Decision to Sell Aluminum Major Comes Under Fire
New Delhi, April 29: The Manmohan Singh government is likely to be
embroiled in a major controversy over a plan to sell most of its 49
per cent stake in aluminium major Balco to Sterlite Industries.
Sterlite Industries, which bought Balco a few years back, is now owned
by Vedanta plc, a London-based metal firm, on whose board finance
minister P. Chidambaram sat till he joined the cabinet last year.
The finance ministry has decided to sell the stake in the face of
objections from a section of the government which feels Sterlite violated
terms of the sale pact by transferring ownership to a foreign entity.
The agreement had spelt out a three-year moratorium on such a sale.
The finance ministry’s decision on the Sterlite stake sale will now
have to be ratified by the Union cabinet.
Finance ministry officials, however, point out that a clause in the
Balco selloff pact stipulated it could either decide against the residual
sale or if it did not take a decision then it would have to let the
stake pass on to Sterlite at a fixed price after six months.
Sterlite had filed an application for the stake sale when the BJP
was in power. Since it had not replied to the application, the issue
had become time-barred and there was little the Congress-led government
could do now.
The Left leadership is planning to use this selloff decision to launch
a fresh attack on Chidambaram. “There will now be a confrontation,”
said Gurudas Dasgupta. The CPM leadership seems to have taken a similar
view and is girding up for a fight.
The controversy over the rump share sale stems from top government
officials pointing out that Sterlite's management structure has changed
since it bought Balco from the BJP government three years back. The
Congress had then termed it as a “sweet deal”.
Sterlite sold a majority holding to London-based Vedanta two years
ago. Vedanta is also owned by the Agarwal family which owns Sterlite,
however, it remains a different legal entity. The shareholders’ agreement
on Balco between the government and Sterlite precluded the latter
from selling these firms to any other company for a three-year period.
The transfer of majority stake in the holding company of Balco to
a different entity is seen as an indirect sale. In fact, the move
to transfer majority control to Vedanta took place after the government
did not respond favourably to an earlier application by Sterlite seeking
to allow Twinstar Holdings, a Mauritius-based holding company, to
take a 75 per cent stake. It was also revealed in that application
that Twinstar already owned a 55 per cent stake in Sterlite.
Balco has always proved to be a jinxed deal for the government. When
the BJP government sold it off for a mere Rs 550 crore three years
back, most Opposition leaders, including many in the present cabinet,
The selloff was on the basis of an income tax valuer's assessment
of Balco’s assets, which were estimated at Rs 1,100 crore. Figures
for what should have been Balco’s real value differ. Kapil Sibal,
then a Congress MP in the Upper House, had calculated the value to
be anything between Rs 2,300 crore and Rs 4,500 crore depending on
the valuation method taken.
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