| Bad weather: The Balco factory in Korba
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, cried foul.
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.