Kolkata: The West Bengal government will not interfere in the management of Haldia Petrochemicals Ltd (HPL), a venture between the state and the Chatterjee Group (TCG), and is likely to agree to appoint Purnendu Chatterjee as the firm’s chairman.
“The (state) government has no role to play in the running of HPL,” said Partha Chatterjee, the newly appointed commerce and industries minister of West Bengal and the deputy leader of the Trinamool Congress, which in alliance with the Congress ended the Left Front’s 34-year unbroken rule in the state. “HPL is going to be a board-driven company.”
TCG founder and New York-based venture capitalist Purnendu Chatterjee is currently HPL’s vice-chairman. For the past six years, he has been fighting a legal battle with the state government over HPL’s ownership and management control.
The Left Front-controlled state government, which was ousted from power last month, had seized control of the company six years ago.
In 2001, the state government had appointed Tarun Das, former chief mentor of the Confederation of Indian Industry, as HPL’s chairman. Das resigned last month after the Left Front’s poll defeat.
Since the government has decided it would let TCG run HPL, it is unlikely that it would seek to appoint a chairman, according to a commerce and industries department official, who requested anonymity.
It is going to eventually agree to the appointment of Purnendu Chatterjee as HPL’s chairman, he added.
Chatterjee wasn’t immediately available for comments.
He had announced on 30 May that HPL will invest Rs 3,500 crore on eight expansion projects, addressing his first media conference at the firm’s head office in Kolkata, signalling he had regained control of the company.
“He (Purnendu Chatterjee) will have to first prepare a plan to revive the company,” said Partha Chatterjee, “and decide how he intends to settle the dispute over ownership.”
Accordingly, chief minister Mamata Banerjee will decide whether or not to appoint him chairman, the minister said.
Commenting on change of political guard, Purnendu Chatterjee had said it allows HPL “to think of many new things”.
The state government is reviewing the problems of HPL and is examining how the dispute over ownership between TCG and the erstwhile Left Front government impacted the company’s operations, Partha Chatterjee said.
HPL is in financial distress and has had to scale back production by about 20% of its installed capacity because of “adverse market conditions”, according to Partha S. Bhattacharyya, the firm’s managing director.
“In May, HPL is believed to have posted a cash loss of around Rs 18 crore,” said an HPL official, requesting anonymity. “The market condition is unlikely to improve immediately.”
HPL ended fiscal 2011 with a marginal cash profit. After accounting for interest and depreciation, it registered a “substantial” net loss, he added.
Bhattacharyya refused to comment on HPL’s financials, saying the accounts were still being audited.
Debt repayment obligations are making matters worse for HPL. The firm has a debt of Rs 3,200 crore, comprising Rs 1,900 crore of long-term loans and Rs 1,300 crore of working capital loans.
Strapped for cash, HPL is taking fresh short-term loans to repay long-term loans, Purnendu Chatterjee had said last week. In fiscal 2012, HPL has to repay Rs 400 crore of loans and pay Rs 300 crore in interests, said the state government official cited above.
HPL is trying to refinance working capital loans, and has initiated discussions with several banks such as ICICI Bank Ltd and State Bank of India, the state official said.
Alongside, it is persuading the West Bengal government and the Union finance ministry to give financial incentives.
On the one hand, it will appeal to the Union government to withdraw a 5% customs duty on naphtha, HPL’s main feedstock. On the other, it will seek cancellation of a 2006 state regulation, which would shore up its annual revenue by at least Rs 300 crore, the government official said.
In 2006, the state government introduced a regulation classifying HPL, which produces motor spirit, as an oil marketing company. Under Central government regulations, it isn’t permitted to sell motor spirit directly in the market, and so sells it to other oil marketing companies.
Though HPL enjoys sales tax incentives on its products under the state government’s incentive schemes—it is allowed to retain and treat as revenue the sales tax it realizes from customers—it doesn’t enjoy the same incentive on sale of motor spirit because transactions between oil marketeers are exempt from sales tax.
“In the first full year of commercial production, HPL enjoyed a sales tax incentive of Rs 93 crore from sale of motor spirit,” said the state government official. “If this incentive is restored, HPL would earn Rs 300 crore more every year.”
Alongside, if the 5% customs duty on naphtha is withdrawn, HPL would save at least Rs 400 crore a year, he added.
“However, if HPL couldn’t secure at least one of these two incentives—ideally both—the crisis would deepen, and within two-three months cash management would become a huge problem,” he said. “The entire board is of the view that HPL is in crisis and it has to be addressed immediately through policy intervention.”