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Was GSFC too eager to ink pact with Canadian firm?
 
GANDHINAGAR: Has Gujarat State Fertilizers and Chemicals Limited (GSFC) jumped the gun in investing Rs 250 crore in a Canadian company? The fertilizer PSU bought 20% equity for US$ 45.6 million, in Karnalyte Resources Inc, in January this year without global competitive bidding. The state-owned company also signed a 20-year contract with the Canadian firm, to buy around six lakhtonnes of potash every year.
 
Ever since the announcement on January 10 this year, stock prices of both companies have consistently fallen. While the share price of Karnalyte has fallen from $8.49 on January 10 to $7.6 on April 14, GSFC's came down from Rs 69.65 to Rs 57.15 during the same period.
 
"What was the hurry to ink the deal, when prices of potash have been falling worldwide? When there are clear guidelines for buying even stationery in government, how can GSFC buy a Rs 250 crore stake in a private company without global tendering?" says Shankersinh Vaghela, leader of opposition in the state assembly. The company signed the pact in the run up to the Vibrant Gujarat Global Summit.
 
Vishvesh D Nanavaty, general manager (Finance), GSFC, who has been appointed director on the Karnalyte board says, "We didn't feel the need for global competitive bidding or having a consortium. However, we have done due diligence in selecting the company before investing."
 
"Very few companies are entering greenfield potash mining in the next few years. Karnalyte will be the first, and will start production in the next two years while others will take a long time," said Nanavaty. Even as Karnalyte is a company listed on the Toronto Stock Exchange, the state's babudom is taking the development with a pinch of salt, given the precedent set by GSPC's deal with a Canadian company, Geoglobal Resources. That deal was heavily criticized by the Comptroller and Auditor General of India.
 
When asked what was the rationale behind signing a 20-year pact at a time when potash prices are falling from lack of demand, Nanavaty said, "In the short term prices may fluctuate, but we have signed this deal considering long term requirements of the company. Earlier too, when we switched to gas from naphtha, critics had said it would be a bad deal, today no one says so."