DISINVESTMENT OF

BHARAT ALUMINIUM
COMPANY & INDUSTRIAL
TURMOIL
PRESENTED BY
MANOJ KUMAR
ROLL NO. 17
PGEXP 2016

Genesis of Industrial Turmoil-BALCO Disinvestment

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 INBALCOTO 49% AND SELL THE
MAJORITY HOLDING TO STERLITE INDUSTRIES.

IN FEBRUARY 2001, WHEN THE GOI ANNOUNCED THE DISINVESTMENT

DEAL OFBALCO, HELL BROKE LOOSE.

BALCO EMPLOYEES & THE OPPOSITION PARTIES VEHEMENTLY

OPPOSED THE MOVE AND ACCUSED THE GOVERNMENT OF
SELLINGBALCOFOR A PRICE WHICH WAS FAR BELOW ITS ACTUAL
VALUE.

THERE WAS ALSO STIFF RESISTANCE FROM THE GOVERNMENT OF

CHATISGARH, AS WELL AS THE WORKERS OFBALCOWHO WENT ON A
STRIKE OPPOSING THE DEAL.

Genesis of Turmoil
DURING THE CASE STUDY VARIOUS ISSUES COVERING MANY FACETS OF
INDUSTRIALISATION & UNDER CURRENT OF WORKERS BEHAVIOR
PARTICULARLY WHEN THEY FIND THEMSELVES FELT CHEATED BECAUSE
OF LARGER POLICY DECISIONS WITHOUT CONSIDERING THE ISSUES
FACED BY ITS WORKERS, WHO IN REALITY RUN THE FACTORY & THEIR
SURVIVAL DEPENDENT UPON THE SURVIVAL OF ORGANIZATION:

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 OFBALCOTO A PRIVATE

PARTY;

FACTORS AFFECTING BUSINESS ENVIRONMENT, WHEN

SENTIMENTS & EXPECTATION OF WORKERS ARE IGNORED.

The Ugly Faces Of BALCO Privatisation

The privatisation of BALCO has been the most bizarre instance

of crony capitalism in the post 1991 era of structural reforms
followed by successive Indian governments

BALCO was the foremost public sector run integrated

aluminum producer in the country prior to the selling of 51
percent of its shares and transfer of its management to a
strategic partner, M/s Sterlite Industry in 2001 during the NDA
regime

This strategic sale was opposed tooth and nail by the BALCO
trade unions and the Left parties

There were serious charges of gross undervaluation of assets,

collusive bidding leading to the sale of prime public assets at a
throwaway price to M/s Sterlite, which became a subsidiary of
M/s Vedanta Resources, a London stock exchange listed

Unprecedented 67 days strike with

support of union on behest of CG Govt.

The 7,000 strong workforce put up a stiff resistance through a continuous strike for
67 days after the sale of BALCO, which, apart from highlighting the shady deal,
symbolised their genuine apprehensions about their job security, sustenance of
existing terms and conditions of work as well as the future of local development in
the backward area of Korba in Chhattisgarh where BALCO is located

Some of these concerns are addressed in a study titled Impact of Privatisation on

Labour: A study of BALCO Disinvestment conducted by Dr. Babu P Remesh for the
V.V.Giri National Labour Institute, an autonomous body under the ministry of Labour,
government of India.

The study examines the impact of privatisation on labour, employment and

livelihood aspects of workers and worker communities. This is the first time that any
such study has been made by a reputed institution under the aegis of the
government of India.

Insiders Story

In August 2006, CAG report no. 17 of 2006 affirmed in no uncertain terms that
BALCO was indeed grossly undervalued and now comes this well documented
study report from VVG NLI reconfirming the torrent of complaints from
thousands of suffering employees of BALCO about gross violations of labour
related clauses of the shareholders agreement between the government and
Sterlite.

The study was based on an analysis of both primary and secondary data. The
broader contextualization of the disinvestment of BALCO was attempted
through a detailed analysis of the available secondary information, and the
material available from the department of disinvestments, government of India.

Subsequently, the field work of the study was carried out in and around BALCO
Nagar, Korba, during February July 2005. The following sections of the report
substantiate the charges of gross violation of labour related clauses of share
holders agreement in letter and spirit.

ISSUES RELATED TO VRS OPTIONAL OR IMPOSED?

The report says:

From

detailed interviews with the VRS optees, it was evident that various modes of
coercion were engaged in implementing the VRS agenda by the new management.
Many of the respondents felt that they were forcefully dragged into the scheme,
though there was no open or direct threat from the management to accept the VRS.
A commonly used methodology was to prepare the workers to accept the VRS by
creating ambiguities and uncertainties.
According to some of the respondents, prior to the introduction of each VRS offer, the
management was resorting to many indirect pressurisation tactics at workplace, which
forced the workers to seriously think of leaving their job, whenever a suitable situation
comes.
An important strategy adopted by management was to humiliate the workers by
directly attacking their self-esteem and questioning their loyalty to the firm.
Many of the respondents suggested that one of the major considerations while
contemplating VRS was the demoralisation and trauma that they had experienced at
the workplace during the post-disinvestment period.
It was widely reported that Sterlite appointed some youngsters, who were given huge
salaries and positions, bypassing all the existing norms in recruitment. The major
qualification for these managerial staff was their proximity to Sterlite authorities.

DEFERRED PAYMENT A CLEAR VIOLATION OF

SHAREHOLDERS AGREEMENT

A major reason for dissatisfaction of the VRS beneficiaries was the arbitrary decision of
the management to follow a deferred payment system, whereas the VRS compensation
amount is paid only in five installments with a gap of 6 months between each payment.

This act of the management is a departure from the standard procedure, as noted
earlier by the FFC.

Many of the retirees cited that this deferment of payment had created lots of problems
in future household planning.

Instances were cited where the retirees had to find out other sources of finance for
certain already committed heads of expenditure, in anticipation of the realisation of the
VRS amount in single payment.

These include: completion of construction/renovation of houses and marriage of

daughters, following pre-committed obligations.

It was also widely complained that while payment of ex-gratia was made in five
installments, all payable amounts and recoveries from the workers to the firm were
deducted from the first installment itself.

DEFERRED PAYMENT A CLEAR VIOLATION OF

SHAREHOLDERS AGREEMENT

Many of the retirees as well as trade unionists

functioning in BALCO accused that while the
workmen were given their dues in five
installments, the ex-gratia to the companys
executives was paid in one go.
It was also cited that the management had
deducted a sum from their VRS amount, to recover
the advance payment made to them at the time of

On Post VRS DUES

More than 80 per cent of the VRS optees complained

that they did not receive the VRS amount immediately
and had to wait for one-three months or even more.

Many of the retirees had really tough times approaching

the concerned officers repeatedly and requesting to
release their VRS dues.

It was generally felt that the management had not

shown much interest in ensuring the timely payment of
VRS amount and at times the retirees even had to bribe
the concerned staff, the amount of which was reported
to vary from Rs. 100 to Rs. 2000.

IMPLICATION ON LOCAL LEVEL DEVELOPMENT

The wider impact of privatisation and VRS on the community and service providers to
the employees, as well as the local development of the area, was also studied in
detail. The report elaborates the following on this issue:

Another major concern that was addressed in the study was the impact of
privatisation on the development of the locality i.e., BALCO Nagar and the villages
around it. It was anticipated that the shift of management from the public sector to a
private strategic partner may lead to certain changes in the approach of the
management in addressing issues related to local level development.

This aspect assumes added importance, as all the public sector undertakings set up in
backward and developing regions (such as Korba) were specially known for their
concern for regional development in terms of provision of employment to local people,
creation and provision of basic amenities and services free of cost or at moderate /
subsidised rates (which include, water, sanitation, electricity, creation of roads and so
on).

In this line, BALCO, before the disinvestment, had a commendable track record of
contributing towards local development. A considerable share of the workforce in the
company was inducted from local people.

POST PRIVATISATION DEVELOPMENTS

After privatisation, the scenario changed completely

They pointed out the case of a new unit, which has been launched under the
aegis of Vedanta, a sister concern of BALCO, where a majority of the workers
inducted so far are non-locals

They also cited that the presence of workers from Chattisgarh is minimal
among the contract workers involved in this project as well as in the other
construction ventures in the locality. In the construction sites, the
contractors mostly engage migrant labour

The contractors are getting most of the workers from other states such as
Jharkhand, Orissa, Bihar, West Bengal and so on

They recounted that during earlier times, around 60-70 per cent of the
contract workers were selected from local areas, though the contractors
were often outsiders. Now, both the contractors and manual workers are
outsiders

State of Educational Institutions

The two schools located inside BALCO Nagar had been the major educational
institutions in the area, apart from a few government primary schools.

Due to the subsidised fee structure and other benefits available to the mostly within
the BALCO employees, the enrolment in these schools was mostly from within the
BALCO community.

Of late, due to the cumulative effect of several factors, there is a visible decline in the
school enrolment rates.

In the light of this development, the new management closed the junior wing of the
school functioning within BALCO Nagar (in 2004) and integrated the remaining
students and teachers to the Main School.

However, it was pointed out as really painful by many of the respondents that now
the company is using the junior school building as a warehouse/godown

New Developments

As a worker reacted: They (the new management) have converted it as a godown.

Its not because they dont have any other building or space to store the gunny
bags. It is just to show us that this is what they think about the education of our
offsprings and the development of this locality.

The local people increasingly feel that their township has become more alien to
them. The schools are unaffordable and getting closed; the hospitals are not meant
for local people; even entry of locals into the BALCO township area for vending or
petty business purpose are highly monitored and scrutinised.

The people also believe that the new management has no interest in maintaining
the green belt in the region and upgrading the public utility services in the region,
though development activities are being carried out for private use of the company
on emergency basis.

New Developments.

The present study by Dr. Babu P. Remesh has unmasked the ugly face of
privatisation of the public sector undertakings as a whole and BALCO in
particular

The report itself is a document which clearly exposes that M/s Sterlite and its
present holding company, M/s Vedanta have flagrantly violated all labour
clauses of the Shareholders Agreement in letter and spirit

This is a breach of the contract on which the unholy deal was finalised by the
NDA government. Does the UPA government possess the courage to cancel
the deal with Sri P.Chidambaram, the erstwhile Director in M/s Vedanta
Resources at the helm of its Cabinet?

More such studies should be conducted of the other companies which were
privatised during the NDA regime, like the Modern Foods, Centaur Hotels,
VSNL, Hindustan Teleprinters, etc. so that the social and economic costs of
privatisation are revealed in all their stark and brutal reality

Central Government owned Public Sector Undertakings

Particulars

No.

Profit/Loss for the year 2000-01

(US $)

Profit making PSUs

122

(+) 5936

Loss making PSUs

111

(-) 2675

No profit or No loss

234

(+) 3261

Total number of PSUs

Total Investment

57107

State Level Public Sector Undertakings in India

Particulars as on 31st March, 1997

No.

Profit making PSUs

54

Loss making PSUs

551

Non functioning PSU

241

PSUs not submitted accounts

100

Total number

946

Total Investment (US$ million)

24533

Employment and Average Annual Emoluments

in PSUs

Year

Number of
Employees

Average annual per

capita emolument

(In million)

(Rs.)

1998-99

190.0

147482

1999-2000

180.6

168339

2000-2001

174.2

219546

THE EFFECT OF STATE-OWNED ENTERPRISE PENSION CONSIDERATIONS ON PRIVATISATION

In all cases of privatisation through strategic sale route, the protection of employee interest

has been of19 paramount

consideration.
The existing service conditions of the employees are protected including any pension obligations which the company may be

having .
Mostly, past liabilities of the employees are settled prior to disinvestment.
In several cases, the strategic partner has also undertaken to meet past liabilities related to employees.
In many cases, where the employees favoured voluntary retirement before sale, liberal severance pay has been offered pre

privatisation.
At the beginning of the process itself, discussions are held with employees and all issues relating to service conditions, past

employees liabilities etc. are settled. These are fine tuned through further discussions as the disinvestment process proceeds.
Payment of past liabilities, VRS etc. do involve budgetary allocations by the Government which is worked out in consultation

with the Administrative Ministry and Ministry of Finance.

It has been the experience that the value of enterprise is considerably enhanced as a result of resolution of these issues

before hand. That the Government has so far got high value for the companies sold, one of the reasons is perhaps this.

Thank You