Business Today

How globalisation is teaching bitter lessons to India Inc

Indian magnates investing abroad are learning the hard way that what globalisation gives with one hand, it often takes away with the other. GMR and Lakshmi Mittal have found out the hard way, like other companies, that globalisation doesn't guarantee a level-playing field.

Manoj Joshi | December 8, 2012 | Updated 16:07 IST

An Indian company, GMR Infrastructure, facing ouster from a prestigious project in Maldives, gets a stay order from a Singapore court . This could well be held up as an example of how globalisation works. But then consider the next step - the Maldivian government declares that court or no court, GMR will have to leave the $511 million (Rs 2,773 crore) project to upgrade the Male airport.

Here is old-fashioned national sovereignty trumping globalisation . Like the small kid on the block, the government owns the bat, so it decides to write the rules of the game. Resource nationalism has been around since the emergence of OPEC (Organisation of the Petroleum Exporting Countries), but politicians from Hugo Chavez to Francois Hollande have found it a useful crutch to beat their political enemies with.

Indian magnates investing abroad are learning the hard way that what globalisation gives with one hand, it often takes away with the other. In July, Jindal Steel and Power was forced to walk away from a $2.1 billion (Rs 11,400 crore) investment in Bolivia. The company called off the contract on July 16 because of what it said was the non-fulfilment of conditions relating to supply of gas. Subsequently, plant officials were arrested and its assets seized.

Male airport
The Maldivian Airport Company Ltd, on Maldives government's instruction, terminated in November the Male airport contract given to GMR in 2010.

That shifting the goalposts is not a Third World trait is borne out by that another ongoing controversy - the French government brow-beating steel giant ArcelorMittal to prevent it from selling a part of the Florange plant in Lorraine. Though an uneasy compromise has been worked out, but not before major nastiness which included the radical industries minister Arnaud Montebourg declaring that steel magnate Lakshmi Mittal was persona non grata in France.

The Essar group, which bought a steel plant and a mine in Zimbabwe for $750 million (Rs 4,069 crore) last year, is now facing delayed approvals from the government, resulting in its schedules going awry and its costs going through the sky. When it comes to states, politics is always in command. In 2007, Myanmar decided that gas GMR & Mittal have found out the hard way, like other Cos, that globalisation doesn't guarantee a level-playing field India Inc faces from its A1 and A3 blocks in the Shwe gas field and owned by GAIL, ONGC Videsh and Daewoo, would go to China and not to India, as GAIL had hoped.

The contract to upgrade and operate the Male airport and build a new terminal is based on a global tender overseen by the World Bank. But it was signed under the administration of former Maldives president Mohamed Nasheed, who was ousted in what he claimed was a coup. Nasheed's deputy Mohamed Waheed, who is now president, is closely aligned to an Islamist party and has objected to the privatisation of the airport and said that corruption had been involved in finalising the deal.

Unemployment in France is hovering at a 14-year high of 10 per cent and the new Socialist government's popularity ratings are as low as they can be and so, in the timetested style of politicians, President Francois Hollande has found a convenient target. What it will do to future investment prospects of France are too early to tell, but it certainly will not help his efforts to overhaul the country's tough labour laws which he wants unions and employers to renegotiate by the year's end.

ArcelorMittal's steel factory in Hayange-Florange
Lakshmi Mittal's company ArcelorMittal's steel factory in Hayange-Florange, France.

Mittal's labour pangs in France
Indian billionaire Lakshmi Mittal recently locked horns with the French government over his company's two blast furnaces at Florange, the declining heartland of the French steel industry in the Lorraine region .

ArcelorMittal, the world's largest steelmaker, said it would shut down the blast furnaces, since they were not viable, from December 1 unless the government found a buyer to operate them. But the French government put its foot down. Industry minister Arnaud Montebourg accused Mittal of breaking promises and said the steel tycoon was no longer welcome in the country. He even went to the extent of threatening to nationalise Mittal's plants.

ArcelorMittal denied breaching commitments. It said Arcelor had planned in 2003 - long before its 2006 takeover by Mittal - to wind down inland blast furnaces in Europe, including the two in Florange, by 2010. But the Socialist government of France refused to buy this argument.

Last Friday, however, a deal was reached. The French government announced that it had secured promises from ArcelorMittal to invest and avoid any layoffs at the site. It backed off from its threat of temporary takeover of the plant.

However, workers at the plant said the announcement fell far short of what they had hoped from a government that won power in May on promises to arrest industrial decline and job losses. This could well mean that Mittal's travails are not quite over.

Jindal's mine of trouble in Bolivia

Company: Naveen Jindal's Jindal Steel and Power
Project in trouble: Iron-ore mining and steel mill in Bolivia
Status: Had to make an exit from the project in May this year as the Leftleaning Evo Morales govt started arm-twisting JSPL

The Jindal Steel and Power (JSPL) had in 2007 secured 40-year development rights to Bolivia's El-Mutun iron-ore mine, which,h with 20 billion tonnes reserves, is considered to be one of the largest untapped iron-ore deposits in the world. The project also entailed setting up a steel mill, a sponge iron unit and a power plant.

But the company had to make an unceremonious exit in July this year from its ambitious $2.1 billion (Rs 11,400 crore) project as the South American country's Left-leaning Evo Morales government turned hostile and started arm-twisting the Indian steel company. The project ran into trouble as Morales did not fulfil the contract condition of providing 10 million cubic metres per day of natural gas, which was crucial for the steel plant. His government was willing to commit only 2.5 million cubic metres of gas per day, the company alleged.

The Bolivian government, on the other hand, blamed Jindal for not investing the money according to the agreed schedule and encashed two bank guarantees of $18 million (Rs 98 crore) each provided by JSPL. JSPL sought the intervention of the International Court of Arbitration over encashment of the bank guarantees. The Morales government hit back by arresting two of its employees.

India's oil PSU on a slippery wicket in Iran and Sudan
Company: ONGC Videsh Ltd (OVL)
Project in trouble: Oilfields in Sudan
Status: Operations in South Sudan shut down since Jan 23 this year because of disputes involving the company and the governments of Sudan and South Sudan

Public sector undertaking ONGC's subsidiary ONGC Videsh Ltd (OVL) is facing a major problem with its oilfields in Sudan. After the secession of South Sudan from Sudan on July 9, 2011, blocks 1, 2 and 4 straddle both the countries and block 5A is now entirely in South Sudan.

While most production is accounted for by the landlocked South Sudan, infrastructure such as pipeline and processing facilities lie in the north. The company's operations in South Sudan have been shutdown since January 23 this year because of a lack of agreement between the governments of South Sudan and Sudan for use of processing, transportation and port facilities in Sudan for crude oil produced in South Sudan.

Crude oil production from OVL's facility in Sudan has fallen by about half to 60,000 barrels a day. The company has lost close to a million tonnes of crude oil output since the shutdown even as international prices continue to soar.

The Sudan government is asking for a hefty fee as transportation, processing and transit charges from OVL which will erode the company's profit. The company's production in Sudan was also adversely impacted during April 2012 due to partial damage to the processing facility.

The current geo-political situation in Syria, including the European Union sanction, has also affected the project since December 2011.

ONGC-Videsh Ltd is also confronting a major dilemma on its investments in Iran. The threat of US sanctions looms large if it goes ahead with the development of the giant Farzad B field that it has discovered in the West Asian country.

Tehran, on the other hand, wants OVL to sign a formal contract and proceed with developing the Farzad B field or surrender it in lieu of an unexplored block.

The development of the oil and gas field would entail an investment of $5-6 billion (Rs 27,100-Rs 32,500 crore). While energy-starved India desperately needs the gas, any investment by OVL that exceeds $20 million (Rs 108.5 crore) a year in Iran's hydrocarbon sector would attract US sanctions.

-Text by SPS Pannu

Courtesy: Mail Today 

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