PUBLIC-PVT MOUs REMAIN LARGELY ON PAPER

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PUBLIC-PVT MOUs REMAIN LARGELY ON PAPER

 

There are several such deals that have proved to be stillborn

Industry sources said it was difficult to work with public sector companies, largely due to redtapism and the slow decisionmaking process

ISHITA AYAN DUTT Kolkata, 4 February

State-owned miner NMDC has a robust appetite for signing agreements with private companies.

Last month, it entered into amemorandum of understanding (MoU) with Tata Steel, for exploring options in the mineral and steel space. That was the third MoU the PSU had signed in the last two years, despite the earlier ones not making any major headway or, at best, making limited progress.

In 2008, NMDC had entered into an MoU with Spice Energy to form a 50:50 joint venture, NMDC Spice International, that would look at overseas acquisitions and projects. Two years on, after some exploration activity, the joint venture is yet to be formed. NMDC sources said the joint venture was to be formed once the properties had been formed. "No properties have been identified," they said.

Within months of signing the MoU with Spice Energy, NMDC signed another one with one of the worlds largest resources companies, Rio Tinto, to invest in "investigating mutually advantageous potential investment opportunities" for iron ore in India and abroad. When asked, Rio Tinto Managing Director Nik Senapati did not want to comment on whether the MoU was still alive. Not just NMDC, there are several examples of other public sector and private sector MoUs that have proved to be still-born.

In 2004, the Steel Authority of India Ltd (SAIL) had signed an MoU with BHP to jointly develop coal and iron ore mines in India and other countries. That, again, was a non-starter. SAIL Chairman S K Roongta did not comment on the status of the MoU.

SAIL had also signed an MoU with Posco in 2007 to establish a strategic alliance for co-operation in a wide range of business and commercial interest areas. This one has seen only limited progress in recent years.

Sources said the partnership was handicapped as Poscos venture in India was yet to take off.

In 2008, the PSU steel company had formed a 50:50 joint venture with Tata Steel for coal mining. In the last two years, the Tata Steel-SAIL joint venture managed to form a company, S&T Mining Company Pvt Ltd.

Roongta clarified that the company had been shortlisted by Coal India (CIL) for development of its nine closed and abandoned mines. "The company is exploring various options for development of mines and washeries for coking coal and is in dialogue with CIL/BCCL (Bharat Coking Coal Ltd)."

Too much red tape

Industry sources said it was difficult to work with public sector companies, largely due to the bureaucracy and the slow decision-making process. "It is difficult if both the governmentowned partner and the private partner want to play active roles," said industry sources.

Moreover, most of the partnerships have been in the raw material space, which has its own set of problems. "Private sector steel companies want to piggy-back on the public sector partners because they think mine allocation will be quicker, but it has not happened so far. Mine allocation even for public sector companies can be difficult and time-consuming," pointed out steel industry sources.

After all, India has only 4.6 billion tonnes of proven reserves of prime coking coal and 6.3 billion tonnes proven reserves of iron ore. Sources added that, for overseas assets, one would have to be careful with regard to valuation. "Sometimes, estimates of resources are different from actuals," they said.

However, there are some exceptions to the rule. The successful public-private joint ventures include Bhilai Jaypee Cement, Bokaro Jaypee Cement and M-Junction Services. In the cement companies, SAIL has a minority interest of 26 per cent and the role is restricted to supplying slag generated in the blast furnace operations. In MJunction, the company plays a more active role with adequate board representation, including that of chairman.

State-owned miner NMDC has a robust appetite for signing agreements with private companies.

Last month, it entered into amemorandum of understanding (MoU) with Tata Steel, for exploring options in the mineral and steel space. That was the third MoU the PSU had signed in the last two years, despite the earlier ones not making any major headway or, at best, making limited progress.

In 2008, NMDC had entered into an MoU with Spice Energy to form a 50:50 joint venture, NMDC Spice International, that would look at overseas acquisitions and projects. Two years on, after some exploration activity, the joint venture is yet to be formed. NMDC sources said the joint venture was to be formed once the properties had been formed. "No properties have been identified," they said.

Within months of signing the MoU with Spice Energy, NMDC signed another one with one of the worlds largest resources companies, Rio Tinto, to invest in "investigating mutually advantageous potential investment opportunities" for iron ore in India and abroad. When asked, Rio Tinto Managing Director Nik Senapati did not want to comment on whether the MoU was still alive. Not just NMDC, there are several examples of other public sector and private sector MoUs that have proved to be still-born.

In 2004, the Steel Authority of India Ltd (SAIL) had signed an MoU with BHP to jointly develop coal and iron ore mines in India and other countries. That, again, was a non-starter. SAIL Chairman S K Roongta did not comment on the status of the MoU.

SAIL had also signed an MoU with Posco in 2007 to establish a strategic alliance for co-operation in a wide range of business and commercial interest areas. This one has seen only limited progress in recent years.

Sources said the partnership was handicapped as Poscos venture in India was yet to take off.

In 2008, the PSU steel company had formed a 50:50 joint venture with Tata Steel for coal mining. In the last two years, the Tata Steel-SAIL joint venture managed to form a company, S&T Mining Company Pvt Ltd.

Roongta clarified that the company had been shortlisted by Coal India (CIL) for development of its nine closed and abandoned mines. "The company is exploring various options for development of mines and washeries for coking coal and is in dialogue with CIL/BCCL (Bharat Coking Coal Ltd)."

Too much red tape

Industry sources said it was difficult to work with public sector companies, largely due to the bureaucracy and the slow decision-making process. "It is difficult if both the governmentowned partner and the private partner want to play active roles," said industry sources.

Moreover, most of the partnerships have been in the raw material space, which has its own set of problems. "Private sector steel companies want to piggy-back on the public sector partners because they think mine allocation will be quicker, but it has not happened so far. Mine allocation even for public sector companies can be difficult and time-consuming," pointed out steel industry sources.

After all, India has only 4.6 billion tonnes of proven reserves of prime coking coal and 6.3 billion tonnes proven reserves of iron ore. Sources added that, for overseas assets, one would have to be careful with regard to valuation. "Sometimes, estimates of resources are different from actuals," they said.

However, there are some exceptions to the rule. The successful public-private joint ventures include Bhilai Jaypee Cement, Bokaro Jaypee Cement and M-Junction Services. In the cement companies, SAIL has a minority interest of 26 per cent and the role is restricted to supplying slag generated in the blast furnace operations. In MJunction, the company plays a more active role with adequate board representation, including that of chairman.