Buddhadeb: Seeking a solution

HPL's Chatterjee: In a fix

First the consolation: Haldia Petrochemicals (HPL) is still in the black, but there are ominous signs; its pre-tax profit has shrunk nearly 54 per cent (excluding other income and factoring in the drop in interest) despite a 22 per cent rise in turnover. The implication: margins are plunging. And 17 key executives have left the company over the last 8-9 months. The common factor behind all these: the wrangle between co-promoters Purnendu Chatterjee and the West Bengal government over management control of the company. It is, perhaps, the only blotch of red ink in West Bengal Chief Minister Buddhadeb Bhattacharjee's otherwise enviable scorecard. Not surprisingly, Bhattacharjee's instructions to his team of troubleshooters: sort out HPL's problems ASAP.

Chatterjee, who owns a clear majority in HPL, wants a free hand to guide its destiny. But the government, which has a sizable, albeit minority stake, is unwilling to grant him that leeway. Commerce and Industries Minister Nirupam Sen, however, strikes a conciliatory note. "We're ready to sell our stake at a mutually agreed price," he says. The state wants Rs 28.90 per share, but The Chatterjee Group (TCG) is willing to pay only what is fixed by an independent valuer as per the original promoters' agreement.

Another sticking point is the shareholding pattern in the company. According to TCG sources, it holds 59.9 per cent stake, the West Bengal Industrial Development Corporation (WBIDC) owns 36.9 per cent and the Tata Group the residual 3.2 per cent. However, if the state's controversial issue of shares to IOC, amounting to 9.6 per cent of HPL's paid-up capital, is factored in, then TCG's stake will fall to 54 per cent, WBIDC's to 33 per cent and the Tata Group's to 2.8 per cent. If negotiations fail, it will need judicial intervention.

The HPL management, meanwhile, denies that this dispute is responsible for its declining performance (see The Figures Say It All). "The fall in profits is a result of a worldwide rise in naphtha prices. It has nothing to do with the so-called crisis over management control," says Swapan Bhowmik, Managing Director, HPL. This argument looks a little disingenuous. The price of naphtha, HPL's main raw material, has risen about 40 per cent from Rs 18,000 per tonne to Rs 25,000 per tonne, but higher realisations from polymers (up 8 per cent) and chemicals (up 32 per cent), HPL's two mainstay products, have nearly offset the input price hike. Interest costs have also come down by Rs 45 crore, cushioning margins further. Rising naphtha prices are, therefore, responsible for only a small portion of the profit fall.

No such pat excuses can explain the sudden departure of 17 managers who formed the core of the group that turned around HPL three years ago. Government officials admit that their exit has stalled HPL's Rs 650-crore programme to expand the capacity of its naptha cracker from 5.3 lakh tonne per annum to 6.7 lakh tonne per annum. Bhowmik, however, denies this. "Our expansion programme is proceeding according to plan and will be commissioned by the last quarter of next year," he says.

Chatterjee himself refuses to comment on any of the issues on the grounds that these are being adjudicated upon by the Company Law Board. But he has also kept Track II communication channels with the government open. But with so many visible and invisible cross-currents at play here, it will take a while to sort out this imbroglio.