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Name: Prateek Tripathi Department: Department Of Business Administration Teacher: Mrs.

Anu Kohli Subject: Indian Ethos And Values Year: 2012-14 Course: MBA I (Section-A)

CONTENTS
Page No.

Introduction Profile Of Balco and the Group Companies 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 Solution By The Government

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INTRODUCTION
Balco (Bharat Aluminium Company Ltd.) was incorporated in 1965 as a Public Sector Undertaking (PSU). It was closely associated with the growth of the Indian Aluminium industry. Balco played a pivotal role in making aluminium, which is a leading metal with myriad uses ranging from household, industrial to strategic defence and aerospace applications. It is now a part of the Vedanta Group with Government of India (GoI) divesting 51% equity in the year 2001 in favour of Sterlite Industries (I) Ltd. Balco had a total workforce of 7,000.

Company Highlights

Government of India (GoI) divested 51% equity in the year 2001 in favour of Sterlite Industries (I) Limited for Rs 551.5 crores. Remaining 49% is with GoI. Balco was a profit making public sector company under the Ministry of Mines (MoM). BALCO is playing a crucial role in introducing Aluminium as a potential alternative to other metals like Steel in construction, and Copper in power transmission industry. Major operations of BALCO are in the town of Korba (Chhattisgarh), whereas its mines supplying high grade Bauxite are situated at Kawardha and Mainpat. The smelter capacity (installed capacity 100 KTPA), based on Soderberg Process, is being revamped to produce 345 KTPA through modern Prebake Technology. After disinvestment, a smelter of capacity 245 KTPA has been established in the year 2004. The smelter plants are being supported by uninterrupted power supply through Captive Power Plants - 270 MW at Jamnipali, Korba and 540 MW at smelter site. New power plant with rated capacity of 1200 MW is expected to commence production by the last quarter of 2011. Finishing lines are capable of producing high quality Ingots, Wire Rods, Billets, Busbars and Rolled products.

BALCO has several FIRSTS to its credit in India


First integrated Aluminium Industry First to have Captive Power Plant First to venture into + 300 kA Prebake pots First to produce Alloy Rods for conductors used in power transmission industry First to roll material for Aerospace in the Country First to produce largest Billet of diameter 800 mm, length - 6 mt First to set up the widest Hot Rolling Mill

PROFILE OF BALCO
Balco was vertically integrated from sourcing of bauxite from its captive mines, refining and smelting to aluminium production and a variety of semi finished products. Balco had contributed significantly as a primary aluminium producer, providing sustenance to vital industries. Balco was a supplier of special aluminium alloys to the nations intermediate range ballistic missile, Agni and surface to surface missile, Prithvi. At that time, the GoI held 100% stake in Balco. In 2000, the GoI announced to divest 21% stake in Balco to a long-term strategic partner.

A brief outline of all the Group Companies


Vedanta Resources Plc. Vedanta Resources is an exceptional diversified mining company with a world-class resource base. It is an LSE-listed diversified FTSE 100 metals and mining company, and Indias largest non-ferrous metals and mining company based on revenues. With business principally located in India, Vedanta Resources is one of the fastest growing large economies in the world. Hindustan Zinc Ltd. Hindustan Zinc Ltd. is India's largest and world's second largest integrated producer of zinc & lead, with a global share of approximately 6.0% in zinc. It is one of the lowest cost producers in the world and well placed to serve the growing demand of Asian countries. Hindustan Zinc is a subsidiary of the NYSE listed - Sterlite Industries (India) Limited (NYSE: SLT) and London listed FTSE 100 diversified metals and mining major - Vedanta Resources Plc. Vedanta Aluminium Ltd. Vedanta Aluminium Ltd (VAL) is an Associate Company of the globally diversified, Vedanta Resources Plc. Originally incorporated in 2001, VAL is a leading producer of metallurgical grade Alumina and other Aluminium products, which cater to a wide spectrum of industries. Madras Aluminium Company Ltd. The Madras Aluminium Company Ltd. (MALCO) is part of Vedanta Resources Plc., a London listed metals and mining major with Aluminium, Copper and Zinc operations in UK, India and Australia. MALCO is a primary Aluminium producer in South India with operations encompassing mining, refining, smelting and power generation. MALCO is surging ahead to achieve global recognition in Aluminium production.

Sterlite Industries (India) Ltd. Sterlite Industries (India) Ltd. is India's largest non-ferrous metals and mining company and one of the fastest growing private sector companies. It is listed on the BSE and NSE in India and is also the first Indian Metals & Mining Company to list on the New York Stock Exchange. Konkola Copper Mines Plc. Konkola Copper Mines Plc. (KCM) is the largest mining and metals company in Zambia. KCM is a subsidiary of Vedanta Resources Plc. Copper Mines of Tasmania Mount Lyell Mine, located in Queenstown, Tasmania is a Copper Mine with more than 100 years of operation. First started in 1896, it was re opened by Copper Mines of Tasmania in 1995. Acquired by Sterlite Industries in 1999, Copper Mines of Tasmania (CMT) is a part of the fast growing Vedanta Group of Companies. Sesa Goa Ltd. Sesa Goa Ltd. is India's largest producer and exporter of Iron Ore in the private sector and is on course to be in the league of top four Iron Ore producing companies in the world. Apart from Iron Ore, it also produces Pig Iron and Metallurgical Coke. Sterlite Energy Ltd. Sterlite Energy Ltd. (SEL) is a part of Vedanta Resources Plc. and a subsidiary of Vedanta Group Flagship Company. Sterlite Industries (India) Ltd. was established to develop, construct and operate power plants and seeks to become one of Indias leading commercial power generation companies. The Lisheen Mine The Lisheen Mine is situated in county Tipperary in the heart of the Irish Midlands. The Mine is now in its second decade of operations and is currently one of the largest producers of Zinc concentrates in Europe. The Lisheen Mine is wholly owned by Vedanta Resources plc, a world leader in mining. Skorpion Zinc Situated 25km north of Rosh Pinah in southern Namibia , Skorpion Zinc is a world-first in zinc oxide extraction and production. It produces 150,000 tonnes of special high grade (SHG) zinc per annum, which is shipped to world-wide markets through the southern port of Lderitz.

THE CASE
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 disinvestment of public sector undertaking faced by both parties to the deal and Government and the private party, with specific emphasis on the BALCO deal. The Opposition launched a massive attack accusing the BJP Government of 'selling out' to private interests. Also, the Chattisgarh Chief Minister, Ajit Jogi, alleged a Rs. 100 crore kickback in the sale involving key officials. Jogi also threatened to cancel the bauxite mining and land lease Balco was granted as a Public Sector Unit (PSU) in case the GoI failed to review the proposal.

Issues:
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

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.

SOLUTION BY THE GOVERNMENT


Fierce opposition to the Balco-Sterlite deal forced the BJP government to put off finalizing the sale agreement till the matter was discussed in the Parliament. In March 2001, the Parliament approved the controversial deal with the opposition-sponsored motion being rejected in the Lok Sabha by 239 to 119 votes. But the story did not end here. The employees union launched an indefinite strike protesting against the Balco sell out. After a protracted battle, an agreement was reached between the Balco management and the union. With this agreement, the Balco disinvestment saga was put to rest. But, with the employees not completely satisfied with the terms and conditions laid down in the agreement, the future of Balco did not seem to be very promising.

CONCLUSION: UNDERSTANDING ON THE DIVESTMENT


Balco shocked the whole nation. The Government should have discussed the matter well with the opposition and instead of rejection from opposition, they should have managed to bring them on their side.

If this being true that the property worth Rs 5,000 crore to Rs 6,000 crore (Rs 50 to 60 billion) was sold for just Rs 551 crore (Rs 5.51 billion), then it could also be concluded as a scam causing losses to the nation.

The bargaining should have been carried out for a better deal which could have even satisfied the employees union and the indefinite strike could have been stopped.