TCG wants Haldia Petro MD sidelined

TCG wants Haldia Petro MD sidelined

Kolkata: Purnendu Chatterjee, chairman of The Chatterjee Group (TCG), has written to the board of Haldia Petrochemicals Ltd (HPL) and the West Bengal government, asking them to send the company’s managing director Swapan Bhoumik on leave with full salary paid until the end of his term in March.

TCG is one of the key shareholders in HPL, of which Chatterjee is the vice-chairman.

For the past five years, TCG has been fighting a legal battle with the West Bengal government, the other major shareholder in HPL, over the control of the state’s showcase industrial project and eastern India’s biggest petrochemical company.

TCG also declined to comment for this story.

Chatterjee was instrumental in Bhoumik’s appointment as managing director in 2005, but the relationship between them has soured over the years. He opposed Bhoumik’s reappointment as managing director in 2007 and the HPL board’s decision earlier this year to extend his term again.

In letters sent days after an HPL board meeting on 2 December, Chatterjee alleged, citing several examples, that the company was not being managed efficiently, and that the management led by Bhoumik had been concealing facts from the board.

Concealment of information was an “unfair" charge, HPL said in its email response, adding: “HPL’s performance and financial conditions are shared with board members prior to every board meeting and discussed at length in board and committee meetings."

Chatterjee has asked the West Bengal government to immediately form a committee, consisting representatives of the two key shareholders, to review HPL’s operations on a weekly basis.

West Bengal’s minister for commerce and industries, Nirupam Sen, and HPL chairman Tarun Das met on 7 December “possibly to discuss Chatterjee’s demands", according to Dipankar Mukhopadhyay, principal secretary in the state’s commerce and industries department. Mukhopadhyay is also a director at HPL.

Asked about the government’s view on Bhoumik, he said, “He is on extension anyhow and is on his way out."

HPL is looking to hire a new managing director and has appointed Spencer Stuart, an executive search firm, to find a replacement for Bhoumik, 65.

“Purnendu Chatterjee is overseeing the entire process of selecting a new managing director," Mukhopadhyay added.

Though he admitted that HPL was “going through a difficult financial situation", and that its board had agreed on “some austerity measures", he said the state government hadn’t yet decided whether to form a committee for weekly reviews of its operations.

“I do not wish to make a sweeping comment on whether HPL’s management has been functioning properly, but it is true that losses have expanded," he said. “But I would say the situation was much worse a year ago."

In support of his allegation of inefficient management, Chatterjee has informed the HPL board that the company had recently incurred a loss of Rs40 crore on a so-called high seas sale of naphtha booked by it at “a very high price", according to a person familiar with Chatterjee’s allegations. He did not want to be named because of the sensitivity of the issue.

HPL had committed to buy naphtha, but after the cargo was dispatched it realized that the company wouldn’t be able to use it. So, it diverted the cargo to another buyer, booking a loss of Rs40 crore, according to the allegation.

HPL conceded that there were “marginal losses" from the high seas sales but dubbed the allegation of a Rs40 crore loss as a “distortion of facts". While a shipload of naphtha was on its way from West Asia, HPL faced an “unplanned plant stoppage". “To avoid tying up funds", the high seas sale was arranged, HPL said.

Admitting a substantial loss on the high seas sale of naphtha, Mukhopadhyay said, “Such things are not always easy to predict."

Chatterjee wants a detailed scrutiny of HPL’s accounts and its business practices—especially the practice of offering discounts to market its products in certain parts of India.

Other issues bothering Chatterjee are HPL’s mounting debt burden and financial loss “year after year".

HPL’s management recently projected a loss of 59 crore in the current fiscal, whereas earlier in the year it had said the company was to make a “huge profit", according to the person cited above.

TCG is apprehensive that the projected loss could “expand significantly" because the management’s latest estimate is based on an expectation of Rs46 crore profit in the last quarter, “which looks unlikely", he added.

“The financial projections for fiscal 2011 were recast due to sharp rise in feedstock costs from early June to mid-November by $140 (Rs6,314) per tonne," HPL said in its email response. “Increase in product prices was not commensurate." As a result, profit after tax estimates for the current year have been lowered by around Rs138 crore.

HPL posted a net loss of Rs183 crore in the last fiscal, but that was largely because the company had to suspend production to ramp up its manufacturing facility.

In the year till March, capacity utilization was at 47%, remarkably lower than the 78% projected by the management.

Chatterjee has written in his letters that working capital currently available to the company is at least Rs420 crore less than projections made at the time of debt restructuring seven years ago—a fact that he alleges was concealed from the board.

HPL said it did not understand the basis of Chatterjee’s finding.

HPL’s debt is approaching Rs2,500 crore, and Chatterjee says, considering cash flow from operations, the company might have to borrow Rs150-200 crore more to fulfil payment obligations in the last four months of the fiscal.

Even after spending around Rs1,300 crore on expanding HPL’s naphtha cracking capacity from 522,000 tonnes to 700,000 tonnes per annum, “production hasn’t stabilized" and the plant is being shut down frequently, said the person cited above.

HPL said production at its plant had stabilized, and that it achieved the highest ever production in November.

The capacity expansion, which cost HPL almost double its initial estimate, increased its debt burden by at least Rs350 crore.

“It was a complex project and increased the indebtedness of the company," said Mukhopadhyay. “But besides financial problems, there are issues with trade unions as well."