MoD prepares Nalco analysis for Advani

Disinvestment minister Arun Shourie is expected to meet deputy Prime Minister LK Advani this week to explain his ministry8217;s position on...

Disinvestment minister Arun Shourie is expected to meet deputy Prime Minister LK Advani this week to explain his ministry8217;s position on divestment in National Aluminium Company Nalco.

The ministry of disinvestment MoD has prepared an analytical report on Nalco which suggests that the aluminium major may go the way of Steel Authority of India Ltd SAIL, said official sources. The sum and substance of MoD8217;s analysis is that Nalco may be a profit-making company but not an efficient one, and that profit-earning capacity should not be confused with efficiency.

The MoD has pointed out that the profitability of Nalco is declining. The ratio of profit after tax PAT to sales was 30 per cent in 1996. Now, it has come down to 16 per cent. Stiffening of competition in the domestic market will further adversely affect Nalco8217;s profitability, according to MoD.

Nalco looks a good, profit-making company but all this due to favourable factors like the excellent bauxite reserves best in Asia and superior technology. Yet, the MoD8217;s analysis says Nalco has not been able to translate these advantages optimally into higher profits.

One area where Nalco has failed miserably is that of value addition, says the MoD presentation. While more than 60 per cent of its sales are of alumina, the rest is aluminium. Now, alumina captures just 4 per cent of the total value addition, whereas aluminium captures 32 per cent and products such as foils and conductors capture 65 per cent. The MoD8217;s argument is that it is because of the public sector inertia and complacency that Nalco is not able to shift to the goods with more value-addition. On the other hand, says MoD, Hindalco sells only aluminium and foreign major Alcoa, which is also a bidding for Nalco, sells 53 per cent aluminium and 38 per cent products.

The public sector culture has already started showing its effects on the balance-sheet of Nalco, says the analysis. In the last fiscal, there was decline in global prices of aluminium to the tune of 9 per cent, but Nalco8217;s earning before interest depreciation 038; tax EBIDT dipped by 26 per cent.

However, Hindalco was able to adjust itself better, one measure being hike in prices to offset strike at Bharat Aluminium Company Balco. As a consequence, its EBIDT decreased only by 6 per cent.

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Fears expressed by the anti-privatisation lobby that the private owner would strip bauxite reserves are groundless, says the MoD analysis, adding that economics of transportation rule out such a possibility.

Official sources said that Mr Shourie will make a presentation of his ministry8217;s analysis to the deputy Prime Minister, impressing upon him that privatisation will make Nalco efficient and, in general, increase economic activity in Orissa.