We at Development Dialogues are constantly trying to expose what lies beneath the glitzy exterior of 'development' the world over. The blog was started as an archive for the articles and reports pertaining to the land acquisitions in West Bengal and India. The scope of the blog has since been expanded to include resistance movements against state and corporate repressions from around the world.
Sunk in Singur: At least Rs 300 crore
|OUR SPECIAL CORRESPONDENT|
Mumbai, Oct. 3: The Tatas stand to lose at least Rs 300 crore on the Singur “misadventure” — unless they have taken out a special insurance policy that would cover the Nano project against a political risk.
Tata Motors had invested Rs 1,500 crore in the project out of the committed amount of Rs 2,000 crore. Most of that is recoverable since the company will be able to transport the plant and equipment to the new location once that is decided.
The Tatas had taken out an insurance policy with state-owned New India Assurance to cover risks associated with the construction of the project. Essentially, this would have provided protection against project delays, rioting and vandalism, fire, explosion and natural disasters.
But this policy cover did not insure the Tatas against the risk of a forced withdrawal because of political trouble in Bengal.
It isn’t known whether the Tatas had sought such a cover from some other insurer. An observer said the land development cost — which essentially means the “sunk” cost in the project — has been covered with Tata AIG General Insurance, but this could not be confirmed.
If that is true, the cost of the withdrawal would be minimal. In a typical scenario, AIG would have protected itself by seeking a risk cover from a re-insurer.
There is one interesting detail in Tata Motors’ accounts for 2007-08: the company saw its expense on insurance leap by 48.6 per cent from Rs 35.76 crore to Rs 53.14 crore. No further explanation has been given. Tata Motors officials could not be reached for comment.
An analyst from a domestic brokerage, who tracks Tata Motors but does not wish to be named, said the company could stand to lose on its investments in fixed assets such as land and buildings after its exit from Singur.
“The machinery is not a problem since it can easily be relocated. But the cost of the land and buildings will have to be written off,” he said, adding that some vendors would also stand to lose money they had invested in developing the land.
Only 35 of the 60 vendors had actually started work on their plants in Singur, which means quite a few would end up having to bear the burden. Almost all the vendors have said they will relocate to whichever location Tata Motors picks.
One-lakh car still?
The big speculation is whether there is a “Singur misadventure cost” that will wreck the pricing of the Rs 1-lakh car.
Fortunately for the Tatas, there is a silver lining. “Global prices of metals like steel have gone down recently. With the prospect of a global economic slowdown looming, these prices will continue to fall.
“Therefore, Tata may yet be successful in keeping his promise of bringing out the car at Rs 1 lakh,” an analyst said.