Mystery around Gujarat PSU 'transfer' of Rs 250 crore to Canadian firm Karnalyte

By AK Luke, IAS (Retd)*
While returning from a Board meeting of the Oil India Limited (OIL) in Ahmedabad some time in 2012, two officers of the Gujarat State Fertilizers and Chemicals Ltd (GSFC), Nanavaty and Patel, saw me off at the airport. They said they were proceeding to Canada in connection with a project GSFC had entered into with a company there. As we were running late, I hastily wished them the best.
Later, it appeared that the company was Karnalyte Ltd and it was for a potash mining project in Canada. Sanjiv Varma, the officer dealing with the project, later told me over phone that the entire GSFC contribution of Rs 250 crore had been transferred to the project in Canada (GSFC had stated in a notice that Varma would answer all queries on this project and provided his number). I thought this odd as such contributions are normally in stages matching project progress.
Even odder was GSFC going in for a mining project when potash was readily available in the international market; in my time in GSFC no shortage of potash was faced. GSFC had never tied up for such backward integration of raw material except when, again in my time (2003-06), we took a small equity for Rs 25 crore, if my memory serves me right, with Groupe Chimique Tunisian (GCT) of Tunisia for phosphoric acid. Its production was mainly confined to Morocco and Tunisia, and as position was tight at times, we imported it in large quantities.

Did GSFC, acting speedily, ensure the return of its Rs 250 crore? If so, it is to be complimented. If not, a deeper probe is called for

Our potash requirement was never so large as to justify a backward integration investment in a distant land. I continued tracking the project for a short time over the net, as Karnalyte was reporting on its status presumably as per Canadian law. GSFC was silent on its sites. I then lost interest.

A month back I saw the Karanlyte shares which the GSFC had purchased for Canadian $ 8.15 had come down to $ 0.2 per share, today it is $ 0.17. Effectively the GSFC investment of Rs 250 crore buying 5.19 million shares at Canadian $ 8.15 per share has come down to approximately Rs 6 crore, a diminution of approximately 98% .

From the Karnalyte site it appears the project itself may not have come up. Strangely, three GSFC officials are shown as Directors of Karnanlyte. It also appears GSFC was planning to further provide backup finance to this project for $700 million. This apparently did not happen, the only saving grace in the entire saga.
As the project for which the Rs 250 crore was invested by GSFC does not appear to have come up, it is possible GSFC, acting speedily, ensured the return of its Rs 250 crore. If so, it is to be complimented. If not, a deeper probe is called for.
All the material for this piece is from open domain sites mentioned below and none are from any source within GSFC, except where explicitly stated above. My two recent e-mails to GSFC asking for details are not yet answered.

References:

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*Ex-managing-director, GSFC (2003-06)

The making of a self-made woman: How eighty sheep changed everything for Kalawati Ninama

By Vikas Meshram* About forty-two kilometres from Rajasthan's Banswara district, in the tribal heartland of Ghatol block, lies the small village of Ubapana. This is where Kalawati Ninama, her husband Dhulji, and their four children make their home. Their days unfold much like those of their neighbours—bustling mornings, long hours of farm labour through the afternoon, and evenings spent tending livestock. For this family, farming and livestock were once simply a means of putting food on the table. Today, they have become the sturdy foundation of something far greater: genuine self-sufficiency.

Comments

DILIPGANDHI-JAMNAGARJanuary 04, 2020
Sir,
Not only Karnalite, GSFC could not implement any project within time & cost estimate after year 2003-04. Why ? Board of GSFC must look into it for survival & progress of Co.
AnonymousJanuary 11, 2020
Excellent article Sir. It is just as puzzling for the shareholders of Karnalyte Resources Inc as the company has continued a downward spiral since GSFC's involvement in 2013 when the $45 million dollar investment was made.

That equity investment brought in to Karnalyte was intended for the advancement of Karnalyte's sole asset, the Wynyard potash project, but the vast majority of that money has been spent on everything but advancing the project to the next stage.

Approximately $100 million (CAD) had been spent on advancing the project to the construction ready stage prior to GSFCs involvement in 2013.

It is reported the shares purchased in the financing are held as collateral by one of the banks in India, which as you correctly point out, the value of those shares have been decimated.

According to corporate reports from Karnalyte, the company is now changing its primary focus to building a nitrogen facility in Saskatchewan, despite failed attempts by others in the industry due to viability issues.

In December, GSFC purchased an additional 11 million shares of Karnalyte through a .17 cents rights offering, which included a peculiar clause to allow GSFC to purchase other shareholders rights against their will.

Now with allegations of breaches of Canadian securities law, alleged involvement in vote irregularities, suing individual shareholders, and the suspicious rights offering that awarded both Board and voting control of Karnalyte to GSFC, I agree 100% with you that an investigation should be requested by both countries officials.
into exactly what has gone on.

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