Questions over a sale

Print edition : May 25, 2018

A protest against the planned privatisation of the company at RK Beach in Visakhapatnam, with a dredger in the background. Photo: KUNAL SHANKAR

DCI employees during a protest outside the company headquarters in Visakhapatnam. Photo: KUNAL SHANKAR

A protest against the planned privatisation of the company at RK Beach in Visakhapatnam, with a dredger in the background. Photo: KUNAL SHANKAR

The planned privatisation of the Dredging Corporation of India, a strategic asset, apparently ignores the security risks involved.

ON December 4, 2017, the Railway Police found the dismembered body of N. Venkatesh, an employee of the Dredging Corporation of India Limited (DCI), a public sector undertaking (PSU) headquartered in Visakhapatnam, Andhra Pradesh, on the outskirts of the city close to the train tracks. The police believe that Venkatesh threw himself before a running train. His suicide happened a little over a month after the Central government decided to sell its entire 73.47 per cent stake in the only listed PSU of Visakhapatnam.

Venkatesh was 29 and single. He had been working for the past five years in the human resources department of DCI, which has its head office within the premises of Visakhapatnam port. Venkatesh hailed from the impoverished Vizianagaram district of Andhra Pradesh. Just six months before his death, he had financed his younger sister’s wedding to the extent of about Rs.9 lakh with the help of two bank loans and a credit card loan. In his suicide note, written in Telugu, Venkatesh expressed fears of mass retrenchment after DCI’s privatisation.

DCI is a mini ratna category I PSU incorporated in 1976 with a paid-up capital of Rs.28 crore. As of the 2016-17 financial year, its net asset valuation, including working capital, capital advances and financial assets, was Rs.2,346 crore and its liabilities stood at Rs.826 crore. Reserves and surpluses along with share capital amounted to Rs.1,520 crore. It has 1,588 employees nationwide, of which only about one-third are permanent.

Above all, DCI is a strategic asset for the Central government as dredging is an essential, almost daily, requirement at several ports such as Kochi in Kerala and Kakinada in Andhra Pradesh, where siltation is heavy because of the riverine systems. It is also a sensitive activity at ports where a large part of the Indian Navy’s fleets are stationed, such as in Visakhapatnam, the headquarters of the Eastern Naval Command.

Uncontrolled dredging could cause severe damage to marine ecosystems. A case in point is Kakinada Port, which is close to Hope Island, a recently created land mass where the endangered Olive Ridley turtles come to nest their eggs. Kakinada Seaports Limited, the private company that manages the port, contracted the dredging works to another private entity, which has been accused of dredging beyond the permitted levels, causing considerable erosion of Hope Island’s beaches. DCI officials said that the advantage of a PSU doing the works would be adherence to government guidelines and greater accountability.

Until about a decade ago, DCI was the only player in dredging works across India’s 11 major ports and numerous smaller ones. It was awarded all dredging works on a nomination basis. As these were con<FZ,1,1,24>tracts between PSUs, port trusts or the Central and State governments, the rates were favourable and payments, delays notwithstanding, were assured. With 18 state-of-the-art dredgers and five floating crafts, DCI ranks among the top 10 dredging companies in the world, with work orders from West and South Asia as well.

It was during G.K. Vasan’s tenure as Union Shipping Minister in the second United Progressive Alliance (UPA) government during 2009-14 that the decision to allow private players in dredging works was taken and an open tender bidding process introduced. Ever since, DCI has had to compete with numerous local and global players. This has led to a fall in DCI’s work orders. But the company continues to dominate the Indian market with its ability to deploy dredgers and trained manpower in times of crisis at short notice. The response to Cyclone Hudhud in 2014, which ravaged Visakhapatnam’s coast, is a case in point. Activities at the Vizag port, one of India’s busiest, came to a standstill for several days.

DCI carried out dredging and “beach nourishment” works on an emergency basis following Cyclone Hudhud. Beach nourishment refers to the filling of sand at coasts such as at Visakhapatnam and Kakinada that experience natural soil erosion along the coast. This kind of erosion increases during the monsoon season, leading to a rapid inland advance of the sea. Company officials said such works were done more as corporate social responsibility activities, but they had led to considerable revenue for the city as Visakhapatnam’s beaches witness heavy footfalls throughout the year.

Argument for privatisation

The government’s argument for privatising DCI is the fall in profits. In the 2016-17 financial year, DCI recorded its lowest ever profits after taxes at a little over Rs.7 crore, but it made a quick recovery within the next six months to record Rs.22 crore at the close of the next half-year in September 2017. It had made a profit of Rs.79 crore in 2015-16. But the biggest year-on-year fall in profits was in 2008-09, from Rs.154 crore the previous year to Rs.46 crore, a fall of over 60 per cent. The decline was because the Central government did not pay for the dredging work done on the Sethusamudram Shipping Canal project, which was aborted following orders from the Supreme Court. The second UPA government contracted all of the dredging works for the Sethusamudram project to DCI but did not pay for them. A high-level committee appointed by the Shipping Ministry in 2009 estimated the payments to be about Rs.300 crore. This was reduced to Rs.167 crore by the National Democratic Alliance (NDA) government after 2014, but even that has not yet been paid.

DCI officers said payments were pending for years for several projects. They included dredging at the Kandla port in Gujarat after DCI’s nearest domestic competitor, Mercator Lines Limited of Mumbai, reneged on its contract without giving reasons.

A high-ranking DCI officer, who did not want to be named, told Frontline: “We execute whatever comes our way from the Central or State governments, sometimes even before the terms of contracts are agreed upon, because circumstances have been such. Private players do not like taking risks and will not execute works without assured profit margins and if payments are delayed. A recent example is the dredging work done between June and August 2017 at the Puducherry harbour for a contract worth Rs.25 crore. We have only received Rs.4 crore so far and we don’t know when the rest will be paid. But the Central government wanted the work to be done on an urgent basis after it failed to get a private contractor.”

Padmanabha Raju, the honorary president of the company’s Non-Executive Employees Union (NEU), pointed to the cascading effect that privatising DCI could have on the prices of commodities across the board, including perishables. He said: “Works at all the 11 major ports could get affected if private players refused to carry out work orders even for a day. An increase in the cost of dredging would increase port handling charges, which would increase the cost of both industrial and agricultural commodities.”

Former and serving bureaucrats pointed to the strategic importance of dredging. They mentioned incidents of non-compliance by foreign companies during times of crisis, which compelled the Central government to nationalise them in the first place. Caltex Oil Refining India Limited, a subsidiary of the United States-based petrochemicals behemoth Chevron Corporation, refused to process Indian crude produced by Oil and Natural Gas Corporation from the 1960s because it would affect the company’s foreign <FZ,2,0,24>exchange revenues as India imported crude drilled in West Asia by oil majors, including Chevron, at extremely high rates. But the company’s refusal to cooperate, particularly during the Bangladesh liberation war in 1971 when Indian warships required refuelling on the eastern coast, forced the government to nationalise Caltex, which eventually became Hindustan Petroleum Corporation Limited’s main refinery at Visakhapatnam in 1976. Today, the plant has a capacity of refining 8.3 million tonnes per annum.

A former Chairman and Managing Director (CMD) of the company, who did not wish to be named, said: “DCI functions like most PSUs in the country. There is always governmental interference. They don’t put the top people with the right specialisation to head them. For example, the current CMD, Rajesh Tripathi, is from the Indian Railway Service. I have nothing against the man, but he has never held any post at DCI or any other dredging company. He has no knowledge of how the industry works, or any aspect of dredging activity.

“Dredging is a very specialised activity. They are treating us [DCI] the way they treated Air India. We would be forced to do non-remunerative work for the government, like Sethusamudram. Payments will not be made, which would rob us of working capital or future investments. They [Centre] will then turn around and blame us for alleged mismanagement and appoint an outsider at the top to do their bidding. There is a Joint Secretary from the Shipping Ministry who is appointed as a Board Member. He brings with him the government’s agenda to the board.”

He added: “The Ministry is lobbied by other powerful dredging companies. Dredging is a global system. Big global companies will not want Indian companies to grow outside, mainly the European ones from the Netherlands and Belgium that have the advantage of being manufacturers of dredgers as well. This way, whatever is assiduously home-grown is slowly being killed.”

DCI officials said that Dutch and Belgian dredgers with 5,000 cubic metres capacity were bought for Rs.600 crore in 2011-12, putting the company’s fleet valuation post-depreciation at over Rs.6,000 crore. Employees said that valuers, who were finalised on January 10 this year by the Central government’s Department of Investment and Asset Management (DIPAM), proposed a sale value as low as Rs.1,500 crore.

Sagar Mala project

Officials also pointed to the Central government’s ambitious Sagar Mala project, which the Union Cabinet approved in March 2015, to construct, expand and modernise several ports dotting India’s 7,500-kilometre coastline. The idea is to make coastal and inland waterways the mainstay of large-volume cargo transport.

India transports only 6 per cent of its goods on rivers or inland waterways, compared with 46 per cent in China and nearly 20 per cent in the European Union and Russia. The project will involve considerable dredging to make smaller ports capable of handling large-volume ships, ensuring substantial work orders for dredging companies. DCI would be well placed to bag a considerable number of orders because of its fleet advantage and expertise.

At the 2016 International Maritime Summit held in Mumbai, DCI proposed setting up a training, research and repair institute estimated to cost Rs.800 crore at Antarvedi in East Godavari district of Andhra Pradesh, for which a memorandum of understanding was signed with the State government, which allocated 200 acres free of cost. The project has been in limbo, although the CMD said on April 5 this year that it would be set up as per plan. New office space is under construction in Visakhapatnam, which would add another Rs.100 crore to the company’s capital assets.

The suicide of Venkatesh politicised the issue. Until then, opposition to the privatisation move mainly came from DCI’s labour unions, which include the Centre of Indian Trade Unions-affiliated NEU and the company’s Officers’ Association. DCI employees even went on a relay hunger strike from November 28, 2017, for 40 days, but it was Venkatesh’s death that brought greater media attention, forcing Chief Minister N. Chandrababu Naidu to meet the striking employees and Venkatesh’s sisters on December 7. Naidu announced Rs.5 lakh as compensation for Venkatesh’s family and gave an assurance that he would take up the privatisation issue with the Centre. All political parties from Andhra Pradesh were on the same side in Parliament during the winter session on December 19 last year, opposing DCI’s privatisation.

With the Telugu Desam Party exiting the NDA government, DCI employees are hoping Andhra Pradesh’s ruling party will take up their cause more stridently.