Balco - The Disinvestment Story



Themes: Corporate Restructuring
Period : 2001
Organization : BALCO
Pub Date : 2002
Countries : India
Industry : Metals & Mining

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Case Code : BECG004
Case Length : 10 Pages
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Balco - The Disinvestment Story | Case Study

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Stage II: The Controversy Deepens Contd...

On 23 February 2001, Hindu Businessline wrote, "It is entirely understandable, indeed even necessary, that an element of secrecy is maintained when the bidding process is on. But once it is finished, and the government's decision has been communicated, it would have been better to have disclosed all the facts. Thus, the Government has lost an opportunity to lay down new norms of transparency for similar big-ticket disinvestments."

In a bid to placate the Opposition in Parliament, the GoI decided to defer the signing of Balco sale papers till a debate took place in both the houses of the Parliament (Lok Sabha and Rajya Sabha). Meanwhile, the tug of war continued unabated between the GoI and the Opposition. Both Houses of Parliament, reiterated their demand that no assets of the company be transferred till it was discussed threadbare and okayed. Shourie, however, maintained that there was nothing wrong with the valuation.

Meanwhile, in another significant development, Chhatisgarh Chief Minister Ajit Jogi (Jogi) accused the GoI of indulging in 'underhand dealings' to the tune of Rs 100 crore to sell off 51% stake in Balco to SIL and alleged the Prime Minister's Office (PMO) was also involved in 'irregularities.'

"Some functionaries in PMO are said to have received kickbacks to the tune of Rs 100 crore for divestment of Government's equity in Balco at a throw away price. The deal was like loot of Chhattisgarh in a day-light robbery," Jogi alleged.

When asked to name the functionaries involved in the alleged 'scam,' he declined to disclose any details, but claimed that four to five people, including a top official of Disinvestment Ministry were involved in it. Jogi claimed that the sale of Balco equities would have fetched at least Rs 5,000 crore. He said Balco with a cash deposit of Rs 450 crore and annual profit of Rs 100-150 crore were being sold for a paltry Rs 551 crore. He warned the state government would reconsider transferring lease of land and mines to SIL if the GoI remained adamant on its decision.6

In response to Jogi's allegations, Shourie said, "Jogi's calumny - that some officials have received Rs 100 crore in the Balco disinvestment decision - is so ludicrous as to border on the idiotic. First, every bit of the work within Government was done by the officials of the Department of Mines and of Disinvestment. At no stage, whatsoever was any official of the Prime Minister's Office involved in the least." He further added, "Secondly, in this case, as in every case of disinvestment, at every stage decisions were taken by groups of officers and ministers: by the Inter-Ministerial Group. At every stage of the selection of the adviser, of the selection of valuers, and eventually of the selection of the strategic partner the selection was made on the basis of open, competitive bidding.

In the final stage, two bids were received in sealed covers. One bid was twice the amount of the other. It was clearly above the reserve price that the Evaluation Committee had determined. The Evaluation Committee consisting of officials from several ministries and the adviser recommended that this bid be accepted. The Core Group of Secretaries endorsed the recommendation. The Cabinet Committee accepted the recommendation. The entire procedure was open, indeed it was mechanical. There was absolutely no reason for anyone to pay nor any occasion for anyone to expect anything,"

In a statement Shourie, said, "In the circumstances, I challenge Jogi to name a single person connected with the central government - official or non-official - who has taken a single paise in the entire process. I pledge that Jogi should have the courage to do so he will face the consequences in the court. The moment Jogi names the person, he will be taken to court for both criminal as well as civil prosecution."

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6] Under the Schedule 5 of the Constitution, tribal land can not be given to a private company.