GMR may be going through a nightmarish experience in Maldives, but the script is all too familiar for some of the top Indian companies — from the Tatas to Jindals to Vedanta’s Anil Agarwal and others. Many companies that have made investments abroad have had to fight local governments and political risk has become a top decider for ventures abroad.
Ask Naveen Jindal. In 2006, when he outbid rivals like Lakshmi Mittal to win rights to develop the El Mutun iron ore mines in Bolivia, there were all-night celebrations in La Paz, the Bolivian capital, and people came out on the streets to dance. For, the project was supposed to provide direct employment to 5,000 Bolivians and indirect jobs to another 10,000. Six years later, Jindal Steel & Power terminated the contract to develop the mines and faced a huge backlash from the local government.
There’s more. Last year, Tata Steel had to sell its 26 per cent stake in Australia’s Riversdale, to Rio Tinto, after the latter took majority control in the company.
| TOUGH TERRAIN | |
| Bolivia | Naveen Jindal shelves $2.1 bn project after charges and counter charges |
| Zambia | Anil Agarwal's Konkola miners seek higher wage |
| Zimbabwe | Ruias waiting even after 17 months of signing JV pact |
| Bulgaria | Pramod Mittal's plant goes into liquidation after labour spar |
| Vietnam | No progress in Tata project over land acquisition costs |
| Maldives | GMR airport contract is cancelled |
Hinduja Ventures Chairman Ashok Hinduja says it’s very important for Indian companies to understand the local laws. “We have to understand the political agendas of the local parties as well,” he says. Hinduja recently invested $1.05 billion to take over Houghton International in the US.
“The Indian government should step in to support Indian firms wherever possible, in the same way as other countries do for their companies,” he adds.
The showdown between the French government and ArcelorMittal chief L N Mittal also shows the uncertainties companies face while operating abroad. Mittal had to climb down from his earlier aggressive stand. His younger brothers, Pramod and Vinod, would have had a sense of déjà vu. They had faced a bigger problem and had to incur heavy losses on their investments in Bulgaria as the local mafia and labour unions took their steel company to liquidation.
“It’s very important to understand the government and the local laws before entering a country,” says Vinod, now vice-chairman of JSW Ispat. “Sometimes, the local governments may create a problem, but then we have to learn how to manage them,” Mittal says.
And, for those who thought layoffs were difficult in India alone, he adds: “The political risk becomes the most crucial factor, especially in places where poverty is very high.”
The natural resources sector has obviously emerged the favourite whipping boy of politicians and, of course, environmental activists all over the world. Take, for example, the case of mining firm Vedanta’s labour trouble at its Konkola mines in Zambia, where its workers — backed by local politicians — are asking for a 50 per cent wage hike for next year. The local government is also accusing mining companies of evading taxes through transfer pricing, where local companies show losses, while their parent companies rake in profits. The matter is under negotiations.
Similarly, Essar’s $750-million takeover of Zisco Steel in Zimbabwe is facing roadblocks from a coalition partner that is part of the Mugabe government. Essar officials say even after 17 months and $50 million investments, the group is waiting to take over the company. “There is no option but to wait and watch and let the coalition partners come to a conclusion among themselves,” they add.
The Tata Group’s Vietnam project has also not seen the light of the day, as the local government has been sparring over land acquisition compensation.
