Forgetting Bofors, NDA Govt okays deal with Snamprogetti

Forgetting Bofors, NDA Govt okays deal with Snamprogetti
RITU SARIN

NEW DELHI, JULY 15: In finally deciding to do business with Italian major Snamprogetti again, the BJP Government has pulled out from the backburner a contract approved by the United Front (UF) regime in February, 1997. The project-cost for the Oman Indian Fertiliser Project (OIFP) was then pegged at $1,105 million but dropped with the fall of international urea prices and the disenchantment of the Indian sponsors.

The much-delayed OIFP finally got the approval of the Cabinet Committee of Economic Affairs (CCEA) on June 20 for an outlay of $969 million. Curiously enough, at the time of approving the Snamprogetti project, the CCEA cautioned that three ``outstanding'' issues still needed to be resolved, which reportedly included the suggestion of Fertiliser and Chemicals Minister Suresh Prabhu for further slashing its cost.

Ministry officials shrug away even a remote link of the contract with Snamprogetti's former Indian representative, Ottavio Quattrocchi, infamous for his links with the Bofors case. The ``revised and restructured'' OIFP, in which Snamprogetti is named as the lumpsum turnkey contractor, has a debt equity ratio of 67:33 per cent, with investments of $80 million coming in from the Indian sponsors, KRIBHCO and IFFCO, and $160 million from Oman Oil.

IFFCO joined in as a co-sponsor in the project with the exit of Rashtriya Chemicals and Fertilisers, one of the Indian sponsors named in 1997.

The Indian Government has given a commitment to purchase up to 16.52 lakh tonnes annually from Oman India Fertiliser Company (OMIFCO). IFFCO has further given a commitment for purchase of ammonia at a fixed price of $100 per tonne for a 10-year period.

But there are many imponderables in the deal and the CCEA's observations on the outstanding issues are to be resolved in consultation with the Ministry of Finance and the Omani authorities. For one, while the Indian Government wants compensation for non-supply of gas to be identical to its own burden should the company fail to offload urea, the Omani Government wants the limited liability clause, which it incorporates in all deals, to be recognised by India.

Secondly, the Ministry of Fertilisers and Chemicals has expressed views that in case of failure of supply of urea, OMIFCO could make good the losses India suffers in procuring urea elsewhere in the international market, which is yet to be conceded.

Most important is the CCEA's observations that since urea prices have fallen sharply and since the bids for the Engineering Procurement Contract (EPC) were invited several years ago, the outlay for the project can be further reduced.

In bagging the contract in 1997, Snamprogetti edged out the German firm Krupp Udhe. Officials say Snamprogetti's bid was $10 million less than that of Krupp Udhe and the third bid, that of a Japanese firm, was exorbitant in comparison. The choice of the Italian company was thus an obvious, though controversial one.