The Supreme Court’s verdict that decided in favour of Arcelor Mittal acquiring Essar Steel is a shot in the arm for banks reeling under the humongous burden of NPAs caused by reckless and imprudent lending. The protracted battle through NCLT and NCLAT was on the primacy of financial creditors or operational creditors. The highest court decided in favour of the financial creditors. This means, of the payment of Rs 42,000 crore by Arcelor, Rs 34,936 crore will go to ten commercial banks. SBI leads the list with Rs 13,226 crore.
It was a landmark judgment on several counts: apart from the issue of primacy of financial creditors, the issue involved time taken for the resolution of insolvency. Remember Essar was involved in the first set of a dozen companies with large unrecoverable debts? It also took much longer than the maximum 270 days provided by law for resolution; against this, the process took 28 months. The court also increased the time limit for resolution under IBC to 330 days.
This long time may be warranted in the initial phase of the norms getting evolved and settled. Once clarity evolves and the rules well-settled, there is the imperative to reduce the time for decision. It will help re-rail the sick company quickly on the growth path.
Promoted by the Ruias, Essar Steel was part of the rapidy expanding Essar Group. In a remarkably short time, the group expanded into steel, oil, shipping and infrastructure. The foray into steel was bold and innovative: Essar bought a mothballed plant from Europe for the production of sponge iron and located it at Hazira in Gujarat. It integrated the facilities by setting up a pellet plant in Visakhapatnam. In quick time, it expanded into a highly profitable 10-million tonne capacity steel producer. Though located in Gujarat far away from iron ore mines, the company reaped the benefit of being close to a rapidly growing automobile sector and provided good custom for its shipping business.
The group built capacity for steel and oil refining in large volumes with huge debts which proved to be its undoing. Earlier it sold off its 20-million tonne oil refinery at Vadinar to Rosneft. It is indeed sad that the highly enterprising Ruias who started with a modest business of civil construction in Chennai seized so adroitly emerging opportunities in shipping, oil, steel and other sectors to fail so badly.
The world’s largest steel producer, the Mittals, have been trying for long to enter India. The 10-million tonne acquisition will mark yet another milestone in its expansion across the globe. India has rich iron ore reserves offers large potential for growth in the steel sector. The acquisition provides a great opportunity. Of course, it has to contend with the rapidly growing Tata Steel which entered the steel industry 112 years ago and with the state-owned SAIL with its well-run steel plants spread across the country.
Jagan Reddy – please focus on development
The Krishnapatnam Port Company Ltd (KPCL) evolved in quick time as a highly profitable enterprise. This private port on the east coast, around 180 km from Chennai, was silently and rapidly building custom. Like Adani’s Mundra Port in Gujarat, it has the advantage of acquiring large parcel of land cheap. There are two proximate ports at Chennai and Ennore. Located on the metro, these two ports have been constrained by the public sector ownership and management with frequent changes in the board and the post of chairmen, expensive land with major problems of acquisition and expansion and issues relating to the environment. The traditionally strong volume offered by iron ore exports vanished and the large volume cargo, coal brought its own problems relating to dust.
KPCL recorded impressive growth by aggressive marketing, winning custom from industrial units across the border. Over the last three years, total cargo handled by the port increased from 35 million tonnes to 54 million tonnes. The growth in container traffic was indeed spectacular: from 118,628 TEUs in 2015-16 to 506,168 TEUs in 2018-19.
In a recent seminar organised by CII, Director & CEO, Anil Yendhuri, referred to impressive plans for expansion promised by the new state capital, Amaravati, taking shape nearby.
Y S Jaganmohan Reddy, recently elected Chief Minister of AP, seems to have a single-point agenda, familiar in Indian politics, of undoing the work of his predecessor, N Chandrababu Naidu. New to administration, he doesn’t seem to understand the importance of rapid economic growth that will improve the living standards of the masses. In his first innings as Chief Minister of undivided AP, Naidu brought about spectacular transformation of the composite Andhra Pradesh. Capital Hyderabad and its environs emerged among the fastest growth centres. IT, pharma, construction and healthcare, among other sectors, witnessed spectacular growth.
Naidu planned to build Amaravati in a similar fashion. The KPCL would have been a major beneficiary of the thousands of crores of investment planned for Amaravati. Naidu’s dream project of Polavaram and smart city are in peril. These are impacting the operations and even the existence of several large companies. Remember, composite Andhra Pradesh throwing up a large number of enterprises in infrastructure building like GMR, GVK, Nagarjuna Constructions, IVRCL and Lanco in quick time? Several of these expanded into other parts of India and even went abroad.
KPCL is part of the CVR Group that has been evolving a large player in the infrastructure sector. The cancellation of the Polavaram hydel power project awarded to the CVR group has severely impacted the KPCL project.
Jaganmohan should pause to think of the damage done to the economic growth of the state already reeling under the impact of bifurcation of the state. The lion’s share of the benefit seemed to have gone to Telangana which got away with the capital Hyderabad also. Jaganmohan would do well to hasten building the new capital and focus on strengthening the infrastructure and investment attractions of the state.
Adani eyes at KPCL – his ‘Sagarmala’ to expand
It is another great opportunity for the knight in shining armour, Gautam Adani. KPCL seems to offer another well-blossomed flower to further beautify the (see map) sagarmala of Gautam Adani, whose sway now extends right from Mundra in the north-west to Dhamra In the north-east arching the peninsula. The prized acquisitions include the Vizhinjam Port in Kerala, L&T’s Kattupalli Port in Tamil Nadu and the Dhamra Port in Odisha. Adani group operates ten ports with 45 berths and 14 terminals across six states.
The acquisition of KPCL will help integrate its operations with the Kattupalli Port. The advantage of large landmass available at Krishnapatnam will help Adani develop the southern port on the model of Mundra, the starting point for Adani’s port enterprise.
TN should focus on piped gas
TOI (21 November) reported that Salem will start getting piped gas supply from next April. Indian Oil Corporation has won the contract to supply piped gas to Salem and Coimbatore geographical regions. IOC’s Executive Director, D S Nanaware, states that the residential colonies of Salem Steel Plant and Aavin Dairy will be the first in the state to receive piped gas.
For three decades, IE has been pointing to the elegance and economics of piped gas supply urging the state government to seize the opportunities that will open up by accessing gas. The clearance of building a national gas grid by the Parliament in January 2010, and the plan to complete it in three years, by December 2012, sadly, had been thwarted by Tamil Nadu. The protest by a few hundred agriculturists succeeded in stopping the construction of the gas pipeline from the Kochi gas terminal to Bengaluru via Tamil Nadu. This despite the ruling by the Supreme Court nearly two years ago.
Two major changes occurred in recent months: the construction of the gas terminal at Ennore by Indian Oil at a cost of around Rs 5500 crore and the steep fall in the international prices of natural gas. The switch to gas as a fuel and feedstock (for fertilizers and petrochemicals) will ensure substantial economies. Other developed countries and the experience of Gujarat in India testify to this. The state leadership seeking investments from far and near should look closely at the myriad advantages of natural gas and clear the several pending projects in quick time.
