Fertiliser ministry seeks legal view on Paradeep sale

NEW DELHI: The fertiliser ministry has sought the law ministry’s opinion on the sale of Paradeep Phosphates to Zuari Maroc Phosphates (ZMPPL). The ministry wants to know whether the sale, effected in ‘02, can be reversed. If the law ministry replies in the affirmative, the move could spell serious political embarrassment to the UPA and dent the disinvestment process.

Perhaps aware of the implications, the finance ministry is understood to be informally taking the position that once effected, the privatisation cannot be reversed and any complications emanating from unpaid dues would be the responsibility of the parent ministry which, in this case, is department of fertilisers (DoF). The DoF has yet to approach the finance ministry formally on the subject.

But irked with ZMPPL’s approaching the court for the recovery of Rs 151-crore losses from the DoF, fertiliser minister Ram Vilas Paswan is understood to be in favour of seriously exploring the reversal of sale. Mr Paswan is looking at a possibility of selling the controlling interest in the former public sector undertaking fertiliser corporation, in which public funds of over Rs 670 crore have been invested, to a private company for barely Rs 15 lakh. Plus, it is the contention of the fertiliser ministry that Zuari was overstating the losses incurred.

After the sale in ‘02, a new Cabinet note had to be issued before the CCD justifying the circumstances under which shares of the former PSU were first sold for Rs 151.7 crore to ZMPPL, after which the company claimed Rs 151.55 crore back from the government. In effect, this meant that ZMPPL bought 74% of PPL’s shares for Rs 15 lakh, which is the difference between the two amounts. And this is the core of the DoF’s reluctance to pay ZMPPL the amount being claimed by it as losses.

However, accumulated losses worth Rs 431.5 crore (Rs 4.315bn) on its books of account till the end of March ‘01. PPL’s outstanding liabilities at the end of March ‘01 stood at Rs 856.34 crore, including amounts owed to a Moroccan group called OCP, GCT of Tunisia and the Indian public sector MMTC. Plus, according to reports, PPL owed more than Rs 200 crore to the government for a loan it had taken. Worse, an Orissa High Court order later asked the Centre to close down the plant on account of environmental pollution.

This order was thereafter reviewed. But thanks to its consistent loss accumulation, the government had to restructure PPL’s finances thrice — in March 1994, March ‘00 and March ‘01. At the end of March ‘01, PPL’s net worth had shrunk to barely Rs 1.15 crore.

Compounding the controversy surrounding the sale was the NDA government’s contention that due to consistent losses the net worth of the company would have fallen to around minus Rs 120 crore by March 31, 2002.

Thus, it justified its decision to accept a bid, for the first time, in which the price quoted by the strategic partner was below the reserve price recommended by the global advisor to the divestment.

The government maintained at the time of sale that its global advisors to the divestment had recommended the reserve price — in a clear deviation from the usual practise of setting the reserve price on the basis of discount cash flow (DCF) alone, and conforming to the guidelines of the ministry of disinvestment on the subject — after giving weightage to two methods of valuation (discount cash flow and replacement based asset value) of the company’s business.

The difference was described by then disinvestment minister Arun Shourie as ‘marginal’ but whereas the DCF price calculated by the global advisors was around Rs 83 crore, the reserve price recommended by the advisors and the amount paid by Zuari Maroc worked out to over Rs 24 crore.