|IBM's Annaswamy: With two
big deals in his pocket, he is hungry for more
March 2004, IBM's India arm won a 10-year contract, then estimated
at $750 million, from Bharti Airtel in an it transformational
deal (editor's note: Unlike in traditional outsourcing, in a transformational
deal the service provider also acquires the existing resources
and employee base and agrees for a shared revenue model for services
provided on a risk-reward model). It was a defining deal as it
made international service providers sit up and take note of the
potential of the domestic Indian market for the very first time.
Though it took nearly three more years, Big Blue has displayed
that it understands the Indian market better than its competitors
when, on March 21, it announced it had inked a similar $620-million
(Rs 2,728-crore) deal with Idea Cellular to integrate, innovate
and transform the cellular company's business process and it infrastructure.
As a part of the deal, nearly 200 employees of Idea's it department
are expected to move to IBM. Idea, with nearly 14 million subscribers,
is the fifth-largest telecom cellular service provider in the
country. Sanjeev Aga, MD, Idea Cellular, points out that the contract
is a win-win for both companies. "IBM India will manage Idea's
it infrastructure and other services, including billing and customer
management on a revenue-sharing basis."
The revenue-sharing model is one of the reasons why it has been
tough to quantify the exact size of the deal and the reason why
the companies have said it might range between $600 and $800 million.
At the lower end, the 10-year contract is expected to yield $620
million to IBM India, according to company insiders. "It
will be similar to the Bharti Airtel deal, where the initial deal
size over 10 years was estimated to be around $750 million, but
which has now been revised to upwards of $1.5 billion (Rs 6,600
crore) over the same period because of the explosive growth in
the subscriber base. That is one advantage of a transformational
deal where the risk and rewards are both shared," adds the
IBM official on the condition of anonymity. Ramesh Awatney, IBM's
VP for Communications Sector (Asia Pacific), who played a key
part in bagging the Idea deal, says it was the company's deep
understanding of the needs of the Indian telecom sector and its
ability to leverage its global expertise that helped the company
swing the contract.
The next big whopper for which all it services players are right
now angling is the it outsourcing deal from Hutch-Vodafone-Essar,
the fourth largest cellular company with nearly 25 million subscribers.
This deal is believed to be in the range of $1.4-1.6 billion (Rs
6,160-7,040 crore). IBM India is already believed to be in talks
with the company. Once the acquisition of Hutch is completed by
Vodafone and all regulatory clearances are obtained, the outsourcing
contract is likely to be announced.
Awatney, for the moment, is at least playing it safe and, when
queried, says IBM continues to look for opportunities to bag new
customers in the marketplace. "We work with more than 100
telecom customers, small and big internationally, including the
likes of Vodafone and Telstra in various markets they operate
in." However, officials within IBM point out that the company
is one of the globally preferred it vendors for Vodafone. In several
European countries such as Portugal, Greece, Italy, Spain, and
the Czech Republic, apart from Australia and New Zealand, IBM's
local operations already work with Vodafone. So, there is a very
good chance that Vodafone in India might opt for similar arrangements,
adds the IBM official.
For Shankar Annaswamy, MD of IBM India and South Asia, the deal
is a sweet vindication of his patient strategy to go after larger
transformational deals. "This win reinforces IBM's position
as a leading partner to global telecom companies," he says.
IBM won the deal after going head to head with the likes of HP
and some Indian players. Perhaps the Indian it majors will now
keep a more watchful eye on the domestic market.
The arrack dries up in Karnataka.
Revenues too will follow suit.
|B.S. Yediurappa: So far, so good
In what was perceived
as a please all budget, deputy cm and finance minister of Karnataka
B.S. Yediurappa announced a ban on the manufacture and sale of
arrack (country liquor) and all kinds of lottery, including internet
lottery. The ban on arrack alone is expected to cost the state
exchequer Rs 1,905 crore in revenues and an additional loss of
Rs 250 crore is estimated because of the lottery ban. Predictably
Yediurappa defended the move to ban arrack and lottery. "This
was a commitment made by the BJP-JD (Secular) coalition government
when we came to power. We have just fulfilled our promise to the
people. Lottery and arrack were ruining the lives of millions
of people specially in the rural areas."
The budget, which was presented to the state assembly on March
16, shows a marginal deficit of Rs 23 crore but it reverses a
three-year trend of surplus budgets. Former deputy cm and Finance
Minister S. Siddaramaiah, who is a senior Congress leader, strongly
criticised the budget proposals: "This is an election-oriented
budget as the coalition government is unlikely to last. So they
are throwing sops without heed to the long-term fiscal health
of the state. It remains to be seen where the government will
raise money to make investments."
Yediurappa, on his part, says that the government will raise
additional revenue by increasing the licence fees for establishments
selling liquor, by increasing stamp duty and enhancing tax on
various classes of vehicles registered in the state.
The Tatas make a billion-dollar power-packed
Just when you thought
the Tatas would take a break from big-bang acquisitions, it was
the turn of Tata Power Company to get into the act. In a bid to
ensure sufficient coal back-up for its upcoming power projects
on the west coast of India-7,000 mw of capacity is to be developed
over the next five years-India's largest private power utility
announced plans to buy a 30 per cent stake in Indonesian energy
giant pt Bumi Resources' premiere coal mines for approximately
$1.3 billion (Rs 5,720 crore). The Bumi mines include pt Kaltim
Prima Coal (KPC), pt Arutmin Indonesia (Arutmin) and related companies.
Tata Power has signed an offtake agreement with KPC, which entitles
it to purchase about 10 million tonnes of coal per annum. Macquarie
Bank advised Tata Power on the deal, while Credit Suisse advised
PT Bumi. The estimated sale price includes the base price of $1.1
billion, as well as closing and working capital adjustments.
Tata successfully outbid at least five companies vying for the
coal companies. The acquisition will be made through an offshore
special purpose vehicle (SPV). Funding will be done through a
combination of debt in the SPV and internal accruals and borrowing
from Tata Power.
Other than providing a back-up for Tata's power plant on the
west coast as well as for future projects, pt Bumi's coal will
also come in handy for the recently-won ultra-mega power project
of 4,000 mw at Mundra in Gujarat. Bumi, which failed to raise
$3.2 billion (Rs 14,080 crore) through a share sale last year,
also stands to gain by virtue of this agreement. It is expected
to use the funds raised though the stake sale to build plants
that produce diesel from coal and crops such as palm oil.
"We are delighted to have purchased the stakes in KPC and
Arutmin, which are among the top three thermal coal mines in the
world. This strategic partnership not only supports coal requirements
for Tata Power's aggressive growth plans but also creates opportunities
to own and participate in operating a world class energy business
overseas," says Prasad Menon, MD, Tata Power, which has an
installed generation capacity of 2,300 mw.
One section of analysts is of the opinion that the Tatas may
have taken a high risk with this acquisition considering the perennial
state of instability in Indonesia. Yet, the flipside is these
coal companies are together among the top three largest exporting
thermal coal mines in the world. With a strong export focus supported
by a good supply infrastructure, they have been feeding the huge
regional demand (mainly from China). Together, KPC and Arutmin
produced approximately 53.5 million tonnes of coal in 2006 with
over 95 per cent sold in the export market. In the years ahead,
a few million tonnes will also be headed India's way.
Life After Nandigram
It won't be the same for mega projects.
|Nandigram on fire: Its spark is a concern
for other states too
Social balance is the
new buzzword, at least when it comes to the implementation of
projects for special economic zones (SEZs). All SEZs in West Bengal
have been put on hold until a "socially balanced" decision
is taken in this regard at the national level. The state government's
move comes on the heels of a major flare-up of violence at Nandigram
in East Midnapore district, where at least 15 people died after
police opened fire on people opposed to the acquisition of their
land for a proposed SEZ by Salim Group of Indonesia. And Nandigram
may only be the beginning. A high-level political panel constituting
representatives of UPA constituent parties has warned the Centre
that the proposed Reliance SEZ in Maharashtra can degenerate into
another Nandigram. This warning was followed by a public announcement
by Maharashtra Chief Minister Vilasrao Deshmukh that no final
award will be passed for acquisition of 10,120 hectare land for
the multi-crore SEZ project. As a result, the ownership of the
land will remain with the farmers till the dispute is resolved.
So, what's the future for SEZ, and indeed for any large project
that calls for mega-acquisition of land? After all, the Reliance
SEZ is just one of the 140 projects earmarked for different parts
of the country. Then there are corporate India's plans for production
units, the most high-profile of them being Tata Motors' proposed
facility for making a Rs 1 lakh car in Singur in West Bengal.
Other projects in West Bengal now shrouded in uncertainty include
Jindal Steel's Rs 10,000-crore steel plant at Shalboni in Midnapore
and the Ruia Group's Rs 3,000 crore ship-building and shipyard
project at Jelingham near Nandigram. The Jindals claim they have
already bought nearly 80 per cent of the 5,000 acre land required
for the project directly from farmers/land owners. The Ruias are
eyeing 1,200 acres acquired by the state 15 years ago. Meantime,
the Trinamool Congress (TMC), the party at the forefront of the
"Krishi Jami Bachao Committee" (or the Save Farmland
Movement), will now initiate a state-wide campaign to drive home
that it is not against industrialisation but the forceful acquisition
of crop land. Says Subhendu Adhikari, TMC legislator and leader
of the Krishi Jami Bachao Committee: "We are ready to welcome
the Ruia Group if they come up with a large employment-oriented
project at Jelingham. The state acquired this land 15 years ago
but none has got any compensation, forget about job per family."
The wounds of many of the people may be much older and much deeper
than the recent destruction in Nandigram.