The memorandum of understanding, signed between the two companies in December last, puts the onus on Tata Steel to secure the transfer.

While clearance for the Sonadih unit in Madhya Pradesh has been obtained, the unit at Jojobera near Jamshedpur, Bihar, is still pending. But with elections round the corner the whole process will get delayed further, thus scuttling the proposed transfer of cement facilities by the month-end.

As a result, a cash infusion of around Rs 417 crore into Tata Steel, essential during a bad phase for the steel industry, will also get delayed indefinitely.

The Rs 550-crore deal includes associated debt of Rs 65 crore and net working capital of Rs 68 crore which Lafarge's Indian subsidiary will take on itsbooks.

Senior Tata Steel officials confirmed that there has been a delay in the consummation of the deal. "It is a statutory lease and the state government has no option but to renew it. Hence there is no possibility of the deal being called off," they said.

"There will be an unavoidable delay due to the political flux but we are hopeful of completion of the sale by the calendar-end," they said.

Company officials said that the last agreement between Tata Steel and the Bihar government was signed in 1985, which expired in 1995. The formal transfer of land-lease for the Jojobera unit to Lafarge will hinge on the settlement of the rentals, and the state government cannot ask for more than 100 per cent increase in rentals, as per the agreement, the officials said.

Tata Steel officials claim that the transfer of mining lease to Lafarge is not posing any serious problem. Industry sources, however, say that Tisco may find it more difficult to effect transfer of the mining leases as well.

"The transfer ofmining lease has to be cleared by the Centre, based on recommendation of the state government concerned. With limestone mines spread across Bihar and Madhya Pradesh, Tisco faces an unenviable task of obtaining clearances from diverse political establishments in an election year," industry sources said.

The delay could come as a major setback for the French cement giant, which has floated a subsidiary to manage its Indian operations. The local company has already appointed a board, which is to function under the chairmanship of T Thomas, the former Hindustan Lever chairman.

Tata Steel officials confimed that decks have, however, been cleared for the transfer of lease of the Sonadih unit to Lafarge, with the Madhya Pradesh government issuing a no-objection certificate for the same.

The 75-million-tonne cement multinational had pipped ACC and L&T to the post by striking a deal with Tata Steel to buy out its 1.73-million-tonne cement division.

Insight:

The real picture

Despite the stanceof the company to the contrary, the problem has more to do with coming elections than anything else. It is hard to believe that any deal will be done on the assumption that the lease rentals will be finalised in future - a friendly acquisition can not take place with such pending vital issues. The drama in Bihar is one of the deterrents to FDI in India. Any "out-of-pocket" expenditure related to the transfer of leasing rights to Lafarge will have to be borne by Tisco and this will result in the reduced effective consideration, which in any case is delayed.

Urmik Chhaya