BALCO: The Disinvestment Story


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Case Details:

Case Code : BECG004
Case Length : 10 Pages
Period : 2001
Pub. Date : 2002
Teaching Note : Available
Organization : BALCO
Industry : Metals & Mining
Countries : India

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Please note:

This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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"The deal was like loot of Chattisgarh in a day-light robbery."

- Chattisgarh Chief Minister, Ajit Jogi.

"Sterlite's offer for Balco is more than fair. It is in the interest of the government to close the deal."

- BusinessWorld, March 12, 2001.

Introduction

In February 2001, the Government of India (GoI) struck its first disinvestment deal in the fiscal 2000-01. It approved the sale of its 51% stake in aluminium major, Bharat Aluminium Co Ltd (Balco) to Sterlite Industries Ltd. (SIL), for Rs. 551.5 crores. Balco was a profit making public sector company under the Ministry of Mines (MoM).

In 2000, it had a turnover of Rs.898 crores and a profit after tax of Rs. 56 crores. Balco had two working units - an integrated Aluminium complex situated at Korba in Chhattisgarh and the second at Bidhanbag in West Bengal equipped to produce only on downstream facilities. Balco had a total workforce of 7,000.

The Opposition launched a massive attack accusing the BJP Government of 'selling out' to private interests.

Also, the Chattisgarh Chief Minister, Ajit Jogi, (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.

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.

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