Fresh cloud over Balco deal
Internal rift weakens VSNL selloff prospects
Growing speculation over Ram Naik’s exit
Growth stimulus turns weak in drug industry
Birlas tighten grip on family jewels
Bengal SEB set to overhaul distribution
B2B awaits big buck boom
Foreign Exchange, Bullion, Stock Indices

New Delhi, June 5: 
The special audit team of the Comptroller and Auditor General (CAG), which is looking into the controversial sale of Bharat Aluminium Co Ltd, has sought to know why valuations of Balco’s captive power plant and sheet rolling shop were not made.

In a pointed set of questions shot off a few days back, auditors who were called in to see whether the deal was above board have asked the department of disinvestment (DoD) whether “any valuation of captive power plant and sheet rolling shop (was) conducted? ... If not the reasons (may) be indicated.”

Sources said no valuation of these two vital and expensive plants which were part of Balco have been submitted to the audit team. The value of Balco’s eight-year-old 274 megawatt power plant, which operates at an above average 90 per cent plant load factor, is estimated to be worth about Rs 700 crore. Yet the government had set a value of just Rs 1,100 crore for the entire company. And this is what is intriguing the audit team.

With the CAG itself now questioning the valuation of the company, pressures to reverse the controversial sale is likely to mount. The CAG was asked to probe the disinvestment deal by the BJP government after critics accused the government of a sellout.

The sheet rolling mill produces special alloy metals for defence use and is reputed to be the only one of its kind in Asia. Balco officials say it worth about Rs 250 crore.

Balco’s price had been fixed days before it was sold off for a mere Rs 551 crore to Sterlite Industries on the basis of a hurried valuation by an income tax valuer — P.V. Rao — who reportedly had no experience in industrial valuation. Worried disinvestment department officials are now chasing Rao to answer the auditors queries for them.

Rao’s valuation has already been questioned by the media and by Parliament. Independent valuers feel the company is worth anything between Rs 2,300 crore and Rs 4,500 crore.

Ashen-faced disinvestment department officials admit Rao either did not value these plants at all or else did not submit their valuation to the government. In comparison, Steel Authority of India Ltd (SAIL) had valued 50 per cent stake in two older power plants at Durgapur and Rourkela with a total power generation capacity of 240 mw at Rs 286.89 crore.

The auditors have also asked DoD officials to tell them what they felt was total value of mines land at Amarkantak, Kawardh, and Manipal. “What was the total value ascertained for mines land ...?” the auditors have sought to know in their written query sheet.

Significantly, they have also sought to know how the residual life of Balco’s assets was fixed. The government’s valuation report had apparently shown extremely low residual value for Balco’s assets and had painted a picture of gloom and doom if the company was not sold off immediately.

The problem for the government is that many do not agree with this. A report prepared last year by a leading German consultancy firm—Behre Dolbear—had assigned high value to Balco’s assets and had concluded a modernisation drive at a cost of Rs 500 crore was all that was needed to make it as good as new.


New Delhi, June 5: 
An internal conflict in the top management of Videsh Sanchar Nigam Ltd (VSNL) is throwing up a powder keg of issues that could ignite one of the most disastrous consequences for the telecom giant which is preparing to divest 25 per cent of its equity to a strategic partner.

The recent flurry of allegations and counter-allegations over the non-extension of Amitabh Kumar’s tenure has wrecked the image of VSNL. Kumar claims that a few officers within the organisations and the communications ministry are conspiring to compromise growth at VSNL and have been instrumental for his removal as director (operations).

His opponents feel that he deliberately stalled a few major decisions that sparked differences among the directors, resulting in their resignation. Kumar has also been embroiled in charges of financial irregularities.

“Even the Telecom Commission had clearly stated in its recommendations that it supported extension of my service. However, a few external forces who may have had an interest in beating down the company shares pushed for my removal,” said Amitabh Kumar.

Kumar’s extension had been cancelled amid serious allegation of financial irregularities in a deal involving a company, Teleglobe, an international carrier of voice traffic from whom VSNL takes the channels. The matter was brought to the notice of the Central Vigilance Commission, which has initiated action against Kumar. “I am ready to face any commission and would provide the necessary co-operation,” said Kumar who is expected to join a private company over the next few days. “I am still to decide—the options are open, telecom, media or internet.”

Officials in VSNL feel both the failure to grant an extension to Kumar and the resignation of few directors have severely undermined the organisation that may impinge on the valuation of the company when it starts the roadshows for its divestment.

Sources also said over the years Kumar had become a known face in media and was likely to get sympathy. This could create confusion in the minds of shareholder, which may affect the future of the company.

According to industry sources, “He (Amitabh Kumar) was close to former chairman and managing director B.K. Syngal. Kumar became a director even though he was pretty junior when compared with the others in the fray. He also became the acting chairman and managing director when Syngal retired. Vinoo Goyal and several other directors resented this.”

“They were not at all happy and had to finally resign as many of their projects were stalled by Kumar,” sources added.

The projects that were stalled included the basic and cellular venture in India and Nepal. These were being pushed by Vinoo Goyal.

Sources in VSNL said, “The current situation could wreck the prospects for divestment this year. The government also understands the issue and may have to rethink divestment till the proposed projects get off the ground.”

“The sentiments of shareholders will be known only after VSNL’s proposed projects take off. Our advisors have strictly said that any move to divest the stakes would not fetch the proper value,” sources added.


New Delhi, June 5: 
Is petroleum and natural gas minister Ram Naik on his way out? There is no indication to this effect from either the Prime Minister’s Office or the BJP circles. However, industry is agog with rumours about his possible exit from Shastri Bhavan.

The speculation was first about the transfer of the ministry’s secretary P. Shankar.

Even before the outcome of the Tamil Nadu Assembly election was known, there were rumours about his transfer to some other department. Now that he has gone back to his state cadre as chief secretary, intense speculation has begun about the future of the minister.

Naik is no political lightweight. He is not known to be a sycophant either. Although he manages to get the maximum media coverage among Cabinet ministers, he has been conducting the affairs of this cash-rich ministry with some sophistication. So far, there has not been a corruption charge against him and, unlike some of his predecessors, he has not been accused of manipulating appointments of senior executives on monetary considerations. Yet the rumours are strong. It appears that there is an organised lobby behind the rumour. Either this lobby has tremendous clout over the PMO that it knows in advance what Atal Bihari Vajpayee is going to do or it is a crude attempt to put pressure on Naik to take certain decisions which he would not have taken in the normal course.

Sources in the ministry say Naik has his detractors both in the petroleum industry and in the oil PSUs. Naik normally does not give into pressure in the matter of appointments. Like many of his Cabinet colleagues, he applies his mind on issues even when officials of the PMO try to indicate their preferences.


Mumbai, June 5: 
Growth rates in the domestic formulation industry may dip to single-digit figures in the current fiscal, led by a downturn in the anti-infectives segment, hit by lower retail demand and tough competition from unbranded products.

For the current fiscal, analysts and industry experts predict an industry growth of a little over 6 per cent, which is far lower than the 13 per cent clocked in the preceding year. An indication to this effect has already been felt with pharma giant Glaxo India posting lower sales of 8 per cent in the first five months.

“So far, the industry is crawling with growth rates between 6-7 per cent against 13 per cent last year. This time around, the slowdown is for real,” avers Sangha Mitra, an analyst with

While opinions differ on the precise reasons responsible for the rather gloomy forecast, some believe the anti-infectives and the antibiotics segments have saturated, and that marginal growth rates in the region of 1-2 per cent will henceforth become a norm. Others are of the opinion that the declining growth is a combination of tough competition and lower demand in the segment. “The strong inroads made by un-branded products not represented in ORG data in the rural markets and the general slowdown in retail demand is affecting the pharmaceutical industry,” a senior Sun Pharma official observed.

According to a Glaxo spokesperson, which yesterday reported a decline in sales to Rs 346 crore, lower offtake, resulting in slower growth rates for industry has been precipitated by the Gujarat earthquake and chemists boycotting products of certain companies. Analysts said Glaxo India, Ranbaxy and Burroughs Wellcome are likely to be worst hit. “Companies which have a higher proportion of anti-infectives and antibiotics in their basket and those who cannot reshuffle such products immediately, are likely to be hit,” added another analyst with a foreign brokerage.

Industry watchers said in such a scenario, cardio-vascular, gastroenterology, gynaecology, central nervous system and anti-epilepsy are some areas where growth rates of more than 20 per cent are forecast for the current year. Despite the bleak scenario, some companies such as Sun Pharma, Dr Reddy’s, Pfizer India and Cipla, are expected to outperform industry growth rates.


Mumbai, June 5: 
To ward off any possible takeover attempt, the Aditya Vikram Birla group has consolidated its stakes in Grasim Ltd and Indian Rayon, two of its leading group companies, through the creeping acquisition route during the last financial year.

It is believed that the group had also managed to raise its stake in aluminium major Hindalco.

In all the three companies, the stakes of the AV Birla group are, at present, little above 26 per cent. It is in line with group chairman Kumar Mangalam Birla’s plan to increase stakes in all core group companies to 40 per cent.

In Indian Rayon, the promoters have raised their stake by more than two per cent to pierce the critical level of 26 per cent. At present, the group holds 26.68 per cent in the company.

In Grasim, the group is also believed to have raised its holding by at least five per cent to around 26 per cent. The corporate holdings in the company has risen to a little above 30.4 per cent.

Merchant bankers estimate that the creeping acquisition exercise should have cost the group around Rs 1800 crore.

In Grasim, foreign investors were big sellers during the last financial year. Their stake came down from 16 per cent to 11.6 per cent. On the other hand, in Indian Rayon, Unit Trust of India was a heavy seller with its stake coming down from 7.47 per cent to 6.82 per cent.


Calcutta, June 5: 
The newly-reconstituted West Bengal State Electricity Board (WBSEB) has decided to restructure its distribution function into six profit centres by March 31, 2002, and is targeting break-even by March 2003.

Talking to The Telegraph after taking over as the chairman of WBSEB for the second time, G. D. Gautama said: “Each centre shall prepare its own separate profit and loss accounts by March 31, 2002. Hagler Bailey, the consultant, has already submitted its report and we are implementing the suggestions.”

The new board, which assumed charge from June 1, comprises G. D. Gautama, chairman, WBSEB, Amitabha Roy Choudhury, member (technical), Dipak Ganguly, member (operations), C. M. Bachhawat, member (finance and accounts), Ashok Gupta, principal secretary, finance department and Asim Barman, power secretary.

“The reform measures being undertaken will enable us to achieve break-even by March 2003 and generate positive returns thereafter. The state government has already communicated its decision to the Centre,” he added.

Further, the SEB will undertake energy audit at all levels to identify and reduce transmission and distribution losses and reduce them to 20 per cent by 2005.

The board is also implementing a Rs 860-crore JBIC scheme for setting up 31 sub-stations of 132/220/440KV each. Once all these sub-stations are set up, it will be in a position to provide quality power.

Gautama said the state government has decided against separating the transmission and distribution functions, unlike Orissa, Andhra Pradesh, Haryana and Karnataka, which have already done so.


New Delhi, June 5: 
Automobiles, financial services and consumer services are the country’s potential growth sectors in online business-to-business (B2B) transactions and are expected to generate revenues worth $ 5 billion by 2004, according to a study.

A study of Asian B2B markets undertaken by A.T. Kearney finds: “Country-readiness depends upon infrastructure and environmental factors that support B2B e-markets. Countries like China and South Korea have the ability to leapfrog others.”

Further, the report states, “At present, India is almost ready and has the advantage of early global penetration, specifically in the European market.”

Whether India achieves the $ 5 billion-mark depends on the support provided by both, government and industry, apart from the existence of a robust technology platform as well as operational efficiency, the study says.

To leverage this opportunity, Indian industry must change its mindset — many companies in India were not ready to provide the information the buyers needed, the study observed.

“This is a very important aspect of a B2B business and they were also not ready to be part of the venture essential for the growth of B2B. Instead, they wanted to spin off the B2B services as a separate entity. This mindset needs to change to achieve the $ 5,000 billion target,” said John Yoshimura, vice-president and managing director, southeast Asia of A.T. Kearney.

“Companies that have the foresight to invest today will dominate in the next three years time. They should act as a portal for their dealers and vendors for a joint process improvement,” he added.

Yoshimura also pointed out the need for the Indian government to support the growth of the B2B sector. “Governments of countries such as China and South Korea have been more active and visible in their support of B2B than India,” said Yoshimura.

For instance, the South Korean ministry of commerce, industry and energy has announced that it will spend 800 million WON to support the creation of nine new vertical portals. The Chinese information and industry ministry has signed a joint venture aimed at accelerating the development of e-commerce infrastructure in China, the study points out.

However, the study found that e-markets across Asia have low participation and high failure rates as most of them were developed with short-term goals. Moreover, funding for the Asian e-market has been drastically reduced due to poor performance of the European and US markets.

The study took into consideration four basic models relevant to the e-market environment — leveraged buying hub, selling hub, trading community facilitator and joint process improvement.

A.T. Kearney Ltd is a $ 1.4 billion global management consultancy firm.



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