This story is from April 19, 2015

An engineering business driven by realty

Inside Ranchi's biggest landlord -a loss-making PSU called Heavy Engineering Corporation
An engineering business driven by realty
(This story originally appeared in on Apr 19, 2015)
Land is the hottest subject since the new Un ion government took over last year. Should the farmer give up land or not, and if so, how and for how much, are all questions exercising the minds of policy makers. But far away from the din of politicians and their polemics, a public sector company is defying all the logic of land acquisition.
Land was acquired from 23 villages, ob viously evicting farmers and tribals, to set up Heavy Engineering Corporation (HEC) in 1958, a mammoth company that was to produce heavy machinery, equipment and components for steel, cement, aluminium, mining, mineral processing and power in dustries.
Now, all that the company pos sesses is land, and that too far in excess of its needs. It has so much of land that every now and then it considers selling some of it for revival, modernisation, working capital or at times for sheer survival.
According to officials in the department of heavy industries, HEC has come up with yet another impressive modernisation plan worth `1,353 crore. This involves collaboration with companies from Russia and the Czech Republic. But the stumbling block again is money. The company is bankrupt. Its order book offers no comfort and it is running heavy losses. For the December ended quarter it clocked a loss of `135 crore on a turnover of `272 crore. So, what is the way out? “The business model reminds one of the old, decadent zamindars who used to sell off land to run the household. The compa ny is proposing to sell off some of its land to raise `453 crore working capital. The remaining `900 crore is supposed to come by way of loans from foreign companies against a sovereign guarantee, which the Central government is in no mood to agree to,“ said an official in the know of things.
Despite repeated reminders, HEC chairman and managing director Avijit Ghosh refused to respond to a detailed questionnaire.
Tale of Two States
The company has huge tracts of land at its disposal, nearly 5,000 acres. The old Bihar government had acquired 7,199.51 acres from 23 villages of the Ranchi district to build the HEC factory complex with housing and other facilities for the employees. The acquisition spree went on from 1959 to 1973. The final handover or the “conveyance deed“ was signed between the Bihar government and HEC on February 26, 1996. But by then the company had grown sick.

Soon, the new state of Jharkhand was created and its government began functioning out of the HEC campus. This was an opportunity for the company, which held 7,000 acres of land encompassing the capital city of the new state. Meanwhile, the sick company was getting a booster dose from the Central government. In 2005-06, the Centre wrote off about `1,100 crore losses. Yet, the red ink kept mounting and, more interestingly, the company started raising money by selling off or leasing out land. It made `85.44 crore leasing out residential quarters in 2005.
In 2009, HEC's revival package involved the sale of 2,342 acres of land to the Jharkhand government, which was paying `275.51 crore. The company could not fully realise this amount because it could only transfer 2,000 acres as it could not evict squatters from 300 acres. In June 2014, HEC sought the Central government's permission to sell 37 acres of land, hoping to raise `335 crore.The Centre did not agree, but this move sort of helped discover the commercial value of land that the company holds, about `10 crore an acre.
ET Magazine's enquiries with the local realty market in Ranchi also supported this claim, to the extent that this could be the average price of land. If one acre costs about `10 crore, then the company is sitting on land worth `45,000-50,000 crore. And in the last one year the company has sought permission from government to sell portions of this land at least twice.
No Benefits for Farmers
“Bech ke kharaha hain (they are selling to sustain themselves),“ says BJP's Ranchi MP Ram Tahal Chaudhary angrily. “I have raised this issue in Parliament earlier and will do it again. They were not given land to sell it and to run up losses. They were given land so that the sons and grandsons of the farmers who gave up their land could make a living.Now, the company is in losses. They are not paying statutory dues to the workers and they want to sell off more land. We cannot accept this,“ said Chaudhary.
He insists that HEC is not using more than 10% of the acquired land and wants the Central government to set up new industries in the land held by HEC. Among the questions ET Magazine asked the company was about the usage of land. One of the biggest allegations against the company is that it is not using all the land that it had acquired.
“Do they want to be real estate brokers?“ asks Chaudhary. “This is the reason why farmers do not want to give up land for industry.Even after 50 years the land will lie vacant and they won't benefit. If a company wants 5 acres, it will acquire 5,000 acres. If the government of India doesn't want to set up new industries let the land be returned to its original owners, the farmers,“ adds the MP. He points out that under the law, the company cannot let the land lie idle.
Banking on Landbank
Unlike Chaudhary, his predecessor who represented Ranchi in Parliament, the former Union tourism minister Subodh Kant Sahay of Congress, is a big votary of HEC. He doesn't agree that HEC has a lot of land and wants the government to invest more in the company to make it profitable. And like most of the city's VIPs, Sahay too lives in an HEC bungalow. But insists that he pays rent for the HEC house.
“I revived HEC in 2004. It was in the list of companies to be sold off by the earlier NDA government. It is a mother company, which feeds various other industries. It even makes sensitive components for ISRO. Its technology from Soviet Union is very old and it needs a revival package to make it competitive. I want the Centre to ensure that this mother company survives. The Centre should give them a one-time loan for modernisation and working capital,“ said Sahay.
The Centre would not agree because it believes that it had given HEC many one-time loans, waivers and write-offs and the company could still not revive. But on the crucial question of land, Sahay has a completely different take.
Despite documentary evidence in ET Magazine's possession, Sahay insists that HEC doesn't have 5,000 acres. Instead he wants the state government to evict squatters in 300 acres and then make the full payment to HEC. “If there is free land, HEC can get into a PPP tie-up with private parties. We need fivestar hotels in Ranchi region and that too can come up there. Land should be utilised not to make money but to generate more money and resources,“ said Sahay.
In short, the former minister was echoing the view of the company's management, which has asked for a government guarantee and permission to sell off land to raise working capital. Sahay says that if “the company is not modernised now, it would get closed down or sold out.The nation would lose a mother company. Whereas HEC could be turned into a manufacturing hub.We can bring in wagon manufacturing facilities for the railways, factory for coaches for metro rail and many other things can be innovatively added to HEC's portfolio“.
But officials in the Central government are not convinced. They say that any sale of land would be just that another realty deal with out the company ever getting revived. After all, Sahay himself claims that he had revived the company in 2004. “Isn't there something intrinsically wrong with the company if it has to be saved so many times?“ asks a senior official.
More than the fears of a land scandal, what worries these officials is the proposed model for the revival. The modernisation plan optimistically paints a scenario where the company's expected sales would be worth `1,227 crore three years after the revival (total revenues in 2013-14 stood at a little over `425 crore). But none of the collaborators are willing to sink in their money on such expectations.If the company and its collaborators are sure of such a sharp turnaround, they ought to be confident to fund the modernisation too, argue officials. But instead they are seeking a government of India sovereign guarantee for the technology transfer and modernisation worth `900 crore.
So, without modernisation, the biggest landlord of Ranchi could well remain relevant for some more time managing its assets and lording over its important tenants. The secretariat, legislative assembly, the new stadium, residential bungalows of the high and mighty and even the new high court are all either running from the company's old buildings or have come up on HEC land. And the company will remain a strange case of a perennially loss-making unit squatting on resources that cannot make it any richer.
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