Andhra Pradesh Chief Minister Y.S. Jagan Mohan Reddy met Dharmendra Pradhan, Union Minister for Steel and Petroleum, in the second week of June to request that the Centre reconsider its decision to privatise Rashtriya Ispat Nigam Limited (RINL), the debt-ridden corporate entity of Visakhapatnam Steel Plant (VSP), a Navaratna public sector unit. Given the Narendra Modi government’s penchant for privatising public sector units, the meeting for all practical purposes was infructuous.
Jagan Mohan Reddy recollected the fact that the steel plant was set up following the sacrifices of 32 persons and said that the debts were but a temporary aberration. He also highlighted the direct and indirect employment the plant generates, adding that it also had 19,700 acres of land—valued at over Rs.1 lakh crore—in its possession. The steel plant was the realisation of a long-cherished dream of the Andhra people, according to him. On May 21, he shepherded a resolution in the Andhra Pradesh Legislative Assembly opposing the 100 per cent disinvestment of RINL, which was unanimously passed. However, in a move that is the polar opposite of this stand and one that smacks of hypocrisy, the same Jagan Mohan Reddy government has decided to disinvest its 10.39 per cent stake in Gangavaram Port Limited (GPL) to Adani Ports and Special Economic Zone Limited (APSEZ), one of India’s largest commercial port operators. GPL is a debt-free entity that operates a deep-sea port near Visakhapatnam and 80 per cent of RINL’s business traverses through it. The Andhra Pradesh government’s move to sell the 5,37,31,700 shares it owns in GPL will allow the merger of the company with APSEZ. The benefits accruing to the State government from this merger are still shrouded in mystery; many pundits are astonished to see the State willing to part with its stake in a port that is an integral part of VSP as its raw material and finished products are all handled by it.
Govt decision and protests
The government’s move has naturally evoked strong passions and protests from among employees and trade unions, the Left parties and even business forums such as the Forum for Development of North Andhra (FDNA), all of which have urged the State government to rescind its decision.
In pursuit of its unambiguous plan, on May 4 the Jagan Mohan Reddy Cabinet cleared a proposal from APSEZ to acquire the State’s 10.39 per cent stake in GPL. Further, on June 4 the government announced that it had constituted a six-member Empowered Committee of Secretaries, headed by Neerabh Kumar Prasad, Chief Commissioner of Land Administration, to determine the process of disinvesting the stake.
Also read: Cronies behind Modi's veneer of development
Chief Secretary Aditya Nath Das said that the Empowered Committee of Secretaries would implement the process of disinvestment and merger of GPL with APSEZ and submit its report to the government within 60 days.
An order from Aditya Nath Das said: “The State government accepts the proposal of merger of GPL with APSEZ, with a condition that APSEZ shall set up a separate Special Purpose Company (SPC) to enter into a revised concession agreement on the same terms and conditions of the original concession agreement for the remaining period.” Officials said that the new agreement would have to incorporate all the terms of the original agreement, including those regarding revenue sharing with the State government. As per contractual obligations, GPL is required to share 2.1 per cent of its annual gross revenues with the government until 2039, 4.2 per cent between 2039 and 2049 and 8.4 per cent between 2049 and 2059.
Sequence of Adani stake buys
APSEZ’s proposal comes on the heels of its acquisition of an 89.61 per cent stake in GPL. In March, through two acquisitions, APSEZ, the flagship transportation arm of the Adani Group, announced the acquisition of a majority stake in GPL. First, it acquired the 31.50 per cent stake held by Windy Lakeside Investment Ltd (an affiliate of private equity firm Warburg Pincus LLC) for Rs.1,954 crore (at Rs.120 a share). A few weeks later, it snapped up the 58.11 per cent stake held by D. Venkata Satyanarayana Raju and family, the promoters of Gangavaram Port, again at Rs.120 a share in a transaction worth around Rs.3,600 crore. The State government accepted both these transfers.
With the two stake purchases, APSEZ owned 89.61 per cent of GPL. It has already secured approval from the Competition Commission of India under Section 31(1) of the Competition Act, 2002, for this acquisition.
The government’s planned sale of its stake in GPL to APSEZ will, therefore, result in Gangavaram Port becoming a wholly owned private port. This is unacceptable to the labour unions, who say it will give GPL an unfair control over VSP.
According to officials at VSP-RINL, of the raw materials required by the steel plant, some 50 lakh tonnes of coking coal and 1.2 lakh tonnes of limestone, on average, pass through Gangavaram Port every year.
They also said that VSL-RINL had signed a 15-year memorandum of understanding with GPL, with the rate per tonne being set at Rs.283.
C.H. Narasinga Rao, State president of the Centre of Indian Trade Unions (CITU), said: “The tariff charged by GPL is Rs.283 a tonne for all material passing through the port, be it coking coal from Australia, limestone from Jaggaiahpet, or even steel. While public sector ports have a tariff policy, privately owned ports are free to fix their tariffs. VSP is a captive customer for GPL. If the steel plant had its own captive port, the tariff will be below Rs.100 a tonne.”
Also read: Vanishing commons
Members of various workers’ unions questioned the need to disinvest in GPL and pointed out that GPL was a profit-making and debt-free entity which had, since 2016-17, paid the government dividend totalling Rs.83.27 crore. They claimed that once disinvestment was completed, the dividend receipts would cease. They also pointed out that there was no State government policy specifically on disinvestment, particularly in profit-making companies.
Unions’ opposition
Union leaders also questioned the State government’s willingness to hand over 1,800 acres of land, valued at more than Rs.3,000 crore, for just over Rs.650 crore. The land is part of 22,000 acres acquired in the 1970s for VSP.
However, the State government seems undeterred in its mission. On the land sale, an official in the Andhra Pradesh Maritime Board (APMB), the entity that oversees ports in the State, said “the land concerned can only be used for port and port-related work and not for anything else”.
The government defended its decision to sell its stake in GPL, stating: “APSEZ is the leading port operator in the country and due to their rich expertise and strength in the port sector, they are likely to substantially increase the traffic and business of Gangavaram Port and also invest in new businesses such as Container, Liquid and LNG terminals and create higher revenue share (for the State government) and value.”
GPL handled 34.5 million tonnes of cargo in the financial year ended March 31, 2020, generating a revenue of Rs.1,082 crore and recording earnings before interest, taxes, depreciation, and amortisation of Rs.634 crore (a margin of 59 per cent) and a net profit of Rs.516 crore.
Also read: Business and politics
The Andhra Pradesh government claimed that the new entity operated by APSEZ could increase the cargo handled by the port to 40-45 million tonnes in the short term and generate a revenue share of Rs.30 crore a year to the State exchequer. In the medium term, the government estimates that the cargo business could increase to 100 million tonnes, generating a revenue share of Rs.70 crore a year to the State’s coffers.
Historical background
The genesis for Gangavaram Port, which is built where the Borramma Gedda river joins the Bay of Bengal, goes back to the late 1990s, when all that existed was a jetty used by fisherfolk of the villages of Gangavaram and Dibbapalem. News of a port to be constructed at the sleepy hamlet naturally caused consternation, with fisherfolk demanding construction of an alternative jetty at Yarada and a relief and rehabilitation package. Protests erupted against the planned port.
Meanwhile, the VSP management made it amply known that it was ready to take up construction of the port along with the Andhra Pradesh government. When VSP’s suggestion was quashed on the grounds that the steel plant did not have the funds, the Visakhapatnam Port Trust stepped in, got a detailed project report prepared by the Indian Ports Authority and announced its intention to construct a satellite port at Gangavaram.
But in 2001, the State government headed by N. Chandrababu Naidu refused to cooperate. Chandrababu Naidu adopted the public-private partnership model and invited the private sector to develop the port. The government initiated a global bid process and selected a consortium led by D.V.S. Raju, co-founder of Satyam Computer Services Ltd, to develop and operate the port.
The government’s share of equity, for the 1,800 acres of land it was bringing to the partnership, was 10.39 per cent. A concession agreement was signed in August 2003, and protests followed. Construction started in December 2005, and the port commenced operations in August 2008. A year later, in August 2009, the Gangavaram port was inaugurated by the then Andhra Pradesh Chief Minister Y.S. Rajasekhara Reddy. The winning bidder was awarded an initial concession to develop and operate the port for a period of 30 years beginning 2009, extendable by two terms of 10 years each.
Also read: Marketing privatisation
The 1,800 acres of government land was valued in 2003 at Rs.54 crore. The then Chandrababu Naidu government, in what the CITU’s Narasinga Rao called a devious deal, transferred the land to the port developer “as the government’s investment towards the 10.39 per cent equity in the GPL” instead of giving the land on lease for the port project.
Ever since operations began, GPL has remitted a total of Rs.277.97 crore to the State government, including Rs.183.56 crore that accrued to the State exchequer since 2009-10, as revenue share.
In 2002, bowing to pressure from Chandrababu Naidu, the National Democratic Alliance (NDA) government at the Centre, through a Union Cabinet resolution, asked RINL to hand over around 1,400 acres of land to the Andhra Pradesh government for the development of Gangavaram Port. The State government paid Rs.20.02 crore to RINL for the land. The land was part of the 22,000 acres acquired in the 1970s for the construction and development of a captive port for RINL/VSP.
Speaking to Frontline , J. Ayodhyaram, the RINL-recognised union president, said: “RINL was extremely keen to set up a captive port. But in 2002 the then Andhra Pradesh government stepped in and forced VSP to hand over the land. If the proposal to build a captive and satellite port in association with the Visakhapatnam Port Trust had materialised, VSP would have had a port of its own, earning profits in the range of Rs.700 crore per annum. But the steel plant lost its land when the State government transferred it away and also lost this opportunity. Two directors of RINL even resigned in protest against the handing over of the land.”
Undervaluation of govt stake
Several persons in the government are of the opinion that APSEZ’s proposal to pay Rs.120 per share for the State’s stake was an “unacceptable valuation”. They said that the value of the State's stake was worth much more.
Also read: Partners for plunder
APMB engaged SBI Capital Markets to evaluate the APSEZ proposal and the company suggested fixing the price at 20 per cent above Rs.120 a share. The State government is yet to announce whether it has accepted the price of Rs.120 a share.
According to the government’s May 25 order, SBI Capital Markets recommended that the State government should “go in for disinvestment as per the guidelines of disinvestment policy of GoI (Central government) for a better price discovery and negotiations”.
