldia and Jamnagar started developing as an industrial hub at around the same time, during the late Eighties.

However, till 2012, Haldia received a cumulative investment of R50,700 crore while Jamnagar upwards of R1 lakh crore. As a result, Jamnagar today represents a vibrant industrial hub while Haldia is ailing, with the port gasping to survive, HPL on the verge of closure and Mitsubishi holding back expansion.