Who qualifies as a bank defaulter and who does not often depends on your ability to work the system in your favour. Known for mega steel, power and oil projects and a transnational lifestyle, the Ruias of the Essar group are a prime example of companies that may not be on the Finance Ministry’s list of top defaulters but figure frequently in the shadow-boxing in Parliament, bank board rooms and North Block. With outstanding loans of Rs 7,138 crore, a giant refinery project stalled and irked bankers at their heels, Essar is struggling to stay a step ahead of its creditors. Finance Minister Jaswant Singh admitted in Parliament that he was examining whether chairman Sashi Ruia should retain his place on a prestigious advisory body called the Prime Minister’s Trade Council. Essar Steel now figures on top of the Unit Trust of India’s (UTI) list of top 50 defaulters with a Rs 204.3 crore loan declared as a non-performing asset (NPA), according to details presented to Parliament last week. The loan is part of a Rs 700-crore default, said UTI chairman M. Damodaran. But the Ruias, like so many other influential industrialists, refuse to accept they are defaulters. ‘‘The term NPA is a misnomer and entirely misconceived,’’ says Essar Director Jitendra Mehra, ‘‘Loans should be declared NPA when they are completely written off. This is hardly the case with our borrowings.’’ Sashi Ruia’s son Prashant, a director, insists that the group is meeting ‘‘all principal and interest payments’’. These declarations don’t wash with the group’s bankers, especially one of their biggest, UTI. ‘‘As far as we are concerned, they are defaulters,’’ Damodaran says. ‘‘We have already filed a suit against them in the debt recovery tribunal (DRT) and got a significant order from the Gujarat High Court in August vacating a stay they got on the DRT’s final order.’’ The pattern of default is common to others who stay off the government’s lists. ‘‘It is the usual delay in payment of interest and irregularity in servicing of instruments (loans),’’ Damodaran adds. When UTI dragged Essar Steel to the DRT, the Ruias’ challenge in the Ahmedabad High Court tried to hide behind the cover of a favourite defaulter skirt, the Bombay Relief Undertakings (BRU) Act, a 1950s act meant to protect labour in a sinking company. The court has now allowed the DRT proceedings to start but has restrained a final order till April 2003, when the BRU cover expires. ‘‘This is a landmark judgement,’’ says Damodaran. ‘‘For the first time BRU is not being allowed to be used a shield by debtors.’’ With the Securitisation Act, the tough new law against defaulters being brandished by once-timid banks, UTI’s move against the Ruias could not be better timed. But ‘‘restructuring’’— a euphemism for interest cuts and waivers — documents available with The Indian Express and interviews with top bank officials reveal how the Ruias have walked a tightrope with their creditors, using restructuring to survive tough times. Essar’s defence is elaborate. Mehra says of the Ruias’s six companies, the telecom, construction and shipping businesses are profit-making and have minimal bank funding. The steel, power and oil companies, which over the years have slipped in and out of default lists and repayment warnings after project slippages, are now seeking ‘‘restructuring’’. ‘‘Frankly it’s being done daily for various companies, so it’s a non-issue,’’ says Prashant Ruia, who points to the steel downturn as the root of their problems. ‘‘We are not asking for any reductions or sacrifices from any of the financial institutions.’’ He points to Essar Power Ltd (EPL), which runs a 515 MW plant in Hazira, Gujarat, as an example of how well the group’s projects are doing. ‘‘We make an annual profit of about Rs 50 crore a year and are trying to prepay all the banks,’’ says Prashant Ruia. But the latest proposal for restructuring from IDBI, one of the group’s lead financiers, records a history of unpaid debts: ‘‘EPL has not been servicing its debt obligations to IDBI and other lenders on the ground that it has been facing acute liquidity problems to high level of receivables from its two customers.’’ One customer is the Gujarat Electricity Board. The other: Essar Steel. Company officials admit to outstanding debts but say they have paid Rs 3,500 crore as interest alone. The tightrope-walking isn’t new. In February 2001, for instance, IDBI and IFCI decided to recall their loans to Essar Power for its plant at Hazira, Gujarat, but the company paid the overdue interest and the notices were withdrawn. There are other similar instances. The biggest setback for the group has been the stalling of its prestigious but faltering oil refinery project at Vadinar in Gujarat. Bankers are pessimistic about the project’s completion and at present regard it as a financial black hole. A glitzy company brochure claims it will be completed end 2002 but a visit to the spot shows otherwise. Company officials say it has another 18 months to go. And in Vadinar, managers claim another deadline (see accompanying story). The project, being built on 800 acres, was hit by the 1998 cyclone and the sanctions slapped on India after the Pokharan nuclear test. Loan disbursals reduced to a trickle and precious import and equipment is lying unclaimed at Kandla, Vadinar and Mumbai ports. The delayed refinery of Essar Oil at Vadinar has had a cascading effect and now seems critical to the group’s fortunes. ‘‘The cost of the project was estimated at Rs 1,435 crore. Due to the delay in implementation of the refinery project and the inability of ESHL (Essar Shipping) to deploy internal generation as envisaged, the project was reviewed,’’ notes an ICICI-led debt restructuring proposal. ‘‘The revised project cost (Rs 1,874 crore) is proposed (sic) to be financed by way of internal accruals of Rs 479 crore and debt of Rs 1,395 crore from institutions and banks. Through all this, the Ruias cling to their stand. ‘‘Two years ago we were in trouble,’’ says Prashant Ruia. ‘‘Today, we are a turnaround case.’’ ‘No work here for past few years’ MEGHDOOT SHARON Vadinar After steel, power and shipping, it was natural for any ambitious entrepreneur to dream of oil. So, the Ruias, in the true Indian business family tradition, commissioned a grand Rs 8,000-crore oil refinery in 1995 at Vadinar, off the Gujarat coastline in Jamnagar district. Seven years and Rs 6,300-crore hence, these are what one sees in the sprawling 5,000-acre Essar Oil campus: a distillation unit that is yet to be completed, huge crude oil tanks waiting to be built, hundreds of kilometres of pipelines still to be installed and a 65-kilometre road network yet to be asphalted. Prod the Essar officials on this and the reply is curt: ‘‘42 per cent project construction is complete and 90 per cent of engineering is complete.’’ The proposed project ran into trouble in 1997. From failing to make payments to contractors to facing court complaints that the project could harm the Marine National Park and Sanctuary, it ran into various hurdles. Then a cyclone struck in 1998, causing a loss to the tune of Rs 300 crore to the plant. For the past three years, there is little that has been added to the existing infrastructure. Nilesh Toliya, a contractor at Jamnagar, was assigned a Rs 6-crore order for constructing houses at the Essar Oil Township at Bedgaam village in the Jamnagar-Vadinar Road. ‘‘Essar still owes me Rs 2.10 crore for the last three years,’’ the contractor says today. Toliya accuses that Essar owes around Rs 200 crore to various contractors. The township, that has 382 houses, is unoccupied at present. Environment was another hurdle that Essar Oil hit. Prakash Doshi, an environmentalist who runs Halar Utkarsh Samiti, has filed a petition against the Bharat-Oman pipeline, IOCL, Poshitra Port Trust and Essar stating that these projects will adversely affect a marine sanctuary that extends along the place where Reliance, Essar and IOCL have set up Single Buoy Moorings to bring in crude oil. ‘‘Essar has not met the terms and conditions of the 1992 agreement with the state government,’’ he alleges. Jamnagar is home to another big oil refinery, that of Reliance. Says Trikam Jadeja, a villager in Jakhar beside the refinery plant: ‘‘They (the Ruias) were very quick in acquiring land, and they paid us more than the other company. But I have seen no work there for the past few years.’’ Essar has imported as many as 60,000 tonnes of pipelines, but not all of these have been fitted into place. A giant crane stands tall among various semi-constructed structures, but it has not been put to work for the past three years. But Essar officials haven’t given up as yet. While admitting that paucity of funds has been the reason for suspension of work on the Rs 8,000-crore project, they claim the work should begin by the end of January 2003. ‘‘Funds should be available by this month and the plant will start functioning after 24 months,’’ says J.K. Singh, who heads operations at the plant. ‘‘There should not be any doubt about our intentions regarding the project. Would we have invested Rs 6,300 crore in a project that we did not want to complete fast?’’ questions Singh. He says that for the past three years, the 100-odd engineers and employees at the campus have been religiously maintaining, safeguarding and testing the existing infrastructure. Admits an Essar official: ‘‘When commissioned, the refinery will process some 1,050 million tonnes. But it will be some three to four years behind schedule.’’
