Kolkata: The West Bengal government has agreed to grant Prasoon Mukherjee-founded real estate developer Universal Success Enterprises Ltd (USE) 250-350 acres free, to compensate it for setting up an industrial park and eco-tourism infrastructure on Nayachar, an island in the Hooghly river off Haldia.

Revised agreement: Universal Success Enterprises’ Prasoon Mukherjee. Photo: Indranil Bhoumik/Mint.

Mukherjee had concluded an agreement with the erstwhile Left Front government to construct a petrochemical processing zone, or chemical hub, at Nayachar. The project was initially to be located at Nandigram in East Midnapore district, but was moved to the largely uninhabited island following local resistance.

Five years ago, the state government transferred 54 sq. km in Nayachar to a joint venture between Mukherjee’s firm and the West Bengal Industrial Development Corp. (WBIDC) to conduct feasibility studies.

Mukherjee asked the erstwhile Left Front government of West Bengal to compensate USE for the “viability gap" by granting it commercially exploitable land free because he said there was an escalation in the project cost because of the new location. At one point, he had sought compensation to the tune of 10,000 crore.

Indonesia’s Salim Group, which was to be one of the key investors in the project, has pulled out—USE is to be the sole private investor in the Nayachar project.

Towards the end of its term earlier this year, the Left Front government sent notices to Mukherjee seeking to terminate all agreements with him for the development of Nayachar. After the Trinamool Congress came to power earlier this year, the chemical hub project was scrapped and replaced by the eco-tourism one. Mukherjee agreed, and within a month of the Trinamool Congress taking over, submitted a new project proposal, which envisages setting up an industrial park and infrastructure for eco-tourism, besides a power plant.

A revised agreement for the projects at Nayachar island is to be signed, and the draft being discussed envisages 250-350 acres being given to USE as viability gap compensation, according to the state government official cited above.

Citing consultants’ estimates, Mukherjee had sought compensation to the tune of 2,382 crore, according to a note sent to the commerce and industries department by WBIDC, which Mint has reviewed.

Without revealing specifics, the state’s commerce and industries minister Partha Chatterjee said he was honouring agreements from the Left Front’s time. “They had promised much more (land) than what we are going to offer," he said. “We couldn’t change the spirit of the agreement."

Given the Trinamool Congress-led government’s refusal to allot land for commercial exploitation by private entrepreneurs, the deal with Mukherjee is unlikely to be received well by other entrepreneurs in the state.

“This government’s priorities are so difficult to understand," said a leading real estate developer, who has in the past executed many residential projects jointly with the state government. “This is strange and, in a sense, deeply disappointing… How can the government offer the scarcest resource in this state to someone who hasn’t yet delivered anything."

Mukherjee refused to comment, saying there were several issues, most of which originated during the Left Front’s rule, that yet remained unresolved.

The move could trigger controversy, but Haldia Petrochemicals Ltd (HPL) co-founder and chairman Purnendu Chatterjee will be among those who back the grant. He will take heart from the state’s decision to honour past agreements. He has been pressing WBIDC to cash out of HPL, a joint venture company, in the “greater public interest of the state", and is insisting that the state government follow past agreements to determine the price of its stake.

Some government officers are, however, of the view that a fair valuation can only be determined through an auction, and Purnendu Chatterjee should be offered WBIDC’s stake in keeping with his right of first refusal at the best price discovered through the auction.

There is no scope for auction if past agreements are honoured, according to Purnendu Chatterjee. “Maintaining sanctity of past agreements is paramount," he said in an interview. “No one does business in a banana republic—do you think people would consider investing in this state if past agreements are not honoured?"