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Ourview | An acquisition adventure

Ourview | An acquisition adventure
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First Published: Wed, Aug 10 2011. 10 32 PM IST
Updated: Wed, Aug 10 2011. 10 32 PM IST
Fertilizer shortages are nothing new to India. Every other year, the country has to resort to near emergency purchases. This year, too, is turning out to be one of those years. There is a severe shortage of potassic fertilizers and imports to the extent required are not possible. There is a shortfall in phosphatic fertilizers as well.
Given India’s requirements, resorting to large-scale imports immediately hardens international prices. This seems to be happening in the case of muriate of potash (MoP): the domestic demand for MoP is 5 million tonnes and the country can barely import half of this amount.
The government’s answer: Buy a big stake in a fertilizer manufacturer?abroad. As reported in Mint on Wednesday, India is looking to acquire a substantial stake (20-25%) in the Belarussian firm Belaruskali, one of the world’s largest producers of potash. The cost may be anywhere up to $7 billion.
If getting a piece of this firm allows us to source fertilizers cheaply for our farmers, it would certainly be worth paying the price. But there is a big “if” here. For one, any acquisition in Belarus will be subject to significant political risk as would be in any authoritarian country. One does not require much imagination to realize what will happen if contractual obligations need enforcement in a Belarussian court. Then, very often, government agencies are incapable of proper due diligence while scouring for such investment options abroad. This tendency of buying inflated “assets” that, in the end, turn out to be worth much less, has been seen time and again in the energy sector.
While the immediate issue is that of shortages, the bigger problem is that of getting a reliable estimate of the demand and supply situation in time. Given our capabilities, there is no reason why this is not possible. The ministry of agriculture has a countrywide network of officials, scientists and field functionaries who can supply such data in time. Why was this not used in the instant case? If this had been done, there would be no need for a Belarussian adventure.
There may be no easy solution now, but buying a stake in a fertilizer company in a politically difficult country is certainly not a solution, however difficult the supply situation may be.
Is the government capable of getting value for money in big deals abroad? Tell us at views@livemint.com
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First Published: Wed, Aug 10 2011. 10 32 PM IST
More Topics: Ourviews | Fertilizer | Urea | India | Views |