Nalco A story of resistance

Published : Jan 17, 2003 00:00 IST

Spirited opposition from the workers, political parties and other sections of Oriya society forces the Union government to put on hold its decision to privatise the National Aluminium Company Limited, a publicly-owned world class aluminium producer.

in Bhubaneswar and Angul

OPPOSITION from various quarters has forced the Union government to halt its attempt to privatise the National Aluminium Company Limited (Nalco), the only integrated aluminium producer in the public sector. Resentment over the attempt to sell the unit has been building up since July 2002, when the Cabinet Committee on Disinvestment (CCD) announced the decision to divest 29.15 per cent of the government's equity, which will give a controlling stake to a "strategic" partner.

The most decisive element of the opposition is based in the industrially backward but resource-rich Orissa, where Nalco is associated with "Oriya pride". On October 28, 2002 angry workers at the company's smelter in Angul, about 150 km from Bhubaneswar, prevented representatives of Hindustan Aluminium Company (Hindalco) of the Aditya Birla Group, one of the 15 short-listed bidders, from entering the plant to conduct "due diligence". Nalco employees see Hindalco as the most likely buyer of Nalco, if and when it is sold. There is fear that this will result in a private monopoly with no countervailing role for a public sector enterprise (PSE) in the aluminium industry.

For Chief Minister Naveen Patnaik, who is increasingly dependent on the Bharatiya Janata Party for survival in office in the face of growing dissidence within his own party, the Biju Janata Dal (BJD), adopting an aggressive posture against the sell-off is a political necessity. He has called on the Union government to desist from selling Nalco, "the pride of Orissa". He wrote to Prime Minister Atal Behari Vajpayee complaining that the Ministry of Disinvestment had ignored the views of the State government. Although the process has been temporarily halted, the opponents of Nalco sale believe that the Disinvestment Ministry is merely biding its time.

From within the National Democratic Alliance (NDA) government, Minister for Steel and Mines Uma Bharti has expressed reservations, mainly focussing on the modalities of the sale. As for the Sangh Parivar, the Swadeshi Jagran Manch has registered its protest against the danger of allowing private monopolies from controlling the Indian aluminium industry. The Opposition parties have called for a halt to the move to privatise Nalco, which has consistently generated profits. The major central trade unions, barring the Bharatiya Mazdoor Sangh (BMS) that is associated with the BJP, have initiated a joint campaign to "save" Nalco.

Nalco is the second largest primary aluminium producer in India after Hindalco. Its facilities are among the most modern and technologically advanced because the company started manufacturing barely 15 years ago, in 1987. Its track record of consistently generating profits rests on its core strength of producing alumina from bauxite ore at the cheapest cost the first stage in the aluminium production process. The ore deposits in Nalco's bauxite mines in Panchpatmali in Koraput district are regarded as being of excellent quality; at current production levels these are expected to last for another 75 to 100 years. The ore from the bauxite mines is transported to its alumina refinery at Damanjodi by a unique 14.6 km-long conveyer belt, which uses the gradient of the slopes of the hills in the region. Thus transportation of ore to the refinery is virtually cost-free. The company's smelter and captive power plant are located in Angul. Nalco also has its own port facility at Visakhapatnam.

The company has been on an expansion and modernisation mode since 1998. The massive project, costing about Rs.4,000 crores, involves all aspects of the company's manufacturing capability mining, alumina production, capacity at its captive power plant and its smelter. Its proposal for further expansion, involving a project cost of Rs.4,333 crores and pending with the Ministry of Mines for the last few years, was recently shot down by the Union Finance Ministry. In the last few years its annual post-tax profits have averaged about Rs.500 crores. The company has also consistently paid dividends to its parent Ministry.

Why should such a profitable company be privatised? The government's logic of disinvestment, especially since the sale of Balco to Sterlite Industries when it pressed ahead with its concept of selling PSEs to strategic partners, is contested by those who see it as a means of creating private monopolies (Frontline, March 30, 2001). The Nalco sale has added to such apprehensions. Although 15 bidders had been short-listed including multinational aluminium majors such as Pechiney of France, Alcoa of the United States, Russian Aluminium and Glencore of Switzerland informed sources in the company told Frontline that "Hindalco is desperate to gain control of Nalco". The sources also point out that Hindalco's "future may be in jeopardy if Nalco remains a publicly-owned company, goes to an Indian competitor or becomes a part of a multinational player's global operations". Sterlite, and Tata Steel that is believed to be bidding in collusion with a foreign major, are the only other Indian bidders for Nalco .

The spectre of a monopoly in the Indian aluminium industry looms large in the wake of the attempt to sell off Nalco. After its acquisition of Balco, Sterlite controls about 13 per cent of the market. Hindalco, which already has half the market, will increase its market share to three-quarters if it succeeds in its attempt to buy Nalco. If that happens, two companies will control the entire market for primary aluminium in the country (see table). The Disinvestment Ministry's narrow definition of "strategic sectors", including only those that are defence-related or the railways, thus allows little leeway for the government to retain control of units that have a strategic role in the economy. The narrow definition thus allows private oligopolies to control markets for key industrial products.

The price of the winning bid is sure to raise a controversy because the company's assets are worth thousands of crores. The government's track record in strategic sale of PSEs indicates that the private bidder may well get control by paying a fraction of the worth of the assets. Investment analysts have assessed Nalco's enterprise value at about Rs.30,000 crores; conservative estimates put the value of large tracts of land belonging to the company at about Rs.4,000 crores. The estimates do not include the value of assets such as the bauxite mines, buildings and other amenities. If the winning bids in other instances of strategic sale are any indication, the winner of the Nalco sale may take over the company at a throwaway price.

Nalco is perceived as a symbol of "Oriya pride" because it is one of the few industrial units that carries out its entire manufacturing process within the State. Private companies that have exploited the State's mineral wealth have stayed away from manufacturing activity within the State. The vicious circle of low incomes and the consequent poor levels of demand for industrial products has perpetuated this bleak situation. The conflict between private mining companies and tribal communities has intensified in recent years. Two years ago, in the Kashipur region of south Orissa, tribal people protesting against a consortium of mining companies (including Hindalco) that attempted to take over large tracts of land to set up bauxite mines were killed in police firing (Frontline, January 19, 2001). In contrast, Nalco's Peripheral Development Programme (PDP), which has established and maintained amenities and services for local communities around its facilities, has endeared the company to the people. For instance, Nalco supplies water to about 40 villages around Angul. The compensation that Nalco paid to communities displaced by its industrial facilities is also generally regarded being generous and as a model for other industrial units.

THE Disinvestment Ministry approached the CCD in September 2001 with a proposal to sell 30 per cent of the government equity in Nalco. This was to be done in three phases offering equity in the form of an Initial Public Offer (IPO) to domestic investors, issuing either Global or American Depository Receipts to overseas investors and, finally, a strategic sale. After selling 2 per cent to the Nalco workers, government equity was to be brought down to 26 per cent.

However, in July 2002, the Disinvestment Ministry approached the CCD again with a modified proposal that the strategic sale precede the offloading of equity in the domestic (10 per cent) and international markets (20 per cent). It proposed to complete the process in six months. An inter-ministerial group was constituted in October and ABN Amro Rothschild-Enam Financial Consultants were appointed as joint global coordinators for all three stages of the disinvestment process. ICICI Securities and J.P. Morgan were appointed as book-runners for the disinvestment.

The decision went against the reasoning advanced by the Seventh Report of the Disinvestment Commission in 1998, then headed by G.V. Ramakrishna. This was perhaps the only time when the disinvestment process enjoyed a reputation for credibility because of its transparent functioning.

The Report, after making an analysis of the performance of both Nalco and the Indian aluminium industry, had categorised the former as a company in the "core sector". This was based on the Commission's reasoning that Nalco was "expected to dominate the primary aluminium market in India for some more time". It also pointed out Nalco's "strong business and financial position", particularly its ability to generate funds for investment projects without relying on the government. While advocating the sale of 30 per cent of the government stake, aimed at deepening the market, it cautioned the government against total privatisation. It termed Nalco a "strong performer" and recommended that the government give "full autonomy" to the company's board so that it can successfully operate "in the increasingly competitive environment". In the Commission's assessment, Nalco was the most significant countervailing force representing the public sector in the primary aluminium industry, which was oligopolistic in structure.

Opposition to the Nalco sell-off started mounting soon after July, when the realisation set in, in Orissa, that this was not the government diluting its stake, but a total sell-off. Nalco workers and officers were soon up in arms. A joint action committee was formed in each of the company's facilities on the very day the Disinvestment Ministry got the CCD approval for the strategic sale. Under mounting pressure from other political parties, the BJD was forced to support the Statewide bandh call given by the Opposition parties, on September 19, when life in Orissa came to a standstill.

The Congress(I), the principal Opposition party in the State, also mounted a campaign. On July 26, K.P. Singh Deo, former Union Minister and Congress(I) MP representing Dhenkanal, which covers Angul, petitioned the Lok Sabha on behalf of the Nalco Officers' Association, demanding that the sell-off decision be rescinded. The petitions committee of the Lok Sabha, headed by Communist Party of India (Marxist) MP Basudeb Acharia, presented its report to the Lok Sabha on November 22, 2002 after examining the views of the Disinvestment Ministry and the Ministry of Mines and Coal.

The Disinvestment Ministry argued that its "recent experience of successful completion of disinvestment/privatisation" had brought "rich dividends" to the government. It pointed out that the Nalco share price had moved up after the government exhibited its resolve to push ahead with the disinvestment process by selling off VSNL and IBP. The Ministry also referred to the controversial sale of properties belonging to the Hotel Corporation of India and the India Tourism Development Corporation (ITDC) as being successful cases of privatisation. Its reasoning was based on its reading of the whimsical nature of the share markets. It stated before the Petitions Committee that "without a clear road-map for privatisation through strategic sale, investors' interest would be depressed and the expected receipt from the public offer would be much lower".

In September, the Petitions Committee visited Angul and Bhubaneswar. It held informal discussions with the petitioners. The committee observed that Orissa received considerable benefits owing to the presence of Nalco. Apart from Nalco's PDP, the company also supplies cheap power to the Orissa grid and gives direct and indirect employment to thousands of workers. The Committee observed that "the people of Orissa are against the privatisation of Nalco" because they would lose substantially by the move.

In his deposition before the Committee, the chairman of the Standing Conference on Public Enterprises (SCOPE), an apex body of PSEs, said that the "first priority" in the disinvestment process ought to be the loss-making companies, which were a drag on government finances. He pointed out that Nalco's market share in the primary aluminium market was set to increase after the ongoing expansion projects were completed. He said: "Thus Nalco is expected to dominate the primary aluminium market in India for quite some time."

In its deposition, the Department of Mines objected to the modalities of the sell-off. The Secretary, Department of Mines, maintained that the earlier decision to sell the company's equity in domestic and foreign markets be adhered to. It reasoned that with barely 10 to 11 per cent of floating stock of the Nalco scrip in the market, there was, in any case, little scope for proper price formation. It reasoned that the sell-off in the domestic and international markets would add depth to the market. Secondly, it pointed out that Nalco was in the process of completing its expansion project and noted that determining the price at this stage would be a difficult and hazardous task. The secretary also referred to the objections raised by the Orissa government. He said that separating the disinvestment process into two distinct stages would make the issue "less controversial, easily implementable, and in time".

The Department of Mines also threw in a fresh proposal for a "shared management", with both the government and the private partner holding equal equity. The secretary said that the CCD had not considered this proposal, which had the potential to create an "Indian multinational company".

Meanwhile, the differences between Ministers Arun Shourie and Uma Bharti came out into the open. Uma Bharti claimed that her Ministry's views on the Nalco sell-off had been "consistently ignored" by the Disinvestment Ministry. She is also said to have objected to the latter's decision to appoint a single agency to coordinate all three stages of the Nalco disinvestment process. However, Uma Bharti clarified that her disagreement with Shourie was limited to the modalities of disinvestment and was not over the policy in general.

Arun Shourie said that Nalco's profitability would decline in the future because of its dependence on alumina exports and its low-value addition. He said that in five years Nalco would end up in the same plight as Steel Authority of India Ltd. (SAIL). In November, Shourie made a presentation before Deputy Prime Minister L.K. Advani on the Nalco issue pointing out that the company's profitability was declining. He said that Nalco's profitability rested on its access to high quality bauxite at low prices; that its reach in value-added segments of the aluminium industry was limited; and that it could not withstand competition in the future as a public sector company. He also pointed out that profitability should not be confused with efficiency.

Professor Kishor Samal, a senior economist specialising in industrial economics at the Nabakrushna Choudhury Centre for Development Studies in Bhubaneswar, told Frontline that Nalco was being privatised at a time when the State was undergoing a process of "deindustrialisation". Samal, who has done extensive studies on Nalco's linkages with the local economies, said that though its "direct linkages" were not substantial, its "indirect linkages" to economic activity in the informal sector were rather substantial. Nalco represented a model for other industries in the backward State because most of the "big industrial houses came to Orissa only to invest in natural mineral-based and processed-mineral industries". Samal also pointed out that exploitation by private companies had resulted in ecological damage and affected the livelihood of tribal communities.

Nalco workers, cutting across trade union affiliations, and officers have established coordination committees in all the company's facilities to resist the attempt to privatise the company. Lalit Mohan Pattnaik, a senior executive at Bhubaneswar, told Frontline that the workers and officers were now trying to build a broad-based platform. He pointed out that even schoolchildren in Angul and college students in Bhubaneswar had participated in the protest actions. The major central trade unions, including the Indian National Trade Union Congress (INTUC), the Centre of Indian Trade Unions (CITU), the All India Trade Union Congress and the Hind Mazdoor Sangh (HMS) took part in a convention in Delhi (about 300 workers and officers from Nalco also participated) challenging the Nalco sell-off.

In Orissa, the BJP stands isolated on the issue. The BMS is in a predicament because while it cannot go openly against the party, its rank and file in Nalco is opposed to the sell-off. Birendra Prasad Das, who leads the recognised union affiliated to the HMS in Damanjodi, told Frontline that "there is complete unity among the workers". He said: "The groundswell of anger against the sell-off is so great that politicians of all hues are being forced to oppose the sale. They can no longer remain aloof from the struggle."

Shivaji Patnaik, vice-president of the Orissa unit of the CITU, believes that the Nalco struggle has learnt its lessons from the failure of the Balco workers' struggle. He told Frontline that the Nalco struggle began soon after the government announced its decision to sell the company, unlike in the case of Balco, where workers started their agitation after the government sold the company. Moreover, the movement did not depend on Naveen Patnaik as much as the Balco struggle depended on the promise of Chattisgarh Chief Minister Ajit Jogi that he was with the workers in their struggle. "The crucial difference in the Nalco struggle," said Patnaik, "is that the initiative is firmly in the hands of the workers and their unions, not in the hands of those who are vacillating on the question of privatisation."

A delegation of Nalco workers and officers met Congress(I) president Sonia Gandhi and former Union Minister Manmohan Singh in November. Expressing the party's support for the agitation, Sonia Gandhi said that the government should retain a controlling stake in the company. Manmohan Singh's announcement that the Congress(I) is opposed to the sale of profitable PSEs is also seen as a positive shift in the party's attitude to disinvestment and privatisation. Political parties and trade unions have challenged the BJD to withdraw support to the NDA government if the party is serious about its commitment to oppose the Nalco sell-off. Shivaji Patnaik said that if the Congress(I) remains in the fight against the sale, it will be "very difficult" for the Union government to push ahead.

An uneasy calm prevails in the sprawling township in Angul. Sitaram Pradhan, a worker in the power plant, said that workers were initially confused about the term "disinvestment". Initially, they were led to believe that the issue was one of the government merely selling some of its shares. Later, as workers realised that the company was being privatised, "they rose in anger". "The semantic jugglery by power brokers in Delhi cannot fool us anymore," he said.

B.C. Ray, who heads the coordination committee in Angul, told Frontline that the workers have decided not to allow representatives of private companies Indian or foreign to enter the premises. Ray said: "We have conducted our struggle peacefully, but if the government refuses to see reason, we cannot guarantee that there will be no violence in Orissa."

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