SYNOPSIS & BRIEF -DISINVESTMENT OF BHARAT ALUMINIUM

COMPANY & INDUSTRIAL TURMOIL

BY
Manoj Kumar, Roll No. 17
PGEXP- 2014-16
The case study looks at the issues relating to the disinvestment of Bharat
Aluminium Company (BALCO) by the Government of India (GoI). It
discusses the incidents which surfaced after the GoI's decision to reduce its
stake in BALCO to 49% and sell the majority holding to Sterlite Industries.
In February 2001, when the GoI announced the disinvestment deal
of BALCO, hell broke loose. BALCO Employees & The opposition parties
vehemently opposed the move and accused the government of
selling BALCO for a price which was far below its actual value. There was
also stiff resistance from the Government of Chatisgarh, as well as the
workers of BALCO who went on a strike opposing the deal. The deadlock
ended with the strike being called off after 62 days when the new
management of BALCO finally brokered a deal with the workers. The case
examines in detail the repercussion of the GoI's decision to
disinvest BALCO. The case throws light on the political squabbling over the
issue and also takes the students through the workers strike. The case is
designed to stimulate and think about the problems which crop up in the
disinvestment of public sector undertaking which are faced by both parties
to the deal, both government and private, with specific emphasis on
the BALCO deal.
During the case study following issues covering many facets of
Industrialisation & under current of workers behavior particularly when they
find themselves cheated because of larger policy decisions without
considering the issues faced by its workers, whose interest in reality
directed related to survival of Factory & their survival dependent upon the
survival of organisation: (1) a general understanding of the problems
associated with disinvestment; (2) the political and other problems faced by
the government; (3) the problems faced by the private party and how to
manage them; and (4) the ethical issues relating to sale of BALCO to a
private party; (5) Factors affecting Business environment, when
sentiments & expectation of workers are ignored.
Case Details:

Price:

Case Code
Case Length
Period
Pub. Date
Teaching Note
Organization
Industry
Countries

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BECG004
10 Pages
2001
2002
Available
BALCO
Metals & Mining
India

For delivery in electronic format: Rs. 300;

For delivery through courier (within India): Rs. 300 +
Rs. 25 for Shipping & Handling Charges
Themes
Corporate Restructuring

Abstract:

The case study looks at the issues relating to

the disinvestment of Bharat Aluminum
Company (BALCO) by the Government of India
(GOI). It discusses the incidents, which
surfaced after the GOI's decision to reduce its
stake in BALCO to 49% and sell the majority
holding to Sterlite Industries. In February 2001,
when GOI announced the dis-investment deal
of BALCO, hell broke loose. The opposition
parties vehemently opposed the move and
accused the government of selling BALCO for a
price, which was far below its actual value.
There was also stiff resistance from
Government of Chhatisgarh, as well as the
workers of BALCO who went on a strike
opposing the deal.

The deadlock ended with the strike being called off after 62 days when the new management of BALCO
finally brokered a deal with the workers. The case examines in detail the repercussion of the GOI's
decision to dis-invest BALCO. The case throws light on the political squabbling over the issue and also
takes through the workers strike over the issue. The case is designed to stimulate the students to think
about the problems which crop up in the dis-investment of public sector undertaking faced by both parties
to the deal and Government and the private party, with specific emphasis on the BALCO deal.
Issues:
A general understanding of the problems associated with disinvestment.
The political and other problems faced by the government.

 The problems faced by the private party and how to manage them.
The ethical issues relating to sale of BALCO to a private party.
Contents:

Introduction
Balco - A Profile
Stage I: The Tug of War
Stage II: The Controversy Deepens
Stage III: The Debate
Stage IV: Post Sell Out Drama
All's (Not) Well that Ends Well

Page No.
1
1
2
4
5
6
8

Stage I: The Tug of War

In mid 2000, leading domestic players like the Aditya Birla group company-Hindalco Ltd, SIL and the
global major, Alcoa, expressed their interest to acquire 51% controlling stake in Balco. They had to verify
the financial and operating performances of Balco before putting in a financial bid for purchasing the 51%
equity on offer...

Stage II: The Controversy Deepens

The deal between the GoI and SIL had
attracted considerable flak mainly from the
Opposition. There was a niggling doubt over the
deal, which seemed to be a reflection of the
lack of transparency. The GoI said that the bids
were valued by four different methods.
However, the value arrived at by these bids was
not disclosed. Again, the reserve price was not
disclosed nor the value of the bids by Hindalco
and Alcoa and whether they were higher or
lower than the reserve price...

Stage III: The Debate

Meanwhile, the Opposition demanded a Joint Parliamentary Committee (JPC) probe into the Balco deal.
The GoI rejected the demand for a JPC probe leading to a walkout by the entire Opposition in the Rajya
Sabha...

Stage IV: Post Sell Out Drama

After the sell out of Balco, Jogi continued to fire
his salvo and demanded a parliamentary probe
into the deal.
Jogi alleged that the company was sold at a
tenth of its actual value.
He said, "In a deal in which property worth
Rs.5,000 crore to Rs.6,000 crore (Rs.50 to 60
billion) is being sold for just Rs.551 crore
(Rs.5.51 billion), the circumstances speak for
themselves."...

All's (Not) Well that Ends Well

The workers were not happy with the agreement and dubbed it as 'a face saving' exercise. 'We could
have very easily bargained for a better deal if only we had negotiated earlier. Our bargaining powers got
considerably reduced when the management realized that we were cracking under pressure' the workers
said.
-----------------------------------------------------------------------------------------------------------------------------------------------------In late 2000, to win the confidence of the agitating employees, the GoI for the first
time announced its decision to offer stock options to the employees of Balco. It also stated
that there would be no retrenchment of labour in Balco for at least one year after the
disinvestments. In case of any decision to reduce the manpower, it would have to offer a
package not less attractive than the government approved VRS package.
Meanwhile, opposition to the disinvestment was
growing, with the union submitting a memorandum to
the Prime Minister seeking his intervention. The
employees alleged that proper evaluation of the
company had not been done. They noted the cost of
the Korba aluminium plant and Bidhanbag plant, land,
quarters and buildings (Rs 800 crore) and new coldrolling projects (Rs 184 crores), has been grossly
underestimated.
The union also alleged that there were several lapses
in the tendering process. As per the existing tendering
procedure, bids were to be invited from minimum six
parties and the GoI tendering procedure indicated that
there should be a minimum of three parties. However,
both had not been followed.
In February 2001, the union filed petitions with the

Department of Company Affairs (DCA) and the

Monopolies and Restrictive Trade Practices Commission
(MRTPC) on the disinvestment process being
undertaken in the company.
The union in its petition to DCA said that several factors such as fixation of reserve price
before the start of the disinvestment process, valuation of the company by GoI and nonsettlement of pending dues by many of foreign and domestic parties have not been taken
care of. "The process (disinvestment) is likely to be completed without valuation of assets of
Balco on fair market value as recommended by the disinvestment commission," the union
said.
In February 2001, the GoI approved the sale of 51% stake in Balco to SIL for Rs 551.5
crore. The Cabinet Committee on Disinvestment, at its meeting, endorsed the sale of
Government equity in Balco along with the transfer of management control to the highest
strategic bidder. SIL emerged the winner beating the A.V. Birla group's Hindalco and the USbased Alcoa.3 Said Arun Shourie (Shourie), Disinvestment Minister, "The bid of Sterlite
compares well with the expectation that the Government had formed with the reserve
price." However, he did not disclose what the reserve price was except that it was less than
the price quoted by SIL.4 "Apart from the highest price, the business plan of Sterlite was the
most credible," Shourie added.
Dispelling fears on the employees' future post-disinvestment, Shourie said that in the first
year after the takeover, there would not be any retrenchment at all. After the first year, if
any retrenchment took place, the VRS package offered would be as generous as the VRS
package prevalent in PSUs. "The trade union leaders have expressed great satisfaction in
this clause," Shourie added. He reiterated that the entire process was concluded in a
completely transparent manner after exercising due diligence at every step.

Stage II: The Controversy Deepens

The deal between the GoI and SIL had attracted considerable flak mainly from the
Opposition. There was a niggling doubt over the deal, which seemed to be a reflection of the
lack of transparency. The GoI said that the bids were valued by four different
methods.5 However, the value arrived at by these bids was not disclosed. Again, the reserve
price was not disclosed nor the value of the bids by Hindalco and Alcoa and whether they
were higher or lower than the reserve price.
Next >>
3] Hindalco's
bid
was
for
Rs.
265
crores.
Alcoa
had
opted
out
of
the
race.
4] On March 2, 2001, in an interview to The Economic Times, Anil Agarwal, Chairman, Sterlite Group, disclosed that the
GoI's
reserve
price
was
Rs.
514
crore.
5] Discounted cash flow method, Comparable valuation method, Balance sheet valuation method and Asset valuation
method.