Tata Chemicals to lay off 200 employees in Kenyan soda ash plant
Heavy debt, high energy costs force Tata Chemicals to mothball plant
New Delhi: Heavy debt and high energy costs have forced the world’s second-largest soda ash maker Tata Chemicals Ltd (TCL) to mothball its loss-making premium soda ash plant at Magadi in Kenya. This will lead to 200 employees being laid off, the company said in a recent analyst call.
Mothballing refers to the preservation of a facility without using it for production, for possible restoration when conditions improve. Production at the standard ash plant in Magadi, though, will continue.
“If you look at the debt levels at Magadi, these had gone up because of unsustainable operations of Premium Ash Magadi (PAM) in the past, resulting in accumulated losses. Over the years, TCL group had put in substantial financial support and we had also accessed lot of debt to run those operations,” P.K. Ghose, chief financial officer at TCL, said on the analyst call in June. Mint has reviewed the transcripts of the event.
The Kenya move follows Tata Chemicals Europe (TCE) stopping production at its Winnington soda ash factory in the UK in February, resulting in the reduction of 220 jobs through voluntary redundancy and redeployment.
“The cost of the retrenchment of 200 people would come during the current financial year that we will have to absorb in the current year’s profit and loss (P&L) account and that will be a one-time charge we will have to take when the separation of people happens in Magadi..,” TCL managing director R. Mukundan said.
An analyst present at the call who did not wish to be identified said the TCL restructuring could be part of Tata Group chairman Cyrus Mistry’s efforts to rationalize operations across global businesses. “He is attempting to build a cleaner and leaner organisation by restructuring different businesses,” the analyst said.
In 2013-14, Tata Chemicals had reported an 8% jump in its income from operations at 15,895 crore and a consolidated net loss of 1,032 crore, compared with a 400.40 crore profit in the previous fiscal year.
The Kenyan plant cost the company over $100 million to set up in 2006. The standard ash plant makes salt and crushed refined soda with a capacity of about 330,000 kilo tonnes. Before the mothballing of the premium soda ash plant, the total capacity was 350,000 kilo tonnes.
Soda ash is used in making glass, soaps and detergents, chemicals as well as pulp and paper.
TCL’s Kenyan operations have over $100 million debt, including preferential capital by the parent company. It hopes to repay around 80% of this over five-six years.
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First Published:15 Jul 2014, 11:21 PM IST
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