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BALCO is a fully integrated aluminium producing company, having its own captive mines, an alumina refinery, an aluminium smelter, a captive power plant, and down-stream fabrication facilities. It was set up in 1965 and has its corporate office in New Delhi. Its main plant and facilities are situated in Korba (Chhatisgarh). It also has a fabrication unit in Bidhanbagh (West Bengal). The refining capacity of BALCO is 2 lakh tonnes per year and its smelting capacity is 1 lakh tonnes per year. Its employee strength was 6436 on 2nd March, 2001.

The Government of India had 100% stake in BALCO prior to disinvestment. In 1997, the Disinvestment Commission classified BALCO as non-core for the purpose of disinvestment and recommended immediate divestment of 40% of the Government stake to a strategic partner, and reduction of the Government stake to 26% within 2 years of the strategic sale, through a domestic public offering. It further recommended divestment of the entire remaining stake at an appropriate time thereafter. The Cabinet accepted the recommendation of the Disinvestment Commission for divestment of 40% stake through a strategic sale and further divestment through the capital market.

Later, in 1998, the Disinvestment Commission revised its recommendation and advised the Government to consider 51% divestment in favour of a strategic buyer along with transfer of management, which was accepted by the Cabinet. The Government thereupon appointed M/s Jardine Fleming as Advisor to assist in the sale of its 51% stake in BALCO to a strategic buyer.

Simultaneously, it was brought to the attention of the Government that BALCO had a bloated equity of Rs. 489 cr. and large unutilised free reserves of the level of Rs. 424 cr. It was suggested by the Ministry of Mines that BALCO's equity be reduced by 50% prior to disinvestment, using its substantial cash surplus. This proposal was accepted. As a result, the Government received Rs. 244 cr. from the capital restructuring of BALCO, and another Rs. 31 cr. as tax on this amount, prior to disinvestment.

The strategic sale process for BALCO started in late 1997, after the first decision of the Government, and finally came to end in 2nd March 2001. The 51% stake was sold to Sterlite Industries, the highest bidder, and fetched the Government Rs. 551.50 cr. The price received was higher than the values indicated by the various methods of valuation used. The Government, thus recovered Rs 827.50 crores from this privatisation against approximately Rs. 10 crores as dividend it used to get against the 51% shares, it used to get in earlier years, during the peak Aluminium cycle.

Post sale, a number of doubts have been raised by various quarters on the disinvestment of BALCO, especially with regard to transparency, valuation and protection of employees interests. However, the entire sale process, including the appointment of Advisor and the approval of the price bid, has been carried out in an extremely transparent manner, in keeping with the highest standards of global practices. Of special mention are the clauses in the Shareholders Agreement with the strategic buyer, which offer adequate protection to all levels of employees with regard to their job safety and severance packages.

Post  Disinvestment  Scenario

1.                   The  new management had introduced VRS from 31.07.01 to 16.08.01.  981 applications (151 executives and 830 workers) were received.  694 old VRS applications were pending. A total of 956 applications were accepted mostly where units were lying closed.

2.                    In spite of losses of Rs. 200 crore due to the strike, an exgratia payment of Rs. 5000/- was made to all employees.

3.                    Long-term wage agreement for a period of 5 years was entered into on 7.10.2001 (Wage revision was due w.e.f. 01.04.99 and earlier revision was for ten years) as follows:

a)                  Workmen get a guaranteed benefit @ 20% of basic pay.

b)                  Increase in allowances:

·        Night shift allowance: Rs.10 to Rs.20 per shift.

·        Canteen allowance: Rs.400 p.m. (instead of subsidised canteen facilities)

·        Education allowance: Rs. 50 to Rs. 75 per month

·        Hostel allowance: Rs.150 to Rs.200 per month

·        Scholarship amount to meritorious children doubled.

·        Leave Travel Assistance of around Rs. 6000 as cash every year.

·        Conveyance allowance: Scooter users Rs. 400 to Rs. 500 pm, Moped users Rs. 240 to Rs. 350  pm, others users Rs. 150 to Rs. 260  pm.

4.                    New practices introduced:

5.                          

            a)            Job rotation

            b)            Appraisal system         

6.                    The new management is proposing an investment of Rs. 6000 crore which will increase production 4 times.

LANDMARK JUDGEMENT IN BALCO DISINVESTMENT

In protest of the BALCO disinvestment, the workers went on a 67-day strike. Three writ petitions-two in Delhi high Court and one in Chhatisgarh High Court were filed against disinvestment in BALCO in February, 2001. The Supreme Court in its unanimous judgement delivered on 10^th December, 2001 validated disinvestment by the Government in BALCO.  The landmark judgement also defined, amongst others, the parameters of judicial review in Government’s economic policy matters.  The Hon’ble Supreme Court, while validating BALCO-disinvestment and dismissing the petitions, remarked, “Thus, apart from the fact that the policy of disinvestment cannot be questioned as such, the facts herein show that fair, just and equitable procedure has been followed in carrying out this disinvestment.”  This judgement facilitated the path of other successful privatisations.

 

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