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Tatas shocked by Singur deal; to suspend work
As it goes about trying to get work on Tatas' car plant back on track, West Bengal has revealed that it took a lot of hard selling to bring the project to the state, although fiscal sops were easy to come by in other states.
As per the agreement between Tata Motors [Get Quote], Government of West Bengal and West Bengal Industrial Development Corporation, which has been made public for the first time, Tatas were considering locating their small-car plant in the states of Uttarakhand/Himachal Pradesh in view of fiscal incentive packages available there.
The package offered by those states included 100 per cent exemption from excise duty for ten years and 100 per cent exemption from corporate income tax for first five years and 30 per cent exemption from corporate income tax for next five years.
As West Bengal was keen to attract some major auto projects, it 'approached TML to persuade them to locate an automobile project including the project to manufacture Tata small car in West Bengal.'
The agreement further says that 'TML showed interest in locating the plant in West Bengal, provided the state government gave fiscal incentive equivalent to the value of total incentives it would have received by locating the plant in Uttarakhand/Himachal Pradesh.'
West Bengal 'offered to match the financial incentives in equivalent terms and invited TML to set up the small car plant in West Bengal entailing investment of over Rs 1500 crore (Rs 15 billion) by TML" and further Rs 500 crore (Rs 5 billion) by the associated vendors.
The state and Tata Motors also agreed to 'make best efforts to maximize sale of products from the small car plant", while West Bengal also agreed that the computation of the comparison of benefits with Uttarakhand would be changed if there are any changes in the rates of excise duty and corporate income tax during the next 10 years.
Subsequently, land of approximately 1,000 acres chosen in Singur of Hooghly district was finalised with TML and WBIDC acquired 997.11 acres of land. Out of this, an area of 645.67 acres was earmarked for leasing to TML for setting up the automobile project, including the small car plant and another 290 acres for leasing to the vendors to the project.
In addition, 14.33 acres was marked for handing over to West Bengal State Electricity Board for construction of 220/132/33 KV substation and the balance 47.11 acres for rehabilitation activities for the needy families amongst the project affected persons.
The agreement provided for lease of 290 acres of land to the vendors on payment of premium equal to the actual cost of acquisition plus incidentals.
The lease rental payable per year per acre by the vendors was fixed at a rate of Rs 8,000 per acre for the first 45 years and Rs 16,000 per acre for the next 45 years.
On expiry of 90 years, the lease terms was set to be fixed again on mutually agreed terms at that point of time.
The parties also discussed mutually to finalise the incentive package required in order to enable the government to fulfil its commitment to match in equivalent financial terms those foregone by TML in Uttarakhand.
The agreement was also reached on the fiscal incentives, assistance towards land cost and interest subsidy in the form of a loan against a quantum of the term loan to be taken by TML for this project.
WBIDC agreed to provide Industrial Promotion Assistance in the form of a loan to TML at 0.1 per cent interest per annum for amounts equal to gross VAT and CST received by GoWB in each of the previous years ended March 31 on sale of 'Tata small car' from the date of commencement of sales of the small car.
WBIDC agreed to continue this benefit till the balance amount of the Uttarakhand benefit was reached on net present value basis.
"WBIDC will ensure that the loan under this head is paid within 60 days of the close of the previous year (on 31st March) failing which WBIDC will be liable to compensate TML for the financial inconvenience caused at the rate of 1.5 times the bank rate prevailing at the time on the amount due for the period of such delay."
Besides, WBIDC agreed to provide 645.67 acres of land to Tata Motors Ltd on a 90 year lease, on an annual lease rental of Rs 1 crore (Rs 10 million) per year for the first five years with an increase of 25 per cent after every five years till 30 years.
"On expiry of 30 years, the lease rental will be fixed at Rs 5 crore (Rs 50 million) per year, with an increase 30 per cent after every 10 years till the 60th year.
"On the expiry of 60 years, the lease rental will be fixed at Rs 20 crore (Rs 200 million) per year, which will remain unchanged till the 90th year. On expiry of 90 years, the lease terms will be fixed on mutually agreed terms at that point of time."
The West Bengal government also agreed to provide TML a loan of Rs 200 crore (Rs 2 billion) bearing a one per cent interest per year repayable in five equal annual instalments starting from the 21st year from the date of disbursement of loan.
"This loan will be disbursed within 60 days of signing of this agreement," the agreement said.
Besides, the West Bengal Government agreed to 'provide Electricity for the project at Rs 3 per KWH. In case of more than Rs 0.25 per KWH increase in tariff in every block of five years, the government will provide relief through additional compensation to neutralise such additional increase."
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