Centre may show Gokak door from Indo-Oman board in bid to save face

Santanu Saikia

New Delhi, Sept 7: In an attempt to shield itself from controversy, the union government is likely to withdraw fertiliser secretary AV Gokak from the board of directors of the Indo-Oman Fertiliser Company following fresh financial troubles faced by the project. The fertiliser department has suggested that there should be no central government nominee either on the joint management committee of the project or on the board of the company. All financial decisions with regard to the project should now be taken by the boards of Kribhco and RCF who are the joint venture partners with Oman Oil Company for the giant fertiliser complex.

The attempt by the government to maintain distance from the controversial project follows the withdrawal of the Export Credit Agency of France (Coface) from the lending consortium. Coface had earlier promised to loan as much as 40 per cent of the debt component of the project. The agency withdrew because it was not convinced that India would buy back the entire production of theproject (amounting to around 1.5 million tonnes of urea) since "India's self-sufficiency in nitrogenous fertiliser production is in sight".

Rattled by the withdrawal, the other members of the lending consortium -- J P Morgan, Banque de Paris and Arab Banking Corporation -- have put forward fresh set of conditions before it commits money to the project. The conditions are:

The equity component should go up from 25 per cent to 33 per cent.

There should be a debt-service reserve account.

Additional stand-by equity to be utilised if the project still needs to be completed after the committed debt outlay runs out.

No payment of dividend on risk equity unless the project receives a minimum $110 per tonne for urea supplied to India on a buy-back basis. (If the international price is lower than $110 per tonne, the government of India is to make up the difference by what is called an `A' loan).

A buy-back arrangement with India notwithstanding, the bankers now want aninternationally reputed urea trader to be appointed to look at possibilities of marketing the product elsewhere.

The Indian side is not sure how to react to the fresh turn of events. The fertiliser department (now headed by a new secretary) wants to wash it hands of the controversy, leaving the decisions on raising equity contributions to the project and meeting other requirements of the lenders entirely to the boards of RCF and Kribhco.

"If they are keen to go ahead with the project they are welcome, if not, it is their problem and they must decide; we will not tell them what to do," was the candid remark of a top fertiliser department official here today.

The extra equity demanded from RCF and Kribhco by the bankers amounts roughly to Rs 200 crore (Oman Oil Company will contribute an equal amount). This is over an above Rs 600 crore in equity already committed by the two Indian public sector outfits.

What is more, even if Kribhco and RCF decide to contribute the extra equity, the decision makingprocess will be a long one. After the decision is approved by their boards, a green signal will be required from the Public Investment Board. Subsequently, a ratification has to come from the Cabinet Committee on Economic Affairs. The process is supposed to take six months or more. Till then the project may just hang fire.

The issue has got further complicated after Coface quoted an international analyst as claiming that the medium to long term price movements of urea will remain below the $110 per tonne level. This is also the base break-even level for the Indo-Oman fertiliser project. In other words, the government of India will have to subsidise the project by way of `A' loans well into the future. Coface was not confident that the Indian government would always continue to support the project financially. What is more, the French EXIM agency did not find sufficient guarantees by the Indian government, in the Indo-Oman joint protocol, on offtake and compensation to the project.

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