RIL’s 25,000-acre Haryana SEZ Congress leaders, Opposition smell a rat

The transfer of 1,500 acres of prime land in Gurgaon district to Reliance Industries’ mega SEZ has sparked a row in the state, with both the Congress leaders and the Opposition accusing chief minister Bhupinder Singh Hooda of compromising Haryana’s interest.

By Shahid Faridi

Trouble never seems to bypass the Bhupinder Singh Hooda government in Haryana, which has landed in a septic tank over its decision to hand over 1,500 acres of prime land at Garhi Harsaru in Gurgaon to Reliance Industries Ltd’s (RIL) mega Special Economic Zone (SEZ), in which the Haryana State Industrial Development Corporation (HSIDC) will be a minor partner.

While ministers in the Bhupinder Singh Hooda government privately told Realpolitik that the Gurgaon land had been seriously undervalued, Kuldeep Bishnoi, Congress Member of Parliament from Bhiwani in Haryana and son of former chief minister and current state Congress chief Bhajan Lal, calls it a “sell off”.

Even the main opposition parties are demanding the cancellation of the deal. Indian National Lok Dal leader Sampat Singh, who was a finance minister in the Om Prakash Chautala government, alleges that administrative irregularities had been committed en masse to favour RIL. He says that farm-worthy land worth Rs 8,500 crore has virtually been handed over on a silver platter to the Reliance Group after it was “acquired” from farmers for roughly Rs 350 crore, far less than a 20th of the price it was “given” to RIL.

“Farmers have been paid peanuts to favour the RIL,” says Sampat Singh, demanding an immediate and irrevocable cancellation of the “allotment”.

As the deal goes, RIL would acquire 25,000 acres in phases—ostensibly so as not to wake up Haryana’s ever-vigilant farmers with a bullhorn—and the state government at the outset would hawk about 1,500 acres. “The deal in Haryana is much bigger and more controversial than a similar controversy involving the Reliance in neighbouring Punjab,” Singh says.

In May this year, the Punjab government had defended its decision to sell prime land in Mohali to RIL at dirt-cheap rates, defending the move by saying that it would be in the long-term interests of the state’s farmers—who are, incidentally, some of the richest in the country. The state government had said that if Punjab backed off from facilitating RIL in setting up its multibillion rupees project in the state, the company merely turn to some other more willing state, of which there are many.
RIL had had announced its catchy “farm-to-fork” project for Punjab, trumpeting that it would export fresh fruits and vegetables all over North America and West Asia.

The Punjab government said that RIL had guaranteed an investment of Rs 5 billion in the fruit and vegetable sector in the state, a sector that is already booming. It said that small and medium farmers would benefit from the project, since RIL had kindly offered to procure their produce at better-than-market rates. The state government, in fact, optimistically said that the actual investment by RIL in Punjab would cross Rs 30 billion over the next five years.

RIL offered to set up six hubs, including one at Mohali, 10 km from Chandigarh, the state capital, by December this year. But what brought the Punjab government’s dubious doings to light was the allotment to RIL of prime land owned by one of its farmers’ agencies. Amarinder Singh has come in for the kind of flak that neither he nor RIL needs, at the moment of corporate-government flux.
As an aside, Singh also is also demanding the cancellation of various power purchase agreements that the state entered into recently with private sector power companies, alleging financial irregularities.

Mercury spiked at the Cabinet meeting in which the proposal to transfer the land to the RIL-led joint venture was taken. Many ministers, some of who are important state Congress leaders and hold charge of key ministries, refused to back the proposal. Nonetheless, Hooda carried the proposal through in the face of stiff opposition.

The land, acquired by the state government from the farmers of Gurgaon using Section 6 of the Land Acquisition Act 1894, will now be part of the 25,000-acre mega SEZ proposed to be set up by a joint venture of Reliance Ventures Ltd (RVL), a wholly-owned subsidiary of Reliance Industries Ltd, and the HSIDC. According to the note prepared by the state industries department for the Cabinet, the HSIDC will hold about five per cent, while the RVL will own 95 per cent equity in the proposed 25,000-acre Reliance Haryana SEZ Pvt Ltd.

The ministers who opposed the merger of Garhi Harsaru land with the SEZ proposed by Reliance felt that Haryana was not getting the optimum value for the prime land. They argued that the interest of the state would be best served by going ahead with its decision to develop its own SEZ on Garhi Harsaru land instead of handing over the land to the Reliance-proposed SEZ.

The industries department note says that the total cost of which the HSIDC land at Gurgaon transferred to the Reliance-led joint venture will have these components:
- Total cost of land acquisition
- Interest capitalised as holding cost at the rate of 9 per cent per annum
- Administrative cost at the rate of 10 per cent the total cost of land acquisition
- Opportunity cost to HSIDC in the form of sweat equity in the joint venture SEZ equivalent to 7.5 per cent of the total equity of special purpose vehicle (SPV) for an SEZ up to 10,000 acres and 5 per cent for SEZ exceeding 10,000 acres.

It has been decided that the SPV will be a listed company.

Says Bishnoi, “The state government has acted as a real estate agent in this deal. The land acquired from the people of the state was for public good, not for handing it over to a corporate house. I understand that they got a pittance in lieu of the land. The entire matter needs to be probed.” (See interview) It is true that the HSIDC had corralled land in Gurgaon to set up an SEZ at Garhi Harsaru, for which the Haryana government’s industries department had acquired 1,715 acres. A portion of this land came under litigation and was locked, but the state government managed to get possession of 1,495 acres.

Meanwhile, RIL approached the Haryana government with a proposal to set up a multi-product SEZ in the state over 25,000 acres. Acquiescing, the state government and RIL signed a statement of interest on October 17, 2005 for entering into a joint venture to establish the mega SEZ. This was followed by signing of a memorandum of understanding (MoU) between the HSIDC and RVL on December 12, 2005.

With the signing of the MoU, the HSIDC and RVL jointly began identifying land for the SEZ. It was during the course of this location selection study that Reliance learnt about the prime land in possession of the HSIDC at Garhi Harsaru.

In letters—dated February 3, 2006 and April 17, 2006—Reliance requested HSIDC managing director Rajeev Arora to merge the HSIDC’s Garhi Harsaru SEZ with the Reliance Haryana SEZ. (See documents) Reliance cleverly contended that the merger would help circumvent multiple administrative set-ups and replication of infrastructure. It also said that the merger would lead to immediate development and employment-generation.

Arora referred the matter to the state industries ministry, which boomeranged the proposal right back to the HSIDC, asking it for its views. Accordingly, the HSIDC board met on May 1, 2006 and approved the proposal.

The HSIDC based its decision on the recommendation of Infrastructure Leasing & Financial Services (IL&FS) Infrastructure Development Corporation Ltd (IL&FS IDC), which it has engaged to analyse Reliance’s request for the merger of Garhi Harsaru land with Reliance’s Haryana SEZ.

The IL&FS IDC was asked to analyse the proposal by Reliance and advise on the modalities for merging Garhi Harsaru SEZ land with the Reliance SEZ, besides indicating the quantum of sweat equity for HSIDC in the project.

The IL&FS IDC gave five options to the HSIDC: the best among them was to transfer the Garhi Harsaru land to the SPV in lieu of sweat equity for HSIDC. The matter was sent to the state cabinet, which promptly approved the transfer of Garhi Harsaru land in lieu of equity.

State ministers wanted to know from the state government whether HSIDC’s advisor, the IL&FS IDC, had been asked to do a cost-benefit analysis of developing Garhi Harsaru as a separate SEZ.
A senior minister told Realpolitik, “IL&FS Infrastructure Development Corporation gave HSIDC five options. From the options it gave, it seems that the agency looked only at two scenarios: one, the benefits of transferring land without equity participation by HSIDC; and, two, the benefits of transferring land with equity participation. It is clear that IL&FS IDC merely studied and suggested the best deal the state government could get by transferring the Garhi Harsaru land to Reliance. Not transferring the land did not seem to be an option before the IL&FS IDC. What we would like to know is why the government did not conduct a cost-benefit study of developing Garhi Harsaru as a separate SEZ.”

Now, with Kuldeep Bishnoi deciding to come blasting out in the open against the Haryana government’s perplexing decision on the mega SEZ, the political temperature in the state is set to soar in the coming days.