Choudhury: Action time
Calcutta, Aug. 4: Haldia Petrochemicals Ltd may sign a deal with Kolmar Group AG to process naphtha for the foreign firm to stay afloat under a difficult financial situation.
The board of HPL is going to meet on August 11 to discuss the arrangement which, if agreed, would see the Indian firm acting as a third party contractor for the Zug, Switzerland-based firm.
Sumantra Choudhury, the newly appointed managing director of HPL, said three firms had shown interest in a tender floated by the company to offer its idle capacity to other entities.
However, Kolmar is the only company to make an offer.
According to the broad contours of the deal, Kolmar will give 50,000 tonnes of naphtha to HPL which the Indian petrochemical firm would process to make polymer and sell it back to the foreign firm. HPL will earn a fee for carrying out the job.
“The plant must use 90 per cent of its capacity to make operations profitable on a profit-before-tax level. But we do not have enough cash to buy the raw material. The arrangement with Kolmar will help in that,” Choudhury said.
The overhead cost, which mainly comprises power consumption, remains the same irrespective of capacity utilisation in a petrochemical plant. Consequently, the more a plant can produce, the better the chance of earning profit.
Choudhury, who met the media for the first time after assuming office on June 19 following the sudden exit of Partha Bhattacharyya, said Kolmar was only a “temporary” arrangement.
“We are just doing it for once. There is no point in going into a long-term arrangement which are dictated by the spread between naphtha and polymer,” he said, adding that the spread was good now.
The plant was operating at 60 per cent of the capacity because of a credit crunch in June. But that increased to 80 per cent from July 7 after the company received Rs 200 crore working capital loan from banks. Now it is operating over 90 per cent, but HPL officials felt that it might not be sustainable without further support from the banks.
HPL has asked for Rs 600 crore of term loans and Rs 400 crore of working capital loans. However, lenders are wary unless the promoters — the Bengal government and The Chatterjee Group — bring in equity.
They have asked the state government, in control of HPL’s management, to bring in a strategic investor like Indian Oil Corporation.
Meanwhile, HPL has decided to reduce its dependence on imported naphtha and procure more from domestic source. It plans to buy at least 36 per cent of the annual requirement from public sector refiners.